income

Mexican Productivity and Poverty: a Superficial, Street-Level View

Jacques Delacroix Current Events, Economics , , , , , , , , , , ,

I just spent three and a half weeks in Puerto Vallarta, Mexico (summer 2019). Below are some impressions. First things first; I have to give you the severe limits of my field of vision while I was there.

My wife and I stayed in an old-fashioned, 1950s low-rise hotel on the ocean with a pleasant faded kind of glory. (My wife Krishna does not let me go to Mexico by myself, for obvious reasons!) It was very hot throughout so, we did not go out much except that we had to shop for food every day at the mall across a broad avenue. We took taxis to and from the dentist about fifteen times. I always chat with taxi drivers; they gave us the foundation of sociology, I am sure! We spent a little time in the old touristy market district (where we have friendly acquaintances from past visits). We also walked some on Puerto Vallarta’s beautiful and interesting seafront (the “malecon”). I speak Spanish well, I understand everything in the language; I read it with ease. I read the paper a few times; I watched the Spanish language news on television a few times. I read free brochures on this and that.

There is much to like in Mexico, and especially Mexicans. They are low-key, unexcitable, stoical cordial, affable, and eager to help, and not only vis-à-vis this pleasant, well-disposed gringo, myself. Living for a short time in pleasant, clean Puerto Vallarta, it’s difficult to remember that Mexico’s homicide rate is three times the US rate. It takes the occasional sighting of a truckful of the new, nattily dressed National Guard with automatic weapons to jog your memory. (See notes from a previous visit: “Mexicans in Mexico,” 2017, )

Low productivity

My main observation is a repeat from what I recounted the last time I was there (See my “Mexican Underdevelopment: Pop-Sociology.”) It’s about productivity. For most of our stay, there was work going on on a brick path right beneath my windows. It was mind boggling. At one point, there were seven people working on the same two steps, including a master craftsman. They continued by restoring and cleaning a flat brick path. The thought stuck me that,in California, two, or two-and-a-half of the same Mexican workers (the very same guys) would have done the same work in the same time easily. And, yes, I know something about brick laying, both personally (I used to be very poor; now I am moderately poor), and as a customer. I am talking about a more than fifty per cent rise in productivity obtained by simply moving workers into a different environment. Bosses and economic leaders would easily kill for a change of such magnitude!

Of all the guys on the bricklaying and brick cleaning site, only one had a proper power tool, and it was only operational part of the time. The others labored by hand, mostly on their knees. No one had thought of giving them knee-guards. They had not themselves.

Moderate Poverty

The workers told me they were making about US$23 a day, or $115 for a forty-hour week. That’s not bad given that beginning professional positions – that require a university education – in thriving, manufacturing Monterrey are advertised for US$600 a month. Yet, and although most food, housing, gasoline, and health care are all cheaper in Mexico than in the US, this is still not much money on which to rear a family. But, this is also not dire poverty of the kind we used to see, and sometimes still find in India or in Africa. In that part of Mexico, everyone looks healthy, especially the children. Many adults are obese, more or less like in the US. Everyone is well dressed, by the admittedly low standards of central California where I live.

Over-staffing

Here is striking fact: Wherever you go, you find overstaffed shops, restaurants, etc, often very overstaffed. I mean like three shop attendants doing nothing in the middle of the afternoon. There must be a reasonable number of exceptions because my dentist’s office makes good use of its human resources. The same young women who serve as assistants, also act as receptionists. (I know, know, comparative advantage; don’t get me started, this is not the time or place.)

Productivity and Income

Over-staffing and the failure to provide workers with the best tools matter a great deal if you think, as I do, that incomes roughly follow productivity though often with big time lags, and often not in a linear fashion. Although employers sometimes fail to share the product of productivity gains with workers, the fact is that they cannot share gains that have not occurred. Low productivity pretty much guarantees low wages.

Note what I am not saying. The Mexican work ethic is not the problem. The guys who worked in the hot sun of tropical Mexico for eight hours a day don’t need lessons from anyone on that count. Also, those of us who live in California remember well the recession years when the vegetable picking lines remained nearly all-Mexican (with a handful of Filipinos) while poor Anglos lamented the absence of jobs. Now that wages in the field have increased substantially because of a chronic farm labor shortage, still few college students are flooding in, California sky-high rents or not.

