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Rents, the moral economy of remittances, and the rise of a new transnational development model

La rente, l’économie morale des transferts de revenus des migrants et l’émergence d’un nouveau modèle de développement transnational
La renta, la economía moral de las transferencias de ingresos de los migrantes y la emergencia de un nuevo modelo de desarrollo transnacional
Hannes Warnecke-Berger

Résumés

Les transferts de fonds internationaux (ou remises) des migrants représentaient 714 milliards de dollars US en 2018, dont 550 milliards de dollars US ont été dirigés vers les pays du Sud (le « Global South »). Dans les pays du Sud, de nos jours, ces transferts constituent une source majeure de recettes en devises. Ils remettent de plus en plus en question la notion de Suds en tant qu’exportateurs de produits de base et de matières premières. Cet article intègre les remises dans la théorie de la rente. Il plaide pour une compréhension plus large de la notion de rente et mobilise le pouvoir explicatif de la théorie de la rente. Sur le plan conceptuel, l’article fait la distinction entre les sources de rente et leur mode d’appropriation. L’origine des transferts de fonds est étudiée à un niveau macro-structurel, en liaison avec le caractère hétérogène des niveaux de développement dans le monde et des inégalités qui en résultent. Elle l’est aussi à un niveau microéconomique, dans le cadre d’une économie morale translocale qui met l’accent sur les conditions de formation des transferts des travailleurs immigrés vers leur pays d’origine. Les transferts de fonds trouvent leur origine dans les inégalités mondiales et la transnationalisation des marchés du travail. Ils sont médiatisés par les taux de change, mais négociés au sein d’économies morales translocales. Cet article propose de concevoir ce phénomène de transferts de fonds comme des rentes différentielles du travail. Ces rentes donnent lieu à un nouveau modèle de développement transnational, et un nombre croissant d’économies se spécialisent dans les remises pour assurer leur propre reproduction sociale. Enfin, l’article souligne les particularités de ce modèle de développement : la rente tirée des transferts de fonds stabilise indirectement le pouvoir des élites et déplace les responsabilités politiques du système politique vers les familles transnationales. À travers une analyse des transferts de fonds, cet article met au jour de nouveaux mécanismes économiques structurels et des modes institutionnels d’appropriation de la rente que la théorie de la rente avait jusqu’à présent négligés.

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Introduction

  • 1 Remittances will be defined as monetary transactions of migrants in host societies to their home fa (...)
  • 2 Migration often goes hand in hand with remittances since many migrants in host societies, albeit no (...)

1Economic globalization has not led to global convergence. Uneven global development and the inequalities and asymmetries within the international division of labor remain striking. One outlet valve of global uneven development is migration and remittances.1 Before the global Covid-19 crisis led to a sharp drop in migrants’ monetary transactions, world remittances accounted for 714 billion $US in 2018 of which 550bn $US or more than 77 percent flew to developing countries in the Global South (World Bank, 2019).2 More than 30 percent of world remittances came from the EU and more than 18 percent from the US in the same year. Remittance flows are predominantly North to South transmissions, even though the Covid-19 pandemic caused a rupture in this trend, with remittances in 2021 projected to fall from around 20 up to 35 percent compared to pre-Covid times. However, in relative terms, the share of remittances will further increase, mainly because alternative inflows are expected to plummet even more (World Bank, 2020).

2For today’s Global South, remittances are a major source of foreign exchange earnings (Warnecke-Berger, 2021a). They directly touch the lives of at least 1 billion people in the world, both as senders and recipients of migrant money (IFAD, 2017, p. 11). Remittances amount to more than three times the size of official development assistance (ODA) and almost the global sum of foreign direct investments (FDI) in 2018 (World Bank, 2021). For some net-receiving economies in the Global South, remittances have advanced to a critical resource and a matter of survival. These figures illustrate that both production and trade are challenged as the driving force for the economies of the Global South. Remittances will further increase in relevance and shaping the world economy.

3Against the background of the rise of remittances, rent theory faces a double challenge. Firstly, having traditionally subsumed the earnings from natural resources and commodity exports as windfall profits and natural resource rents, rent theory needs to adapt to a changing world surplus structure. Natural resources and primary commodities are still important and many economies of the Global South are still locked in a de-favorable position as resource supplier within the international division of labor (UNCTAD, 2019). However, alternative economic flows such as remittances are of increasing significance and many economies are diversifying their rent base and increasingly turning, among other sources of rent, towards remittances (Fails & DuBuis, 2015; Jenkins et al., 2011). Second, rent theory has hitherto only sparsely addressed remittances. Even though many authors subsume migrants’ monetary transactions under the concept of rent (Beck, 2009; Brown & Conneil, 1993; Kapur, 2004; Auty & Furlonge, 2019; Beblawi, 1987), and migration theory integrated rent as an explanatory variable (Rapoport, 2015), there is still a considerable lack of conceptual and empirical advancement in the field.

4In this regard, remittances are of particular interest for rent theory. The analysis of remittances allows for recalibrating and strengthening the explanatory power of rent theory by pointing at the structure altering monetary transfers and institutional settings in which the economic and the political realms intersect. At the same time, rent theory can provide fresh arguments for the discussion on remittances.

