Why don’t Tajikistani workers in Russia speak Russian? Because their schools can’t afford to teach them
Despite an economic growth rate of 60% over a recent six-year period, Tajikistan remains one of the world’s poorest countries. Mainly for that reason, it ranked in 2003 in the lowest third of nations for economic development, reported the United Nations Development Programme. A typical resident earns $1.50 a day, still below his Soviet earnings of two decades ago.
Tajikistan lacks not resources but the means of exploiting them. The country is rich in rivers, but hydropower requires more physical capital than Tajikistanis can easily finance. They are too poor to save.
Traditionally, economists recommend that a developing country raise money for investment by exporting goods. But geography precludes this strategy for Tajikistan. Of the nation’s land, 97% is mountainous, and none of it is accessible to navigable waters. Import buyers around the world can’t afford to transport many Tajikistani goods. Trade in portable services, especially labor, becomes all the more important.
Thanks to the Soviet commitment to educating all – if rote learning qualifies as education -- Tajikistanis are learned compared to other peoples of like income. And their youthfulness -- 67% are younger than 29 – may enable the country to capitalize on its universal education, in the form of literate emigrants.
The importance alone of emigrants to Tajikistan’s economy could justify public investment in them. Civil war in the mid-Nineties propelled the first migrants – skilled non-Tajiks -- from the newly independent country. Since then, the surge has become a flood, with one of every three male workers going abroad to try his luck, noted Abdul-Ghaffar Mughal. Tajikistan’s economy relies more on emigrant workers than does any other. It is among the 20 countries with the largest receipts of remittance, and it has the highest ratio of remittance to gross domestic product (about half, according to the National Bank of Tajikistan). In 2008, remittances were $2.6 billion, much higher than foreign spending on factories and other capital in Tajikistan (i.e., foreign direct investment).
Do the earnings of emigrants help develop the home economy – or hinder it? The answer may depend on how families spend the money. A statistical study by the International Monetary Fund (IMF) in 2009 concluded that emigrant earnings “have contributed little to economic growth in remittance-receiving economies and may have even retarded growth in some extent.” Adolfo Barajas et al. found no example in which remittances had spurred long-run growth of the home economy. Evidently, families spent them on “life’s necessities” rather than lend them indirectly to projects expanding the economy’s capacity to produce. Foreign direct investment may stimulate more economic growth than remittances do.
In Tajikistan, investment in production amounts to only 15% of all spending on the country’s goods and services. Remittances do not boost this share by much, since only 3% are banked in Tajikistan and thus available for business loans. To the contrary, of every additional somoni earned, two thirds are spent on imports – three times as much as export earnings. The emigrants buy imports, too. Of those surveyed a few years ago, 89% said they had gone abroad mainly to earn money for buying food, clothes, and basic goods for the home, reported the International Organization for Migration. Only 5% said they had emigrated in order to finance homes or other durable goods, or to fatten the piggy bank. In 2008, less than a fourth of all remittances were saved – and half of those for less than six months, said the International Labour Organization. Perhaps the government could induce emigrants to save something in an institution like Russia’s SBERbank, the leading bank in the Commonwealth of Independent States and in Eastern Europe.
Russian roulette
Diverting more remittances into savings accounts could help boost the rate of growth of Tajikistan’s economy. But it could also create risk, in the form of larger fluctuations in national income, since most emigrants go to Russia – 85% of those surveyed in 2007. This destination is natural, since it abounds in resources but not in labor, thanks partly to the low fertility rate of Russian women. Russia is unlike Tajikistan, where the annual entry of 120,000 into the labor force far exceeds the number of jobs available. Nevertheless, an economic crisis in Russia – like the ruble crash of 1998 or the financial crisis of 2008-9 – would have magnified effects on Tajikistan.
Ordinarily, a government might blunt such a depression by spending money. The security guard who gets a new job from the government will spend his somoni at the grocery, enabling a cashier there to spend more money, too. But Tajikistan is wide open to the global economy. Very little spending remains within its borders, so it cannot generate many more rounds of spending at home. An expenditure of $100 million by Dushanbe may boost national income by only $103 million in the final reckoning (see the Technical Notes).
Probably the most effective of all policies for the emigrants would be to educate them. In principle, a literate country like Russia could sell human capital to Tajikistanis in exchange for their labor. In reality, emigrants return to Tajikistan with more money than knowledge, in part because they do not understand Russian well enough to learn from their stays. This may help explain why Tajikistanis earn lower wages in Russia than virtually any other group of emigrants.
By subsidizing instruction in Russian, the government in Dushanbe could enable emigrants to earn higher wages in Russia – or to work elsewhere in the post-Soviet bloc. Such diversification of destinations would reduce the risk that emigration generates for Tajikistan’s economy. Instruction in English could widen the emigrants’ net still further. At present, only 2% of Tajikistani teaching is in Russian, and only .03 of a percent in English, wrote Briller.