Going back to fairly prosperous Puerto Vallarta, where construction is thriving (because of Canadian refugees from the cold, I am told), there is also the mysterious fact of the invisible zealot pounding stakes close to my hotel at 5:30 AM. I am not complaining. I respect this instance of unreasonable industriousness!

Social Structure and Productivity

Mexicans remain poor, the Mexican economy keeps growing but only slowly. This is, at least in part, I think, because Mexicans have normative standards that do not feed high productivity. These standard maintain a permanent social structure that makes increasing productivity difficult. A vicious/virtuous circle is at work. Labor is cheap because of its low productivity. It’s so cheap that, why not hire an additional worker for the same job? The incentive to hire nonchalantly is probably high because of Mexicans’ high connectivity. Mexicans, even in a fairly new city like Puerto Vallarta appear much more interconnected than Californians. (I don’t know much about the East Coast of the US.) There are many more individuals in one’s life there to please by giving their relatives and liege a job than is the case where I live.

Take the lifelong relationship of “compadre” and “comadre” between adults who are usually not kin to each other. The titles denote the link between a man and a woman who are respectively godfather and godmother to the same child. It easily multiplies by two or three beyond actual relatives the circle of individuals to whom one is to some extent obligated. And, it does not end there. Why, there is even a word in Mexican Spanish to denote the relationship of two people who have the same first name! I forgot the word but I was charmed to discover that I was ##### to any number of “Diegos.” I can even imagine situations where someone would succeed in using that tenuous link to extract a small favor from me (with a probable intention to reciprocate).

High Connectivity not a Specific Feature of Mexico, and Over-Staffing

I don’t think this high connectivity is an idiosyncratic feature of Mexican society. I believe rather that something similar prevails in India (that I know a little). It seems to me that high connectivity was visible also, in rural Brittany when I was a child in the forties and fifties. It was largely absent in Paris by contrast where I lived most of the time (Order my book of socio-historical memoirs of that period: I Used to Be French: An Immature Autobiography; avoid the middle person, go through me.). Having obligations to few rather than to many is a salient feature of modernity (that includes also urbanization, small nuclear families, and a search for formal education).

I speculate that Mexicans, even in comparatively modern places like Puerto Vallarta, have a high tolerance for over-staffing because of the large social networks within which they exist. Over-staffing is thus a primary contributor to low productivity. Low productivity keeps many people poor. Poor people need a supportive network more than do the more prosperous. Long and short of it: to break the cycle would require a degree of de-humanization of Mexican society. It’s not inexorable. Mexicans may collectively choose a bearable level of poverty (see life expectancy below) over the destruction of the emotional comfort larger social networks promote.

Not Following in the Footsteps….

It seems to me that a high degree of familiarity with the negative example of American society next door with its low connectivity – in places – may guide them toward such a choice. In point of fact, I have met a strikingly large number of Mexican men who had worked in the US for several years and who had returned home under their own power, by choice, according to their narratives. (I also note with satisfaction that ten years ago, S. Nikiforov and I had evoked precisely that sort of preference in a big article on Mexican immigration: “If Mexicans and Americans could cross the border freely,” in The Independent Review, 14-1: 101-133 [Summer] 2009.)

There is no law of nature that requires the people of less developed countries to retrace all the steps of their predecessors in development. The cellphone shows us that often, they don’t have to: Several African countries have phone landlines only in the center of their major city but 80% of their population has access to a cellphone. Trying to skip stages is the rational thing to do, of course. I would guess it’s most successful when it depends largely on a myriad of individual decisions, as with cellphones. Nevertheless, it seems to work pretty well – for some reason – even with collective decisions regarding health care, specifically.

Perhaps, societies can pick and choose what features of modernity they actually want thanks to a density of available information and a richness in inter-communications that was unimaginable forty years ago. (That was when I was studying underdevelopment with rigorous methods.) I can picture a partial national consensus forming that says, “We don’t need everything the big guys have; a little bit more of this and of that, and we are OK.” If this scenario is realistic, food, schooling, and health care will probably be its dominant themes. The Mexican food situation appears fine (I will consider contradiction on this.). In my subjective judgment, based on its products, on the average, Mexican K-12 is superior to its American public counterpart.