5The aim of this article is to elaborate on remittances as a particular form of rent. It contributes both to a renewal of rent theory as well as to a distinct and alternative perspective on remittances. It argues for a broader understanding of rents and seeks to foster the explanatory power of rent theory. By integrating remittances into rent theory, the article points to institutional peculiarities, which are related to the capturing and appropriation of rents that has so far eluded rent theory. The article scrutinizes the appropriation of remittances and therefore turns the emphasis to the mechanisms between remittances and broader social processes within the political and economic spheres of net-remittance receiving economies. The article situates the structural causes for remittances in uneven global development, going further to link this structural background to the micro-level where remittances originate in translocal moral economies between potential remittance senders in migratory host economies and their home economies. It finally explores under which conditions the shift from one source of rent to another challenges existing modes of rent appropriation which in the end shapes political, economic, and social patterns. As such, the article addresses the conditions under which rents form a new development model for entire economies within the Global South.

6The first section reviews recent contributions to rent theory. The second section elaborates on the concept of remittance-rents and points to the institutional peculiarities of remittance-rents. It highlights uneven global development and entrenched inequalities as a driving force of migration and remittances. However, uneven global development in the case of remittances is mediated through translocal moral economies between remittance senders and receivers. The article argues that these moral economies impact the migrants’ motivation and propensity to remit as well as decisions on how remittances are spent. The third section turns to the modes of appropriation and the institutional setting through which remittance-rents are captured. Its contribution to the discussion is the analysis of how rents foster elite rule through indirect channels. The fourth section shows that remittance-rents are likely to lead to a new development model in which economies of the Global South specialize in exporting labor with the purpose of receiving remittances.

1. Remittances challenge rent theory

  • 3 Within classic political economy, authors such as Adam Smith developed the concept of rent to descr (...)

7Rent theory is en vogue again. Variegated phenomena, such as the world financial crisis of 2008, processes of financialization and the rise of a new finance-led regime of accumulation in advanced capitalist societies (Boyer, 2010; Epstein, 2005; Hein, 2012; Stockhammer, 2014), the transformation of real estate markets in global cities (Andreucci et al., 2017; Haila, 2016), the increasing market power of high-tech firms such as Google or Amazon (Birch, 2020), and the reappearance of industrial policies (Andreoni & Chang, 2019) render the concept of rent analytically relevant. This (in itself) is a theoretical advancement since traditionally rent was practically synonymous with the exploitation and export of natural resources and raw materials, particularly oil. This renewed academic interest in approaches to rent underpins the strengths of political economy approaches in the field: rent is a source of income that becomes available due to political interference in the economy, often linked to powerful actors. Furthermore, rent can also be conceptualized as a particular form of economic surplus, as Karl Marx (Marx& Engels, 1965 [1982/1863], p. 8) dubbed it in Theories of Surplus Value. In this regard, the political economy of rent illuminates the intersections between the political and the economic realms. Pure political science approaches and pure economic approaches fall short in grasping these intersections.3

8Rent theory still faces two major weaknesses. Firstly, rent theory still relates rents directly to certain commodities and natural resources, which becomes particularly evident through notions such as oil rent or copper rent. The difference between the production of the natural resource and the realization of rents in monetary terms, mostly on international markets, becomes blurred.

  • 4 Recently, even advocates of the resource curse admitted that instead of the mere availability of na (...)

9Second, rent theory tends to derive political behavior of rent appropriating groups directly from the availability of rents. Mainstream approaches highlight that as a form of income, rent appears to be relatively detached from the production process, often denoted as “windfall revenues” (Ploeg van der & Venables, 2011). On the income side, therefore, rent appears as the part of the income from a production factor which is in excess of the income of the same production factor in its marginal utilization (Robinson, 1933, p. 102). Rent appears as an income that cannot be explained by the interplay of market forces, but only by market failures. In the end, however, this microeconomic approach rather obscures the appropriation of the rent by political means. Then, the social embeddedness of rents in political contexts, the room for maneuver of appropriating groups as well as the possibility on channeling rents into productive purposes is overlooked (see for this issue related to conflict studies, e.g. Cramer, 2002) and rent theory runs the risk in falling back into monocausal explanations that relate the economic importance of rents, particularly natural resource rents, directly to the political behavior of rent appropriating social actors (for an overview, see Ploeg van der, 2011). Both conceptual weaknesses minimize the explanatory power of rent theory.4

In summary, recent discussions on rents were not able to depict how and under which conditions rents influence or even determine political, social, and institutional structures or strategic actions of groups and social forces. There is still a considerable lack of conceptual work on the intersections of political and economic phenomena that rents evince.

10This article proposes a conceptual modernization for rent theory. Firstly, I propose to (re)shift the emphasis of rent theory from the prevailing micro-economic perspective towards a macro perspective on surplus structures; and second, further elaborate on the notion of rent distinguishing the source of rent from the mode of appropriation. Taken these arguments together, the proposed shift allows for analyzing how rents occur both at the micro-level as a particular form of economic income as well as at the macro-level as a particular form of economic surplus. In addition, it turns attention to the process of how actors appropriate and capture rents.

