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

after 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

the numbers.

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

seem.

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

expanded production.

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

too.

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.