Illness and Health care

One component of socio-economic underdevelopment and also an obstacle to development in its own right used to be widespread illness. The morbidity figures I saw in the seventies about the situation in the fifties were horrifying. Illness also obstructed development indirectly because it destroyed family units through the death of parents or older siblings, even of aunts and uncles who might have provided. This is largely in the past. The present in poor countries is very different, greatly improved from the narrow standpoint of health. And, it turns out, the Mexican health picture, in particular appears fairly bright.

Single Payer Health Care

Something to think about for my conservative friends: Mexico has single payer healthcare for those who want it. It has a pretty poor reputation, it’s true. A private health network subsists side-by-side with it for the prosperous. (I like that.) Yet, yet, the life expectancy of Mexicans is only 2.6 years lower than that of Americans, same as the difference between the US and the Netherlands (WHO 2015, in Wikipedia). Americans live longer than Mexicans in the same proportion as the Dutch live longer than Americans. So, either, it’s possible to get fairly similar results health-wise at much lower cost than do Americans, or health care does not matter all that much, as far as not dying is concerned. (Hate to twist the knife in the conservative wound but the Dutch also spend much less money than Americans on their health care.)

Incidentally, I am well aware that there are non-economic arguments against entrusting what is now 17% of the US GDP to the government, to any government. But, perhaps, conservatives should restrict themselves to combating govt. health care on political and principle grounds alone. (End of digression.)

Where To?

So, where am I going with this, you may fairly ask? I am expressing my doubts that Mexican society – and other less developed societies – will be forced to undergo the dislocating social change that would be required to improve much its (their) productivity, according to the old schemes. I have to stop here, more or less, but it seems to me that Mexico is more likely to improve first its societal-level productivity by having more women join the work force. The preservation of a high existing level of connectivity – with its baked-in child care and food services – would ease, and facilitate such mass social change, of course.

Legal Immigration Into the United States (Part 8): Culture, Immigration, and Culture

Jacques Delacroix Culture, Current Events , , , , , , ,

Immigrants, Language and Income

The culture of their country of origin immigrants carry with them may have consequences for the speed of their integration and for their ability to assimilate. In turn, immigrants may cause a variety of changes in American culture. Language is central to both types of cultural effects.

Current immigrants frequently have inferior earning capabilities because they are less educated on the average than are the native born. This is not the only disability they bring with them. Often, usually, their command of the English language is limited. This linguistic deficiency has consequences beyond the economic sphere. The continued poverty language incompetence fosters also retards their assimilation.

Many on the right declare themselves concerned with immigrants’ eroding influence on wages. Most of us are interested in the speed with which immigrants assimilate. Both phenomena depend to a large extent on immigrants’ competence in the English language. Linguistic competence influences the ease and speed of immigrants’ assimilation in the long run. In the short and middle run, it’s a direct determinant of income. Immigrants vary widely on a continuum of this crucial variable, from a superior command English, to no English at all.

The English language is special. Much of the world has English as a first language or as normal language of instruction in schools. A second tier includes English as a second language in its schools or, more often, in some of its schools. English is the first second language in the world. Middle class people everywhere learn English. In many countries though most people have no systematic interaction with the English language. The disadvantages of not knowing the common language of the country where one lives are so great that it’s a sort of miracle that so many even try to ignore those by moving to the US equipped with no knowledge of English. It makes sense then mentally to divide immigrants into the US in two broad categories according to their mastery of English as they land.

Silicon Valley is teeming with prosperous Indians, many of whom are actual immigrants. (There is a kind of optical illusions at work here though: Many Indians are on temporary, H-1B and F-1 visas. Indian immigrants who are not successful just go home, soon to be replaced by others. They leave little trace.) The Indian real immigrants can themselves be subdivided in two economic classes. Some spread all over the US where they utilize family connections to manage hotels and retail businesses. The Indians in Silicon Valley belong largely to another breed. Almost all are graduates from two dozen elite Indian engineering and management schools of higher learning. They are solidly middle class by upbringing although many arrive poor because of the steep income gradient between India and the US. My Indian wife – who knows I know not how, but who does know – assures me that all, or nearly all of the latter, belong to the lofty Brahman caste. (This is a case where class and caste correspond, far from a universal given.) They are people who could aspire to a good job back home in India where, however, their economic futures and their horizons would remain limited because India keeps being India. They all seem to arrive, amazingly, with a strong work ethic and with excellent work habits.

