Free Trade and the Filipino Maid
It takes a world of anger to push a Filipino domestic helper
onto the streets of Hong Kong in protest. Her
weekend lasts a single day, and she’s on-call or working for every waking
moment of the rest. In recent years an eroded minimum wage has joined maids from
various countries living here to feel discontent, but last month something
changed. A march from Causeway Bay to Central in Hong Kong
focused on a Philippine government proposal to introduce lengthy and costly
training for all household workers leaving the country. Fair enough, you might
think, it’s a competitive world. But this was about restricting free trade.
The flow of labor between countries is an emblem of globalization,
with its promise of opportunity and wealth shifted – if only a little – to those
who need it most. But the reality is tied more to the withering of local
conditions. The official Philippine policy of sending workers overseas began
under President Ferdinand Marcos as he busily looted the country during the
1970s. The plan worked so well that the next deposed president, Joseph Estrada,
called labor migrants “modern day heroes”.
Estrada has been under house arrest for 5 years while on
trial for economic plunder.
But even in such inglorious surrounds, labor migration
carries a compelling logic. Marcos was concerned that export-led development
had failed, and cast about for another way of breaking into the world market.
He found it in people he could send abroad in the hope that their income would
filter home. And it did, without fail – a little at first and then more, year
Last year the Philippines sent more than 1
million workers abroad, and they and 6 million compatriots around the world
sent home over US$10 billion. That was up 10% on the previous year, and the
rate is increasing. But most importantly, given that labor migrants now
overshadow a fragile export industry, the money sent home was around 11% of
GDP. These figures are staggering, especially when you consider that they only
account for money sent back through banks and the like. Door to door cash
deliveries could easily double the estimates, if anyone could quite pin down
And that’s what separates this money from true export
earnings. There’s no accounting regime in place to track success or failure,
and raw statistics can be misleading. Most importantly, no one really knows what
happens to the money sent home by labor migrants. Economists presume that most
goes to consumption and a little to investment, and that it all bolsters
economic development. Filipino workers in Hong Kong
send money home, and their country benefits – it’s that simple. Or so it would
What’s more likely for Filipino domestic helpers in Hong
Kong, who come from the economically disadvantaged provinces more often than their
counterparts in, say, the United States, is that all the money they send home
goes to consumption. Many in their families have no jobs. The implications for
economic growth are clear – there is no investment in new employment and no
This situation of chronic dependency is what Nobel Laureate Amartya
Sen would call an “unfreedom”. He argues that freedom of exchange and of opportunity must be central to economic
development. A country can build sustainable wealth, measured over the long run
and not just a few decades, only when freedoms such as employment, adequate
healthcare and education are in place to develop human resources.
That’s clearly not the case in the Philippines, but this notion of
economic freedom is very close to the Pilipino word kalayaan, which implies social cooperation for liberty and its
rewards. The problem in Hong Kong last month
was that for one group of Filipinos, the home government tried to separate
economic freedom from development policy, their kalayaan from their employment contracts.
The main point of contention was whether a domestic helper with
experience in Hong Kong, or anywhere else,
should have to spend 156 hours and a half a month’s wages training for a job
she could already do. In a very short time, and after protests in other
countries, the Philippine Department of Labor and Employment issued a “clarification”.
The training would only apply to new workers and returnees who failed a
compulsory skills test three times. Knowing that offence really is the best
form of defense, the Department expressed dismay that welfare measures were
being attacked. It pointed out that it had also mandated increases in the
compulsory minimum age and minimum wage for all contracts signed.
Were the protesters wrong? Not at all. The entire problem
lies in the contract system. In what Milton Friedman once called “this world of
jealous nations”, a labor contract ensures that a dismissed worker will return
home. And most do. But in labor migration between the Philippines and Hong Kong,
a contract also necessarily restricts the freedom to trade in services.
The contract sets the domestic helper’s wage at the same
level over two years, without regard for inflation. All governments know about
inflation, so to disregard its influence on the profitability of fixed-rate
international labor is to effectively impose a tariff. That hardly seems like a
credible exercise in development planning, especially when a decline in real,
inflation-adjusted, wages will reduce the money available to send home.
But the Philippine government isn’t alone in this. Although
annual increases in the minimum wage for domestic helpers in Hong
Kong have been 0.5% more than inflation since 2005, there’s always
a lag between the mandating of a new wage level and the renewal of a contract
that will make the increase relevant. And most current domestic helpers were in
the city when the local government slashed the minimum wage by almost 11% in
2003. Even with new contracts, their real wages are still down by around 7.8%.
A further problem is the Hong Kong
dollar’s peg to the US dollar. Floating exchange rates even out inflation levels
between countries. When inflation at home rises, the value of the currency
decreases relative to other currencies, meaning that a worker in a low
inflation country can send back more home currency to compensate for the rise
in prices. But the Hong Kong dollar is set at
7.78 to the US dollar. The exchange rate with the Philippine peso doesn’t vary
much because Philippine inflation at 3.9% is still higher than the de facto
Hong Kong rate (the actual US rate) of 2%. But the Hong
Kong rate is actually 2.2% and rising against a falling Philippine
rate. Money sent home to the Philippines
is buying insufficient pesos, as it will for another year at least.
Yes, the Philippine government knows about exchange rates
So the anger on the Hong Kong
streets was justified at both a specific and a general level. Now that the
training problem is solved, the general solution isn’t difficult – domestic
helper contracts can easily be indexed for productivity. If the Philippine
government won’t lobby for this, employers can enact it informally. A small,
regular increase in pay for a job well done won’t break the bank. But it will
ensure the freedom of trade.