This week, for “Ask an Economist”, I’m answering an inquiry from a friend of mine and world traveler, Nick. Nick wants to know about the impact of Americans traveling and working remotely abroad. He says,
“You should consider writing a piece examining the impact on local economies of (mostly) Americans working remotely and temporarily living in cheaper locations such as Mexico City, Bali, etc. Lots of debate (stimulation vs. colonization) flying around the travel world. Would be interested to hear your thoughts.”
So are Americans benefiting other countries when they work abroad, or does their presence undermine prosperity and lead to modern “colonization”? Let’s consider the impact.
The Visible Costs
So how could Americans working abroad be negative? Nick is right that opponents of this arrangement will sometimes call this a form of colonization, but this criticism in itself is too vague to address. Instead, we can focus on the immediately visible potential costs.
The first possible issue is with increasing costs. Imagine a group of Americans migrate to Lima, Peru and begin working remotely. On average, these workers have higher incomes than the average Peruvian, so for many goods they are willing to outbid Peruvian buyers. In other words, the increased demand will lead to higher prices for Peruvian nationals.
The second issue people might raise is the goods and services Americans value may be different than the goods and services Peruvians value. In this case, Peruvian producers may be able to make more money by catering to American consumers and the products they enjoy rather than traditionally demanded products. In other words, American consumers may cause some cultural products, like food, to be displaced.
Thematically, these concerns are similar. In both cases, the fear is that the American expatriates will displace the desires of native citizens by their purchasing patterns.
A final, related issue is we can imagine certain shared aspects of culture which may go away as expatriates move in. Imagine a shared religion, language, or other factor is at the root of some positive social good such as societal trust. As differing cultures are introduced, the shared values or understandings may be diluted and the societal goods may be lost.
These are real costs that we shouldn’t ignore. But the analysis doesn’t end here— we need to consider the benefits alongside the costs.
Unseen Benefits (and Costs)
To address the first two issues, we need to highlight some difficult-to-see benefits to Peruvian natives. More expatriates will mean more demand for local products which means higher prices. But it’s important to note that higher prices for Peruvian goods means more money is being paid to Peruvian producers.
In other words, incomes go up for domestic citizens. It doesn’t stop there. If an American expatriate buys a suit from a Peruvian tailor, both are made better off by the transaction (as evidenced by their willingness to engage in the trade voluntarily). The tailor can then deposit that income in a local bank. The bank is then able to take that deposit and loan the money to a local bakery. The bakery can then use the funds to hire new workers.
So American expatriates aren’t the only ones who benefit from moving. Local Peruvians also receive benefits from increased income. It’s possible that the end result will be some Peruvians will be better off and some will be worse off in the short run, but in the long run voluntary exchange leads to societies that are wealthier across-the-board.
Furthermore, some Americans are actually losers in the short run as well. When Americans leave to live in other countries, the demand for housing in say, California, decreases. This means lower land values for Californians.
So despite the framing by remote work critics, expatriate living is not something that benefits Americans at the expense of Peruvians. Instead it benefits some Americans and some Peruvians at the expense of different Americans and different Peruvians. And, in the long run, society as a whole improves materially as is made clear by measures like Frasier’s Economic Freedom of the World Report.
This brings us to the second, related point about goods. It’s not obvious that American demand for typically American food will displace traditional Peruvian food for a few reasons. First, higher income for Peruvians will mean more demand for these products. Second, it’s likely that many expatriates will be interested in supporting cultural products.
Most people don’t choose somewhere to live randomly. They choose the place because they enjoy the idea of living there. In many cases, an appreciation for local culture is one of those reasons. So economically, the best bet seems to be in favor of free movement.
Lastly, there is the concern about local culture (not just cultural products) disintegrating. Imagine your community has a shared religion, and a foreign expatriate convinces your children to convert to their religion. Now imagine this happens in mass. Suddenly family religious gatherings become battlegrounds.
At this point, it’s important to recognize the limits of economic analysis. Economics takes the allocation of property rights as is and it makes inferences about people's values based on that allocation of property rights. So if you go to the store with $2 and buy a dozen eggs, we know that you value a dozen eggs more than $2.
But, economics does not tell us whether you should have had $2 in the first place. Whether or not someone's ownership of a particular good is morally legitimate is a question that requires ethical analysis which is beyond the domain of value-free economic analysis.
In short, economics can discuss the predictable results of different patterns of ownership, but it does not tell us the morally correct pattern of ownership by itself. No moral laws are wrung from the laws of supply and demand alone.
So how do we examine the cost of the loss of cohesive culture? Well, if it is assumed people have a right to live with a particular culture, then expatriates impose significant costs when they disintegrate cultural cohesion (insofar as they do).
But the assertion that people have a right to a particular culture seems cumbersome. What if someone from within society changes the culture? What if they do so because they are impressed by ideas and elements from other cultures? Should they be prevented from doing so? Should we freeze our cultures in amber to remain unmoving and stagnant forever?
The idea that anyone has a right to live in a particular culture imposes uncountable obligations on foreigners and neighbors alike.
It’s ultimately my belief that all cultures have positive and negative elements, and allowing for exchanges across cultures provides an opportunity worth seizing. Admittedly, I think certain aspects of any culture are worth protecting. However, it’s important to note that legislation blocking the free movement of people and ideas is not the only way to preserve worthy aspects of culture.
In the market for ideas, the best way to protect good ideas is not by censoring bad ideas. Rather, exposure to bad ideas and practice in fighting against them provides the most robust defense.
Similarly, insofar as an element of culture is risked by the competing culture of expatriates, and the local population wishes to defend the culture, the best chance to do so does not seem to be through prohibition. Rather, a conscious effort to maintain culture through voluntary means seems to offer the best of both of the worlds of increasing material prosperity and maintaining important cultural values.