11Addressing the first of the two conceptualizations of rents, I take rent as the part of the economic surplus that is unable to be captured, exploited and redistributed through the market. Rent signals that the economy produces a surplus that can only be siphoned off through political mechanisms instead of pure market forces. Rents arise due to a natural or political monopoly that prevents the production of the same good with the same means more efficiently at lower prices, and actors are able to appropriate rents because of their control of market restrictions, monopolies, or through political power. This approach allows both to capture processes of macrosocial, macroeconomic and macropolitical change as well as to analyze the strategies of different actors and groups of actors in their struggle over rent within societies. The political economy of rent therefore needs to take account of two aspects: on the one hand it needs to analyze the market process, including the mechanisms that the market provides to exploit, use, and reinvest surplus, and on the other, it has to focus on the non-market sphere and mechanisms that allow for appropriating economic surplus by circumventing, uncoupling, blocking or even abolishing the market.

12Economies and societies, in which rent is a determining factor, thus are special: usually, rent-based modes of production or rent societies are characterized by the centralized access to surplus. The control, appropriation, and redistribution of surplus is highly interwoven with political power and its concomitant violence (see also Warnecke-Berger, 2018b, p. 34-36). This is a macro concept, however, while at a microeconomic level, it is almost impossible to distinguish between different forms of surplus (capitalist profit or rent): The individual recipients of revenues cannot conceptually determine the respective form of surplus and its qualitative origin.

  • 5 For further clarifications, a small generic case can be used: let us assume that a certain territor (...)

13To the second conceptualization, the source of rent needs to be distinguished from the mode of rent appropriation. The source of rent is the material (e.g. oil, copper, bauxite in the case of mineral products; remittances in the case of migration; ODA in the case of development philanthropy; coffee and other agricultural products in the case of agrarian production) and the technical basis on which rent arises (e.g. ground rent, differential rent [Marx& Engels, 1972/1894, p. 653-697]), neoclassical consumer and producer rents, and innovation rents (see Khan, 2000 for an overview). The mode of rent appropriation, in turn, describes the political and often institutional access to rents, how and through which institutional settings rents are captured by political actors, and thus the process by which rents are siphoned off. The notion of the mode of rent appropriation helps focus on the realization of rent in physical or monetary terms and highlights that rent has to be appropriated through non-economic (political) means. The source of rent is only loosely related to the mode of its appropriation.5 The distinction between these two dimensions of rent illustrates that if there are economic rents, the political realm cannot be separated from the economic realm since the surplus can no longer be siphoned off and exploited only through markets in the narrow sense.

14A variety of institutional settings can emerge in the appropriation of rent. I interpret these institutional settings as the result of a combination of path dependencies, political struggles and negotiations between actors in capturing rents. Usually, rents contribute to a particular class configuration. Rents tend to support processes of social closure as well as the verticalization of social interactions (Warnecke-Berger, 2018a). However, these processes are context sensitive and require case studies in order to gain further explanatory power. Following this approach, both the economic as well as the political realm that intersect with rents matters (Ye et al., 2020). The distinction between source of rent and mode of appropriation is therefore crucial to understand how rents shape both the political and the economic sphere. This is particularly important for remittances since they challenge existing institutional arrangements and modes of rent appropriation.

2. Institutional peculiarities of remittances

15Remittances are an exceptional case for rent theory. While a number of studies suggest that remittances have effects similar to standard rents, such as the appreciation of exchange rates and Dutch disease (Acosta, Lartey & Mandelman, 2009; Alonso González & Sovilla, 2014; Amuedo-Dorantes & Pozo, 2004; Combes et al., 2014), the prolongation of authoritarian rule (Ahmed, 2012) and the substitution of government social spending (Doyle, 2015), to name only a few, but for a number of reasons, the appropriation of remittances differs from the appropriation of rent from traditional sources (such as raw materials and related differential rents).

Firstly, usual sources of rent have market substitutes whereas remittances occur “outside the market” (Laferrère & Wolff, 2006, p. 891) and neither have immediate product nor location substitutes (Warnecke-Berger, 2019).

16Second, geographical distance matters in the case of remittances: remittances are transnational. They cross economic territories and challenge the institutional setting of ‘national’ economies. Instead of usual raw material differential rents that occur due to the internationalization of production and the intensification of commodity trade, remittances are a product of the transnationalization of labor markets and migration. Due to distance, migrants are not able to definitively decide on how remittances are spent, and the home families are not able to ultimately determine the amount of money the migrant should remit. In this regard, remittances are peculiar since the source of rent – migration – as well as the mode of appropriation – moral economies within transnational households – are disconnected due to spatial distance, the scale of appropriation, as well as particular political and economic settings in which remittances manifest.

