DUBAI – In September 1960, delegates from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela met in Baghdad to form the Organization of Petroleum Exporting Countries. As the world’s dependence on oil increased, so did OPEC’s power.
Today, with many developing countries, including a majority of the countries in the Middle East, serving as some of the world’s main labor exporters, might it be time to consider the formation of an OPEC-like cartel for migrant workers?
OPEC succeeded in protecting its members’ shared interests that they could not protect individually. When a market has structural distortions, political tools and collective action of the sort that OPEC embodied can be more effective than public policy.
Labor-exporting countries today are not so different from OPEC’s founding members in 1960. They, too, are vulnerable in a market where their customers call the shots. Rich labor-importing countries and poor labor-exporting countries have a mutually dependent relationship; but labor importers can unilaterally tighten or loosen immigration or labor-market regulations, leaving exporters in a constant state of uncertainty.
This imbalance can have serious costs for labor exporters. Remittances by expatriate workers are an essential lifeline for many developing countries – more so than any other financial inflows, including foreign direct investment and aid – and often help to balance a country’s books. Indeed, according to the World Bank, in 2013 remittances amounted to 20-24% of GDP in the Philippines and Indonesia, 42% in Tajikistan, 32% in Kyrgyzstan, 17% in Lebanon, 10.8% in Jordan, 9.9% in Yemen, and 6.6% in Egypt and Morocco.
For many developing countries, labor is a strategic production factor, just as commodities are for resource-rich economies. When we think about migrant labor, we think of low-skill work in agriculture, construction, services, and domestic work. But countries such as Jordan and Lebanon (among others) are now educating workers to compete as high-skilled expatriates, too.
Labor exporters now need to protect their investments in human capital, and a cartel-like political body is the most effective way to do this. If the countries listed above were to join with China, Mexico, India, and other major labor exporters, they would be holding most of the chips in a collective negotiation about wages, visa terms, and other conditions – some of which would also benefit non-members as global norms changed. Labor importers would have to vie for access to a collective market, rather than individual national markets, and countries that gained access would have a significant comparative advantage over those that did not.
A cartel would prevent labor-exporting countries from cannibalizing their own interests, as currently happens with bilateral arrangements. For example, if they were to conclude separate agreements with Gulf Cooperation Council countries, individual Southeast Asian countries would undercut one another, with the result that they might end up with worse deals.
With a cartel, governments would instead set minimum-wage rates for different professions and trades, as well as for different skill levels. As exporters trained their migrant workforces, demand for their labor would grow and spark competition among venders rather than suppliers, thus fueling a virtuous cycle of higher wages and even more skills training. And, because this would all happen on global markets, the prices of certain skills would become more transparent to training institutions, students, employees, and employers alike.
In this new system, importing countries would collect taxes – on the basis of the newly set minimum wage – and remittances would remain untaxed. In this sense, the cartel would double as an international workers’ union, lending bargaining power to employees in countries where unions are weak or not permitted at all.
A labor-exporting cartel would have far-reaching effects on the current system. Cartel members would be empowered to reward and penalize third parties acting in bad faith. And, most important, the workers themselves would be empowered to reclaim their dignity in a system that has long stripped them of it. Indeed, we could expect xenophobia to wane worldwide as access to foreign workers became more privileged.
A cartel could advance the cause of comprehensive immigration and expat labor reform in many countries, including the United States, Japan, and the Gulf states. Under a newly negotiated arrangement, labor-exporting countries would likely have an incentive to curb free riders and illegal emigration, and labor-importing countries would likely have an incentive to legalize and manage the status of illegal immigrants already within their borders. One likely objection to this proposal is that low-skilled labor will cost more, which could accelerate automation.
But the jobs automation displaced from the production sector would simply move to the leisure sector, because demand for domestic workers, waiters, gardeners, and the like would increase.
Because a cartel would make these market changes more discernible, labor exporters would be able to respond and adjust their worker-training systems accordingly, increasing labor importers’ ability to recruit migrant workers better suited to the available jobs.
All told, a labor-exporting cartel would bring order to an industry that has long been mired in controversy, damaging the reputations of more than a few labor-importing countries.
It would change the dynamics of labor supply and demand to the benefit of both workers – who would have new protections – and importing countries, which would have access to trained laborers to respond to rapid changes – often driven by technology – in economic conditions.
Sami Mahroum is Director of the Innovation & Policy Initiative at INSEAD