I think I taught between 200 and 300 Indian immigrants in my MBA career. Not one contradicted this generalization. Of course, this is not a generalization about Indians, but about the self-selected subgroup of Indians that shows up in central and northern California after having been admitted to and survived gruelingly selective schools back home. A couple who self-designated to me, their MBA instructor, as “lazy” would have been considered veritable Heroes of Labor in the old Soviet Union.

All the Indians from this second group are educated in English from an early age. They are used, via reading, movies and the internet, to American English (and to American culture) before they land. Outwardly, their adaptation is seamless. Digression: Except possibly that they may suffer a high rate of failed marriages. They engage in arranged marriages in India, bring their brides to America. Here, the young brides, utterly deprived of the usual Indian female support network and also, I am guessing, with a lesser mastery of English, become terribly unhappy. For this reason alone, I am guessing that Indian immigrants are less well-adjusted overall than are Mexicans who tend to bring everyone who matters with them. This is just a plausible redundant impression I gathered over 25 years. I have no figures in support.

These educated Indians obtain good jobs and they work diligently and intelligently. They are able to progress at work in good part because they express themselves with a clarity seldom achieved by other kinds of immigrants. (This, in spite of some peculiarities of Indian English: “You will go there, is it?”) They are thrifty at first, helped by the shock of finding out that a pound of lentils costs three times more in San Jose than in Kolkatta (personal research – an email to my sister-in-law there). So, they achieve a modest level of prosperity in a relatively short few years. The quick emergence of Indians in other walks of American life unconnected to high technology or to business, including medicine, the law and even journalism, testifies anew to those widespread virtues but all of this success would hardly be possible absent initial fluency in English.

Immigrants of many other different origins also make their way to Silicon Valley in response to the constant demand for high-tech specialists. The Chinese among them are numerous and conspicuous. I had them in my MBA classes for twenty-five years, right alongside the Indians. They gave me the impression of being about as excellently trained as the Indians. My intuition suggests that they were more entrepreneurial, on the whole, or maybe just more individualistic, but they nearly all struggled with English. (“Nearly;” one young Chinese woman had the cheek to correct my mistakes of syntax in class on several occasions.) If your native language does not use verb forms to distinguish between present and past, you can learn to say, “I did it,” instead of “I do it yesterday,” but it must be like a herd of potholes on the road you are traveling.

I suspect that many of the young Chinese immigrants I knew, star students back home, lived lives of frustration in the US because of the language barrier. The frustration runs deeper than a relative inability to get things done. (Though the latter counts too. I can mention it  now because there is probably a statute of limitation: Forty-plus years ago, I wrote a Chinese student’s entire doctoral dissertation; it was very good both in content and in form. Also, the student cooked well.) If you express yourself at the level of a native-born ten-year-old, the unsophisticated foreign language virginal natives treat you like a fairly-gifted ten-year-old. This is pretty conjectural, of course. I would bet on it though! I have discussed this several times over steamed mussels with some favorite Chinese students with whom I had picked and prepared the shellfish; they had no reason to lie to me, not then, anyway.

It’s difficult to generalize about the few visually inconspicuous Europeans who also make it to Silicon Valley. Those who attended my classes were as competent in English as foreigners for whom it is a second language can be. I am guessing they were competent enough to be engineers. For some reason, Russians shone among them. Reminder: I am not indulging here in a devious comparative survey of different national educational systems. Immigration to America dips into different pools in different countries. Perhaps, smart Russians always go to America if they can while equally smart French engineers would rather stay home to continue their leisurely dégustation of blanquette de veau façon Normande.

It’s certain that mastery of English plays a big part in determining immigrants’ incomes as well as their economic contributions to American society. It’s also easy to miss the competence and the high character of those who don’t understand English well. And, as I have said, nothing sounds more like a ten-year-old than a bright foreigner whose English is struggling to reach the second grade level. With a low competence in English, even if it be only spoken English, the best jobs elude you although you would be capable of performing them, language notwithstanding. I believe that millions of immigrants are employed much below their maximum earning capacity solely because of their low linguistic competence. So, while the actual economic contribution of those immigrants is correctly assessed as low, their potential contribution is systematically underrated. This is a problem capable of solutions that are rarely discussed. A merit-based system would easily incorporate such solutions. So would a system of conditional admission linked to progress in English.