17Third, remittances tend to be appropriated by decentralised means. Political structures based on rents are usually highly centralized (Wittvogel, 1962; Freund, 1985), and recent discussions further highlight that rents tend to stabilize exclusive and authoritarian rule, particularly because rents are appropriated at the top of the political pyramid within state institutions (Mahdavi, 2020; Smith, 2004; Ross, 2001). Contrary to this topdown power-based access to rents, remittances have individual addresses and therefore escape from direct political control. States find it hard to access and to tax remittances (Bhagwati & Wilson, 1989). Remitters can evade taxing by sending cash to their relatives or by using informal remittance channels. Indeed, remittances tend to lead to a tax shift from direct taxing to value-added taxing with unfavorable effects for income distribution (Asatryan, Bittschi & Doerrenberg, 2017). Appropriation of remittances thus functions indirectly, decentralized and eludes direct political control (Horst et al., 2014).

Therefore, remittances offer some institutional peculiarities as opposed to traditional (raw material) rents. In order to accentuate the peculiarities in which remittances emerge and through which remittances are appropriated, both the micro as well as the macro logic of remittances need to be scrutinized.

2.1. Labor differential rents on the macro-level

18Remittances usually originate as part of migrants’ ordinary wages in migrant host economies. Strictly speaking, remittances occur as savings and are a share of ‘normal’ labor income. Potentially, the migrant worker is able to send his or her income minus the subsistence wage without becoming indebted. On a macro-level, therefore, remittances connect the labor markets where migrants work and earn money with the goods markets where stay-behinds spend the money. Remittances link the place of value production with the places of consumption and remittance-spending, and this link is embedded into the global North-South asymmetry since at least 75 percent of global remittances flow from the North to the Global South.

19On the macro-level, remittance-rents are driven by unequal global development and must be analyzed in the context of global inequalities. Even though inequalities between countries have been declining (Milanović, 2016), the great divide between the North and the Global South still persists (Korzeniewicz & Moran, 2009). Global convergence remains an illusion (Freeman, 2019; Pritchett, 1997). The asymmetric relation between societies in the North and societies in the Global South still prevails (Thompson & Reuveny, 2010). This setting is the continuation of a historical experience since many of the economies within the Global South integrated into the world economy through the exploitation and export of natural resources and raw materials which opened the way towards uneven specialization (Williamson, 2011). With the transfer of the system of relative prices from advanced capitalist economies to peripheral economies in the Global South (Amin, 1973), and the subsequent increase in global competition on world markets, differential rents became an ingrained economic pattern and particularly visible in raw material markets. More than 100 economies are still dependent on natural resource exports (UNCTAD, 2019) and as such subordinate to the technologically advanced societies in the North. The disparities measured in per capita income between the North and the Global South (excluding China) have further deepened from 1:3 in the early nineteenth century to 1:80 in current times (Thirlwall, 2013; Freeman, 2019).

  • 6 Contrary to the nineteenth century, current migration does not lead to scarcity of labor in the Glo (...)
  • 7 In the short run, exchange rates are much more prone to uncertainty and speculation (Kaltenbrunner, (...)

20One expression of these inequalities is wage differentials between economies.6 Today, labor receives different remunerations according to its location. These wage differentials find their expression in currency hierarchies and the subordination of peripheral currencies (Cohen, 1998; Ocampo, 2001), ultimately expressed in high currency exchange rates in the long run.7 Wage differentials as well as currency hierarchies facilitate remittance flows in part because these disparities make the money in disposal of migrants more ‘valuable’ from the home family’s point of view. Processes of uneven global development thus are the structural background of remittances. In the case of Ricardian differential rent, the difference is measured in technology advancement that intervenes in price formation, while in the case of remittances, differences of the international (nominal) price of labor are fundamental.

21Taking both international wage differentials and currency hierarchies into account, remittances can be defined as labor differential rents. Remittance flows rely on the uneven transnationalization of labor markets, and migrants and stay-behinds exploit uneven global development in order to send money back home (Warnecke-Berger, 2021a). Remittances as labor differential rents therefore describe a monetary transfer from the economies where migrants contribute to produce surplus to the economies where stay-behinds live and receive remittances. Therefore, remittances are subject to a special set of conditions at the macro-level. However, this structural pattern does not yet explain the motivation to remit.

2.2. The moral economy of remittances on the micro-level

22Mainstream economic perspectives tend to conceptualize remittances as the outcome of an individualist utility function and relate them to concepts of altruism, insurance against future shocks, or as an outcome of competition and self-interest (Stark & Bloom, 1985; Lucas & Stark, 1985; Stark & Lucas, 1988; for an overview, see Rapoport & Docquier, 2006). These approaches focus on individuals, their actions and motivations. Based on rather strong assumptions about economic behavior under the imperative of (capitalist) markets, these perspectives are unable to capture both the social practice of remitting as well as the embeddedness of remittances in a broader universe of family responsibilities, moral rights, social obligations, and intra-family conflicts (Carling, 2014). Furthermore, these approaches rely on a rather romanticized notion of family and household dynamics.