In addition to language instruction, Dushanbe could facilitate training in sectors that are most likely to weather a downturn in Russia, such as information services and the repair of heavy machines. That strategy applies to other countries, too. This spring, the government agreed to send 1,000 physicians and nurses to Saudi Arabia.
Government spending on education earns a double return: Literacy increases, and emigrants become more productive and thus better paid. A 2000 study in Australia, by Borland et al., found that college graduates earn a wage premium of 65% over their careers, compared to non-graduates. Assuming diminishing returns to education as the level of education increases, the wage premium in Tajikistan may well be higher than 65%; but we will take this as a starting point.
One educational payoff for government is a modest increase in its tax revenues – not enough, however, to justify the expense to it of education. (This consists of the direct cost of schooling as well as the tax revenues foregone because a youth now studies rather than works). Even given a schooling cost of only $2,500 a year for a four-year degree, and given a hefty tax rate of 40% on income, several times higher than other top marginal tax rates in Central Asia, the tax revenues from enhanced income cover only a fourth of Dushanbe’s original outlay for college (see the Technical Notes). This explicit return to education is small because Tajikistani incomes are low to begin with and because wildfire inflation erodes the purchasing power of future tax receipts.
Tajikistani schools get a failing grade
Ironically, Tajikistan’s government has cut back sharply on educational spending, like others in Central Asia. In the last Soviet years, public spending on education was about 8% of gross Tajikistani income. After independence, this share fell to 2% by 1995 and remained there for nearly a decade. As late as 2006, the share was apparently still less than 3%. Merely maintaining the education system might require roughly 7% of GDP, according to Briller, who did not justify the estimate.
The educational system cannot be reformed in a New York minute. More than a third of the schools lack toilets. More than 40% of teachers in Tajikistan have never attended college, and their average salary is about $13 per month, according to Briller’s report for UNESCO. More than a fifth of youths aged 13 to 17 do not attend school, partly because children comprise as much as 40% of the work force picking cotton, the leading legal export of Tajikistan. As happened in the United States in the 1910s, a ban on child labor in Tajikistan would probably boost school attendance, but at some short-run cost to rural farmers.
Education in Tajikistan requires public subsidy for several reasons. In a more general context, Milton Friedman noted the most apparent reason a half-century ago. An educational loan from a bank cannot be secured with the asset that the loan would develop, human capital, without risking slavery. In principle, the family could offer other assets, such as land, for collateral; but in reality, families that cannot afford education cannot afford much of anything else.
In addition, education of emigrants generates spillover benefits. The Russian-speaking emigrant abroad can gain knowledge to be shared with his family and friends in Tajikistan. Since the emigrant cannot collect payments for this shared knowledge, he may discount its value when considering whether to incur the expense of learning Russian. A public subsidy for learning Russian may induce the emigrant to take its full benefits into account.
Some indirect policies may improve education in Tajikistan as sharply as would a direct subsidy. One roadblock to long-run investment in Tajikistan is its central bank. It tolerates annual rates of inflation that are variable and high: About 7% in 2005, 21% in 2008. No lender wants to be paid back in somoni weaker than the ones lent out. So creditors of education will increase their annual interest rates by as much as 20%, making their loans unaffordable for most individual borrowers in Tajikistan. In addition, volatility in the rate of inflation, which tripled in four years, will lead a typical creditor to refuse to lend to students because he fears getting burned by unanticipated inflation. The National Bank of Tajikistan could make the country safer for investment by stabilizing the supply of somoni and thus the rate of inflation.
The government declared 2010 to be the “year of education.” Is it willing to put its money where its mouth is? -- Zafar Davronov and Leon Taylor tayloralmaty@gmail.com
Zafar Davronov graduated from KIMEP with a Master's of Business Adminstration and now is a graduate program officer in the Bang College of Business at KIMEP. A Tajikistani, he often writes about economics and finance in Tajikistan.
Technical notes
The government’s rate of return to education. Suppose that the government pays $10,000 per year to finance four years of study for a college student. Also suppose that the graduate commands a wage premium of 65% (relative to a high school graduate) over a 30-year career, or a total wage of $7,100 per year. (For a mean household of 7.1 persons, the annual income would be about $4,300. A 65% markup would increase this to $7,100.) Finally, suppose that his marginal tax rate on income is 40%, four times higher than the top individual tax rate in Kazakhstan, according to the World Bank. (Data on income tax rates in Tajikistan were not readily available.) For now, assume no discounting.
The total cost to the government of the investment is $40,000 (out-of-pocket expenses of education) plus $7,000 (foregone tax revenues on four years of averted work, 4*$4,300*.4), totaling $47,000.
Upon the total investment, annual net tax revenues after graduation are $2,800*.4 = $1,120, or $33,600 over 30 years, only 71% of the cost of capital.
