Donald Trump made headlines when he announced his plan to force Mexico to pay for his big, beautiful wall on the southern border by threatening to cut off remittances, which pump billions of dollars into the Mexican economy every year.
There are a number of problems with Trump’s plan — not least of which that we don’t need his wall to begin with — but the whole idea of using remittances as a bargaining chip in his quest to stop illegal immigration may very well be self-defeating. As the White House was quick to point out, cutting off remittances would have serious ramifications on the Mexican economy, which could in turn drive even more people to flee to the United States.
By implication, does that mean we should spend more taxpayer dollars on foreign aid to give people less of an incentive to come? Not exactly. But whether we want to help poor countries for its own sake or to prevent people from flocking to our borders, remittances are a bigger, better, and smarter way to do it than foreign aid.
Remittances Trump Aid
First of all, remittances are huge. Americans send more money abroad in remittance payments than any other country on Earth — nearly four times more than every federal foreign aid program combined. Each year, the United States federal government spends approximately $35 billion in economic aid to over 140 countries around the world, directed primarily to underdeveloped regions. By comparison, residents of the United States send an estimated $123 billion in remittances to friends and family overseas.
Remittances aren’t just bigger than foreign aid: they’re better.
The nearly $25 billion sent by US residents to Mexico accounts for 2.5 percent of the country’s GDP, bringing in more money than the oil industry. Millions of low-income families in Mexico depend on the inflow of remittances in order to make ends meet, and cutting off that flow could cause many to uproot and head north to rejoin family members in the United States — hardly the goal of border security advocates. If our presidential candidates really want to stem the flow of illegal immigration, they should focus on facilitating remittances, not threatening to shut them off.
Money Better Sent
Second, remittances aren’t just bigger than foreign aid: they’re better. The vast majority of remittances are sent by individuals to other individuals, voluntarily and from their own pockets. Voluntary giving may be better than taxation, but is charity really enough? Critics will argue that the developing world cannot simply rely on charity from wealthier nations in order to develop, and argue that tax-funded foreign aid is necessary in order to have a meaningful impact.
Because the senders know the recipients, they can be more certain about how the money will be spent.
But by ignoring remittances, they’re missing an obvious alternative to aid and charity that’s already being put to work. (In sub-Saharan Africa, for instance, remittances and foreign investment are now more than twice foreign aid.) The fact that Americans send so much more voluntarily than the government has been able to muster through taxes should be a strong indication that we may be overestimating politicians and underestimating people.
Sending a family member to live and work in the United States so that they can support their family is already a powerful tool that people in the developing world are already using to support themselves. If we left people to their own devices, they could take care of themselves just fine.
Finally, the people sending remittance payments abroad have a degree of knowledge about where their money is going that government agencies can only dream of. Instead of being funneled through layers of governmental and international agencies, money from remittance payments flows directly to individuals in need. Because the senders know the recipients, they can be more certain about how the money will be spent. This is in stark contrast to foreign aid, which — to borrow a line from Sen. Rand Paul — often goes straight from poor people in rich countries to rich people in poor countries. When not stolen outright by corrupt governments, aid funds have been used to pay for fish-freezing facilities in areas without electricity, cashew processing plants in countries without cashews, and million-dollar AIDS awareness plays attended by a handful of people. The history of waste and abuse goes on and on.
Families Know Better Than Governments
Given foreign aid's track record on intentions versus outcomes, this shouldn’t come as a shock. Instead of trying to centrally plan poor countries into prosperity, we should tap into the existing support networks that individuals have created, and let them do their job. They know better than we do.
Remittances are a powerful tool for alleviating poverty in developing countries, and cutting them off could have serious repercussions. Trump’s threats, while brash and poorly thought out, nevertheless invite a valuable discussion of the role of remittances in the debate over immigration and America’s relationship with the developing world. Successive administrations have tried for decades to stabilize Latin America, Africa, and the Middle East with hundreds of billions of dollars in foreign aid, and yet thousands of economic migrants continue to flee their homelands for our borders every year.
At the same time, these migrants and other individuals across the country are supporting millions of friends and relatives overseas, doing far more than foreign aid ever could. If we want to stem the tide of illegal immigration, we should build on what works. Remittances are not a part of the problem with illegal immigration, but part of the solution.