23In contrast to these approaches, I have proposed to conceptualize the relationship between migrant and home family as a translocal moral economy (Warnecke-Berger, 2017). The sending and spending of remittances are negotiated within these moral economies and this negotiation is influenced by reciprocal claims and obligations, for example, feelings of guilt, love and desire, status of class and gender as well as immediate economic needs (Åkesson, 2011; Ambler, 2015; Baldassar & Merla, 2014). Remittance-rents depend on the continuous social contact as well as the maintained “emotional commitment” (Paerregaard, 2015, p. 503) of migrants to their home families. Such commitment is contested, however, and both sides of the moral economy – the sender and recipient – need to continuously (re)negotiate it. Following this approach, moral economies are also imbued with social conflicts, mistrust, power asymmetries as well as high social stress. Rather than being the outcome of an individualist decision, remittances become relational in this regard.
My approach therefore highlights a more nuanced view on remittances, as it integrates power struggles and asymmetries within the transnational field, rather than following the ‘flat’ notion of migration, remittances, and transnationality.

24In analytical terms, remittances thus can be alternatively defined as the outcome of a reciprocal and negotiated dependency within translocal moral economies between senders and recipients (Warnecke-Berger, 2021a). They are the result of claims expressed in translocal moral economies on a share of the sender’s income. This claim affects the sender’s propensity to remit with such claims generating remittances in the first place.

25Uneven global development – and this is linked to the macro-level – find their expression in currency exchange rate hierarchies and wage differentials, it create incentives to maintain translocal moral economies and eventually to (re)negotiate remittances, since migrants tend to be sensitive to exchange rate movements (Faini, 1994; Lueth & Ruiz-Arranz, 2007) and claims from stay-behinds are usually expressed in local currencies.

26As long as migrants and home families maintain translocal moral economies, remittances will continue to flow. This moral economy is precarious and depends on continuous communication (Horst, 2006; Baldassar et al., 2016). Usually, when migrants “settle down” and start a family, they tend to send less or even stop sending money (Lianos & Pseiridis, 2011, p. 350; Waldinger, 2018, p. 24; Bettin & Lucchetti, 2012, p. 14). Over time, the propensity to remit decreases and the translocal moral economy as the fundamental mediator and connection between remittance senders and recipients disintegrates and eventually dissolves. Generally speaking, only migrants and home families within moral economies have direct access to remittances as emotional family bonds initiate and maintain remittance flows.

27In summary, both the structural background of remittance-rents – global inequalities – as well as the channels through which agency provokes the sending and receiving of money – translocal moral economies – are necessary to explain how remittances emerge and how they flow. In contrast to other rents, however, remittance-rents are appropriated at the local level within transnational families. Intermediary actors other than the transnational family, such as states and governments, domestic elites, commercial banks and even non-governmental organizations have difficulties in capturing remittance-rents as they do not have direct access to the precise locus where remittances are negotiated. This fact makes remittances so enigmatic for development policies, and many authors argue that remittances are not subject to corruption (Tyburski, 2014) and expect huge development impacts from remittances (Haas, 2012; see for a critique of the development idea behind remittances: Bakker, 2015).

3. The question of intermediation: How to appropriate and (re)distribute remittances?

28Since remittances are negotiated in moral economies and thus originate from the emotional family bond between migrants and their families back home, political and economic strategies of intermediate actors, in contrast, focus on indirect channels in accessing remittances (Warnecke-Berger 2021c). These intermediate actors range from non-governmental organizations that intent to channel remittances into small-scale development projects, to financial actors such as commercial banks and money transfer operators, governments and even international organizations. Their strategies in capturing a share of the remittance flows constantly run the risk of threatening or even dissolving translocal moral economies as they eventually depersonalize remittances. The emotional commitment of migrants to remit would decrease if the terms of the negotiated dependency are increasingly mediated by the aforementioned actors.

29Recent field experiments with migrants showed that the loss of control felt by migrants and home families led to a decrease in remittances (Aycinena, Martínez & Yang, 2010; Ashraf et al., 2015). Subsequently, international organizations and commercial banks lost interest in approaching and formalizing remittances directly (for the progression in strategy development for accessing remittances, see e.g. Hudson, 2008). Hence, the intermediary actors’ possible interest in capturing and appropriating remittances translates into strategies of “moralizing markets” (Stehr, 2007) through which intermediate actors capitalize on the translocal moral economy instead of capitalizing on remittances.

In general, these strategies focus on either influencing the propensity to remit, influencing the channel through which remittances flow and hence transaction costs, or influencing the home family’s propensity to spend their remittances.

30Financial inclusion in general, and in particular, diaspora bonds or home-town associations’ (HTAs) efforts to promote collective remittances are primary examples of influence on the propensity to remit. Diaspora bonds are issued by commercial banks or national governments of remittance-receiving economies. These bonds are particularly designed for migrants, that would otherwise send remittances, and catering to ‘patriotic’ and ‘philanthropic’ interests (Ketkar & Ratha, 2011). Diaspora bonds are issued at lower interest rates than the market standard and therefore generate extra incomes for issuing institutions. Potential remittances are therefore distributed from migrants and their families towards the financial system. A similar process, although in a different direction, can be observed in the case of HTAs. Home-town associations are community-based migrant associations that engage migrants willing to provide support and means for development in their home communities (Lacroix, 2014). They collect donations among the diaspora and channel these donations into small-scale development projects. These HTAs are particularly successful in raising funds in times of hardship and natural disasters in migrant home societies. Donations to HTAs go towards communities and communal projects. In that sense, both HTA and diaspora bonds enlarge the frame of translocal moral economies and HTAs compete with families over remittances.