Even this pessimistic calculation overstates the return to government, for two reasons. First, inflation will reduce the purchasing power of the dollars to be received in the future, relative to the dollars paid today for the college education. Second, the agents of government may prefer to receive a dollar now rather than later, if only because of impatience and uncertainty.
One way to crudely measure the impact of these factors is to look at the market interest rate that the government pays in order to borrow a dollar for immediate spending. The interest rate reflects the strength of the government’s preference to spend today. It also reflects the inflation rate expected by the creditor, since he wishes to be paid back later with dollars just as valuable as the ones that he now lends.
In 2008, the rate of inflation in Tajikistan was 20.5%, and the real interest rate -3%. Thus the market rate of interest was about 17%. Factoring this rate of discount yields a present value of $3,450 for the government’s return to education. That is, the government would be indifferent between receiving $3,450 now and receiving $1,260 a year for 30 years. This amount is only 9% of the original cost of capital of $37,570 (where this amount has also been discounted at the annual rate of 17%).
The failure of new tax revenues to cover the original cost of human capital is insensitive to various parameters. If the direct cost is $2,500 a year (not $10,000), then the new tax revenues still cover only 26% of the total cost of capital. If the wage premium is 100% (rather than 65%), the share of expenses recouped is 14% (assuming $10,000 of annual direct costs).
Spreadsheet calculations are available upon request.
Income multipliers. In Keynesian economics, the total impact of an initial round of spending takes into account that a new dollar may be respent indefinitely. Denote the initial round of spending as A and the share spent domestically of a new dollar of income as c, normally between 0 and 1. Then total income generated is Y = A + c*A + c*(c*A) +…. Rewrite this expression as cY = cA + c*c*A + c*c*c*A + …. Then Y – c*Y = (1-c)*Y = A. Solving, Y = A/(1-c) = A/s, where s is the share saved of the new dollar.
In addition to savings, spending on imports and income taxes also divert dollars away from consumption. Denote as t the share of another dollar spent on taxes and as m the share spent on imports. The revised expression for income generated is Y = A + c*(1-t – m)*A + c*(1-t-m)*c(1 – t –m)*A + …. Thus Y – c*(1-t-m)*Y = (1-c*(1-t-m))*Y = A. Solving, Y = A/(1 – c*(1-t-m)), where the denominator simply expresses the modified share in new income of saving.
For Tajikistan, we may take c to be .1; m, .65 (as estimated by the IMF); and t, .1. Calculating, the multiplier is 1/.975 or 1.03.
References
Borland, Jeff, Peter Dawkins, David Johnson and Ross Williams. 2000. Returns to investment in higher education. The Melbourne Economics of Higher
Education Research Program Report No. 1. At http://www.melbourneinstitute.com/research/micro/rihe.pdf
Brajas, Adolfo, Ralph Chami, Connel Fullenkamp, Michael Gapen and Peter Montiel. 2009. Do workers’ remittances promote economic growth? IMF working paper.
Briller, Vladimir. 2008. Tajikistan country case study. Prepared in 2007 for the Education for All Global Monitoring Report 2008: Education for All by 2015: will we make it? At http://unesdoc.unesco.org/images/0015/001555/155515e.pdf
Friedman, Milton. 1982 (1962). Capitalism and freedom. The University of Chicago Press. Second edition. More careful and interesting than Free to choose.
International Labour Organization. 2010. Migrant remittances to Tajikistan: The potential for savings, economic investment and existing financial products to attract remittances. May.
International Monetary Fund (IMF). Country report 2008. Includes estimates of average income in Tajikistan.
Mughal, Abdul-Ghaffar. 2007. Migration, remittances, and living standards in
Tajikistan: A report based on Khatlon Remittances and Living Standards Measurement Survey (KLSS 2005). September. International Organization for Migration Tajikistan.
Kireyev, Alexei. 2006. The macroeconomics of remittances: The case of Tajikistan. IMF working paper WP/06/02. At http://www.untj.org/files/reports/The_Macroeconomics_of_Remittances_the_case_of_Tajikistan.pdf.
Leuchtenburg, William E. The perils of prosperity, 1914-1932. 1958. Second edition (undated). The University of Chicago Press. Pithy.
Taylor, J. Edward. 2006. International migration and economic development. Prepared for the International Symposium on International Migration and Development, Population Division of the Department of Economic and Social Affairs at the United Nations Secretariat, Turin, Italy, June 28-30. UN/POP/MIG/SYMP/2006/09. At http://www.un.org/esa/population/migration/turin/Symposium_Turin_files/P09_SYMP_Taylor.pdf
United Nations Development Programme. Various years. Human development report. Ranks economic development of nations by weighing life expectancy, average income, and the literacy rate.
World Bank. 2010. World development indicators. Online at data.worldbank.org/indicator.
Revised August 19, 2010
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