Anecdote: About twenty years ago, there was a tacit agreement among Anglo employers of casual Mexican labor that Mexicans were hard working and knew how to follow simple orders, but that was it. They were automatically treated as unskilled labor. Myself, with my good Spanish, I never had any trouble finding a tile layer, a carpenter, even an electrician among the day laborers gathering outside Home Depot every morning. The specialized workers I located were not slow to point out that the work I requested was skilled work and must be paid accordingly.

We must thus remember that linguistic disability must keep the wages of non-English speaking immigrants lower than they would otherwise be at a given level of occupational competence and personal ability. Language incompetence must thus also contribute to lower prices although at some cost to productivity.  (Yes, here is the paradox: Each produces little but there are many of them. In the end, we pay less than if they were not here.) The situation of Mexican immigrant entrepreneurs, specifically, tests this idea. Entrepreneurs need to possess at least a fair command of English, if nothing else, to round up customers. The language disability is thus removed or lessened in their case, allowing for a more straight comparison of income with Anglos. It seems to me that immigrant contractors do not bid especially low, or not much lower than their Anglo counterparts. At least, when you ask for bids on a previously described job, you couldn’t guess by bid amounts who is a Hispanic immigrant. It may also be thought that such immigrants  provide a better quality/cost ratio. I don’t know if this intuitive idea, based largely on my private experience, has been examined rigorously anywhere. It’s backed by the likelihood that the self-selected immigrant group possesses some traits of character superior to those found among natural groups, including among members of the host population. I develop this idea in “Why Immigrants are Superior” (referenced elsewhere).

[Editor’s note: in case you missed it, here is Part 7]

Economists vs. The Public

Joakim Book Economics , , , , , , ,

Economics is the dismal science, as Thomas Carlyle infamously said, reprising John Stuart Mill for defending the abolishment of slavery in the British Empire. But if being a “dismal science” includes respecting individual rights and standing up for early ideas of subjective, revealed, preferences – sign me up! Indeed, British economist Diane Coyle wisely pointed out that we should probably wear the charge as a badge of honor.

Non-economists, quite wrongly, attack economics for considering itself the “Queen of the Social Science”, firing up slurs, insults and contours: Economism, economic imperialism, heartless money-grabbers. Instead, I posit, one of our great contributions to mankind lies in clarity and, quoting Joseph Persky “an acute sensitivity to budget constraints and opportunity costs.”

Now, clarity requires one to be specific. To clearly define the terms of use, and refrain from the vague generality of unmeasurable and undefinable concepts so common among the subjects over whom economics is the queen. When economists do their best to be specific, they sometimes use terms that also have a colloquial meaning, seriously confusing the layman while remaining perfectly clear for those of us who “speak the language”. I realize the irony here, and therefore attempt my best to straighten out some of these things, giving the examples of 1) money and 2) investments.

An age-old way to see this mismatch is measuring the beliefs held by the vast majority of economists and the general public (Browsing the Chicago IGM surveys gives some examples of this). Bryan Caplan illustrates this very well in his 2006 book The Myth of the Rational Voter:

Noneconomists and economists appear to systematically disagree on an array of topics. The SAEE [“Survey of Americans and Economists on the Economy”] shows that they do. Economists appear to base their beliefs on logic and evidence. The SAEE rules out the competing theories that economists primarily rationalize their self-interest or political ideology. Economists appear to know more about economics than the public. (p. 83)

Harvard Professor Greg Mankiw lists some well-known positions where the beliefs of economists and laymen diverge significantly (rent control, tariffs, agricultural subsidies and minimum wages). The case I, Mankiw, Caplan and pretty much any economist would make is one of appeal to authority: if people who spent their lives studying something overwelmingly agree on the consequences of a certain position within their area of expertise (tariffs, minimum wage, subsidies etc) and in stark opposition to people who at best read a few newspapers now and again, you may wanna go with the learned folk. Just sayin’.