31Regarding transaction costs in the remittance channel, banks and money transfer operators were able to impose a fee of 8 percent on the global average of all remittances. This equals 57.44bn US$ in 2018. Migrants are sensitive to changing fees, and in some migrant and remittance corridors, there is considerable competition among banks and operators. Competition within the remittance transfer sector forces actors to lower costs. Lowering costs in turn gradually renders alternative transmission methods such as personal transfers in cash through regular trips to the country of origin redundant and above all strengthens the digital sector of mobile transfer systems, such as M-Pesa in Africa or TigoMoney in Latin America. Furthermore, website, such as www.worldremit.com or remittanceprices.worldbank.org, regularly inform about the cost of sending and receiving money. However, the most important indirect access to remittances consists in influencing the propensity to spend money within remittance-receiving economies. Remittances are an ‘entry ticket’ into the formal banking sector (Ambrosius, 2016; Datta, 2017; Anzoategui, Demirgüç-Kunt & Martínez Pería, 2014). Banks accept future remittances as securities in order to sell credits to remittance-receiving households. In this regard, remittances are prone to financialization which again redistributes gains and losses of remittances within the financial sectors (Kunz, Maisenbacher & Paudel, 2021; Hudson, 2008; Warnecke-Berger 2021c). A final issue is the changing tax structure of remittance-receiving economies. Remittances tend to promote a shift from direct taxation towards value-added taxes (Asatryan, Bittschi & Doerrenberg, 2017) and therefore affect state-society relations through its unfavorable effects for income distribution, as previously mentioned.

32In summary, through value-added taxes, by incentivizing financial education and literacy in order to channel remittances into the financial system, by funding local development projects together with hometown associations and migrant non-governmental organizations, intermediary actors gain indirect access to remittances which allows them to capture a share of the remittance flows. Remittance-rents, thereafter, are redistributed and appropriated by other actors than the initial senders and recipients.

33The appropriation of remittance-rents has consequences for the institutional arrangements of remittance-receiving economies. Remittances tend to substitute public social spending and release pressure from local labor markets. Usually, remittances lead to decreasing the labor supply since they tend to increase reservation wages (Amuedo-Dorantes & Pozo, 2012; Cox-Edwards & Rodríguez-Oreggia, 2009; Jackman, 2014; Ivlevs, 2016; Combes et al., 2014). Receiving households spend remittances on immediate consumption goods, which in turn generates multiplier effects on local markets (Alonso González & Sovilla, 2014). However, and more importantly, this additional demand for consumption goods is often a demand for imported goods. Remittances then balance trade account deficits (Farzanegan & Hassan, 2019) and are likely to lead to Dutch disease and the appreciation of the domestic currency (Alonso González & Sovilla, 2014; Combes et al., 2014; Acosta, Lartey & Mandelman, 2009; Amuedo-Dorantes & Pozo, 2004).

34Remittances thus mitigate poverty in the Global South, however, do not overcome it. In this regard, remittances create outlet valves for political, economic, and social pressures. As rent theory generally predicts, rents provide elites with opportunities to suppress the bargaining power of the poor. However, and contrary to rent theory, the mechanism in the case of remittance-rent is different. Remittances transfer political accountability from the political system of the home society to migrants in host societies (Warnecke-Berger, 2020b). As remittance-receiving households depend on translocal moral economies, migrants ‘abroad’ have to bear the burden of development ‘at home’ instead of the responsible politically accountable institutions. As long as migrants continue to send remittances, domestic political and economic conditions lose importance for remittance-receiving households. Their livelihoods no longer depend on production and productivity increases within the local economy but on the integration of migrants into foreign labor markets and their current and future propensity to remit. Consequently, the ruling class is no longer the primary addressee of political claims of the population.

35Striking examples of these dynamics can be found in Central America or in Southeast Asia, two regions where remittances are a crucial financial inflow, particularly in countries such as El Salvador (Warnecke-Berger, 2020b) or the Philippines (Rodriguez, 2010; McCoy, 2009). In these societies, remittances allowed traditional landholding elites to modernize their economic basis in a way that they are now beginning to control the remittance business sectors and even abandon their landed estates in some cases. Remittances thus redirect the elites’ economic interest from controlling production to controlling trade and consumption as well as towards incentivizing the transnationalization of labor markets. Remittances therefore tend to reinforce the forces of elite rule in the Global South. Politically, the population no longer holds these remittance-induced oligarchies accountable for domestic conditions. Instead, the population tends to direct the political stress towards the migrant community, thereby revaluing translocal moral economies. In this regard, remittances are self-reinforcing.

4. A new development model and its implications for the global economy

36In 2017, remittances to the Global South reached almost the same magnitude as the OPEC – Organization of the Petroleum Exporting Countries – net oil revenues. Globally, the sum of remittances equates to about a third of net natural resource rents (following the World Development Indicators measurement, see World Bank, 2021). Remittances increasingly supplant and displace income from natural resources as a pivotal source of foreign currency earnings. Remittance tend to increase faster and be less volatile than the commodities and natural resource sectors. For the Global South, remittances are already a vital and essential source of income with many households securing their livelihoods through them (Adams & Page, 2005; Acosta et al., 2008).

  • 8 In a broad sense, a development model can be defined as the material mode of social reproduction of (...)

37A growing number of economies have shifted their comparative advantages in the international division of labor from exporting commodities to exporting labor. These economies thus continue the process of unequal specialization, however, it has changed the fundamentals of their development model. Within this new development model, remittances become the motor and underlying force of social reproduction.8 In 2018, 25 percent of all countries in the world exposed a ratio of remittances to the value of exported goods to at least 30 percent. In 1990, less than 9 percent of the world’s countries showed this ratio. The ratio of remittances to GDP as another variable shows the same trend: While in 1990, less than 4 percent of all countries in the world had at least a 10 percent share of remittances to GDP, this figure has more than tripled and applies to over 14 percent of all countries in 2018 (World Bank, 2021).

38The remittance-led development model is accelerating and increasingly economies specialize on remittances within the international division of labor. The following figure exemplifies this trend.

Figure 1. Specialization on remittances within the world economy, 1990 and 2020

Figure 1. Specialization on remittances within the world economy, 1990 and 2020

Source: Own elaboration based on data provided by World Bank (2021)
URL: https://databank.worldbank.org/​source/​world-development-indicators

39This new development model depends on future remittances and, in order to stabilize these future remittance flows, necessarily relies on accelerating and incentivizing migration since individual migrants will not send remittances indefinitely. The system of relative prices is not only further transferred to economies of the Global South through processes of commodification and monetization, as per theories of the commodity frontier (Moore, 2000), but similarly this system of relative prices finds application within transnational families. It is a process of effective monetization of love, because family relations can now be measured in monetary terms. This money mechanism is not to be underestimated since it is able to mitigate and transform social conflicts (Warnecke-Berger, 2020a). At the same time, however, this money mechanism of remittance-rents depoliticizes social conflicts and therefore creates opportunities for existing elites to protect themselves against equitable social change (Warnecke-Berger, 2020b).

40As a result, and through the transnationalization of labor markets and the backflow of remittances, remittance-receiving economies of the Global South increasingly intensify dependencies on labor market dynamics within capitalist economies of the North. The current Covid-19 crisis exemplifies the trend in this regard. Remittances are projected to fall by at least 20 percent (World Bank, 2020), and given the significance of remittances, economic dynamics in the North directly translate into economic, social and political crises in remittance-receiving economies, and remittance-dependent households face serious challenges to meet their daily needs.

41Hence, specialization on exporting labor and receiving remittances comes with high risks: the remittance-rent led development model is characterized by the necessity to maintain (future) remittance flows for their survival. However, this struggle perversely results in an overall stability of the migration system and continuous global flows of remittances. Furthermore, the global Covid-19 crisis underlined that this model is prone to crisis, and as soon as labor markets in the North contract, net-remittance receiving economies face severe problems.

Conclusion

42Within the current world economy, remittances are both qualitatively and quantitatively crucial. Remittances supplement rent-based economies of the Global South with an additional source of income and increasingly displace traditional rents within the raw material sectors as the primary form of income for both individual households as well as entire economies. This article addresses this condition and integrated remittances into rent theory. Remittances are born out of uneven global development and resulting inequalities as well as migrations, but they are negotiated within translocal moral economies between potential senders and recipients. This negotiated dependency affects the migrants’ propensity to remit and therefore ingrains the transfers. On the income side for the recipients, remittances are rents. However, they are based on a peculiar institutional setting since intermediary actors such as banks, governments, international organizations and non-governmental organizations, find it hard to access, control, and appropriate remittances directly. Instead, these actors rely on strategies of indirectly accessing remittances. Remittances therefore are unlikely to provoke strong institutions but rather fragment existing institutional settings.

43Furthermore, the article argues that the increasing relevance of remittances also becomes clear in the fact that an increasing number of economies have already specialized on remittances. Remittances has given rise to a new development model. This development model is characterized by shifting political accountabilities away from the national scale, into the remittance producing economy and onto migrants. Insofar, remittances tend to stabilize elite rule and shift social conflicts to within transnational families. These rents are rather outlet valves for social, economic, and political pressures that would otherwise be directed into the political system. This article adds a new political mechanism to the ongoing discussion on the impact of rents.

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Notes

1 Remittances will be defined as monetary transactions of migrants in host societies to their home families, friends and stay behinds in home societies. Remittances do not have necessarily and exclusively to be monetary in nature. The discussion also includes remittances in kind and social and political remittances (Levitt, 1998). This article, however, focuses on financial transactions, on money sent by migrants.

2 Migration often goes hand in hand with remittances since many migrants in host societies, albeit not all, send a considerable part of their income to their stay behinds and loved ones in home societies. Globally speaking, most migrants are from the Global South, and the largest migration flow is from the South to the North followed by within-South migration (Dickinson, 2017, p. 19). South-North migration is increasing in volume, particularly in the recent decade (OECD, 2016, p. 84; IOM, 2019), and the migration flow targets fewer countries, above all countries in the EU and the US (Czaika & Haas, 2014).