Caplan even humorously compared the ‘appeal to authority’ of other professions to economists:

In principle, experts could be mistaken instead of the public. But if mathematicians, logicians, or statisticians say the public is wrong, who would dream of “blaming the experts”? Economists get a lot less respect. (p. 53)

Money, Wealth, Income

The average public confusingly uses all of these terms interchangeably. A rich person has ‘money’, and being rich is either a reference to income or to wealth, or sometimes both – sometimes even in the same sentence. Economists, being specialists, should naturally have a more precise and clear meaning attached to these words. For us Income refers to a flow of purchasing power over a certain period (=wage, interest payments), whereas Wealth is a stock of assets or “fixed” purchasing power; my monthly salary is income whereas the ownership of my house is wealth (the confusion here may be attributable to the fact that prices of wealth – shares, house prices etc – can and often do change over short periods of time, and that people who specialize in trading assets can thereby create income for themselves).

‘Money’, which to the average public means either wealth or income, is to the economist simply the metric we use, the medium of exchange, the physical/digital object we pass forth and back in order to clear transactions; representing the unit of account, the thing in which we calculate money (=dollars). That little green-ish piece of paper we instantly think of as ‘money’. To illustrate the difference: As a poor student, I may currently have very little income and even negative wealth, but I still possess money with which I pay my rent and groceries. In the same way, Bill Gates with massive amounts of wealth can lack ‘money’, simply meaning that he would need to stop by the ATM.

Investment

A lot like money, the practice of calling everything an ‘investment’ is annoying to most economists: the misuse drives us nuts! We’re commonly told that some durable consumption good was an investment, simply because I use it often; I’ve had major disagreements friends over the investment or consumption status of a) cars, b) houses, c) clothes, and d) every other object under the sun. Much like ‘money’, ‘investment’ to the general public seem to mean anything that gives you some form of benefit or pleasure. Or it may more narrowly mean buying financial assets (stocks, shares, derivatives…). For economists, it means something much more specific. Investopedia brilliantly explains it: The definition has two components; first, it generates an income (or is hoped to appreciate in value); secondly, it is not consumed today but used to create wealth:

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

This definition clearly shows why clothes, yoga mats and cars are not investments; they are clearly consumption goods that, although giving us lots of joy and benefits, generates zero income, won’t appreciate and is gradually worn out (i.e. consumed). Almost as clearly, houses (bought to live in) aren’t investments (newsflash a decade after the financial crisis); they generate no income for the occupants (but lots of costs!) and deteriorates over time as they are consumed. The only confusing element here is the appreciation in value, which is an abnormal feature of the last say four decades: the general trend in history has been that housing prices move with price inflation, i.e. don’t lose value other than through deterioration. In fact, Adam Smith said the very same thing about housing as an investment:

A dwelling-house, as such, contributed nothing to the revenue of its inhabitant; and though it is no doubt extremely useful to him, it is as his cloaths and household furniture are useful to him, which however make a part of his expence, and not his revenue. (AS, Wealth of Nations, II.1.12)

Cars are even worse, depreciating significantly the minute you leave the parking lot of the dealership. Where the Investopedia definition above comes up short is for business investments; when my local bakery purchases a new oven, it passes the first criteria (generates incomes, in terms of bread I can sell), but not the second, since it is generally consumed today. Some other tricky example are cases where political interests attempt to capture the persuasive language of economists for their own purposes: that we need to invest in our future, either meaning non-fossil fuel energy production, health care or some form of publicly-funded education. It is much less clear that these are investments, since they seldom generate an income and are more like extremely durable consumption goods (if they do classify on some kind of societal level, they seem like very bad ones).

In summary, economists think of investments as something yielding monetary returns in one way or another. Either directly like interest paid on bonds or deposits (or dividends on stocks) or like companies transforming inputs into revenue-generating output. It is, however, clear that most things the public refer to as investments (cars, clothes, houses) are very far from the economists’ understanding.

Economists and the general public often don’t see eye-to-eye. But improving the communication between the two should hopefully allow them to – indeed, the clarity with which we do so is our claim to fame in the first place.

Revised version of blog post originally published in Nov 2016 on Life of an Econ Student as a reflection on Establishment-General Public Divide.