3 Within classic political economy, authors such as Adam Smith developed the concept of rent to describe the income of landlords for renting out their land without working on the fields. Following this understanding, rent originates in property relations. It thus signifies a fusion of the political and the economic realm, that is, the power of landlords is based on their property. Rent, since then, has also been a battle term to defend different approaches to labor theory of value. In this regard, rent theory criticizes any form of unearned income that is not preceded by labor power. The Classics of political economy understood rent as a phenomenon of the Ancien Régime and to be of minor relevance for the newly emerging market society (Fried, 1998). It was David Ricardo and later Karl Marx who turned rent into a relational concept (Warnecke-Berger, 2021b; see also Schmid, 1997), and the term “differential rent” has become part of the basic tool kit of political economy. Within development studies, the concept of rent gained attention, and it has been widely discussed how to channel differential rents into development (see e.g. Boeckh & Pawelka, 1997). The advance in development that raw material rents have promised, however, did not materialize. Instead, the debate on this resource curse (Auty, 2001; Ross, 1999) stated a link between rents from natural resources and economic obstacles and barriers to development. Usually, this group of authors associate rents with economic backwardness and even violent conflict. Within the broader field of sociology and political science, furthermore, rents are related to public choice theories that intend to explain phenomena such as corruption (Krueger, 1974). In peace and conflict studies, in turn, rents are invoked to explain the onset and the duration of civil wars (Ballentine & Sherman, 2003; Collier & Hoeffler, 2004). Within development and area studies, another group of authors links natural resource rents to particular institutional settings, such as bureaucratic developing societies and their state-classes (Elsenhans, 1996), rentier states in the Middle East and in North Africa (Beblawi & Luciani, 1987), neopatrimonialism in Africa, Russia, or in some Arab states (Schlumberger, 2008; Mkandawire, 2015; Robinson, 2011), or to neo-extractivism in Latin America (Svampa, 2019; Burchardt & Dietz, 2014).

4 Recently, even advocates of the resource curse admitted that instead of the mere availability of natural resources, the particular and context-specific political use of rents needs to be examined more closely (Auty & Furlonge, 2019).

5 For further clarifications, a small generic case can be used: let us assume that a certain territory has considerable oil reserves. A producer exploits and exports the oil and due to the world market price formation, a differential rent accrues from this oil. The amount of this differential rent is dependent on local as well as global conditions and often hard to estimate. Without political interference, the differential rent is appropriated by the oil producer. From the perspective of the producer, this export of oil is profitable because revenues after sales are higher than production costs including advanced costs. The oil producer appropriates the differential rent (as it is the case with other technical sources of rents such as ground rent) due to the exclusive enforcement of property rights. Now, in a similar example, a political institution, e.g. a state, is able to tax the producer of oil. Through this tax, the state appropriates a share of the differential rent. On what the state spends this tax, however, is disconnected from the production process of oil, but subject to a political setting in which different political forces struggle over redistribution. The literature on resource nationalism, for instance, highlights some of these struggles (see e.g. Arbatli, 2018 for an overview).

6 Contrary to the nineteenth century, current migration does not lead to scarcity of labor in the Global South and consequently to the convergence of real wages (Hatton & Williamson, 2005).

7 In the short run, exchange rates are much more prone to uncertainty and speculation (Kaltenbrunner, 2015), and even remittance senders are sensitive for exchange rate changes (Higgins, Hysenbegasi & Pozo, 2004).

8 In a broad sense, a development model can be defined as the material mode of social reproduction of an entity of people, usually a society. Social reproduction in this regard means not only the biological, sexual and physical reproduction of a social group, but in addition to this, the reproduction of the entire system of human coexistence of the group. It therefore encompasses both hard factors such as the economy and political institutions as well as soft factors such as culture, discourse and ideology (Bakker & Gill, 2003). The concept of social reproduction regained attention in recent feminist theorizing in political economy (Bakker, 2007). The concept originated in discussions within French economic anthropology, see for instance Meillassoux (1972).

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Table des illustrations

Titre Figure 1. Specialization on remittances within the world economy, 1990 and 2020
Crédits Source: Own elaboration based on data provided by World Bank (2021)URL: https://databank.worldbank.org/​source/​world-development-indicators
URL http://journals.openedition.org/regulation/docannexe/image/20809/img-1.png
Fichier image/png, 315k
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Hannes Warnecke-Berger, « Rents, the moral economy of remittances, and the rise of a new transnational development model »Revue de la régulation [En ligne], 31 | 2nd semestre / Autumn 2021 | décembre 2021, mis en ligne le 17 janvier 2022, consulté le 19 mai 2022. URL : http://journals.openedition.org/regulation/20809 ; DOI : https://doi.org/10.4000/regulation.20809

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Hannes Warnecke-Berger

Senior Researcher, Department of International and Intersocietal Relations, University of Kassel, Germany; Nora-Platiel-Str. 1, 34127 Kassel; hwarneckeberger@uni-kassel.de, ORCID 0000-0001-9177-0657

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