Samuel Cohn: Global Social Trends

Done right, tourism is a surprisingly effective strategy of economic development. Done right, it is also remarkably progressive and egalitarian in its consequences.

No, I am not talking about the stereotypical “enclave” tourism. In some Caribbean islands, one large foreign company opens up a giant resort. They make some jobs for the locals, but the profits are returned back to the foreign corporation. The local country receives few of the revenues from its tourism, and there is little available to re-invest.

This kind of semi-colonial tourism is more or less a thing of the past. Yes, huge foreign hotel and resort chains exist. But most countries have their own entrepreneurs and local investors who are more than happy to invest in the hospitality sector. The money from locally owned hotels and restaurants stays in the local economy. So does the money from taxis and transports, the money from locally organized tour companies, the money from local nightclubs and entertainment facilities, the money from local cultural facilities, etc.

The countries that can not generate their own hotel entrepreneurs tend to be very, very, small island economies. These are economies that face substantial obstacles to development anyway. Often, their only choices are competing as small players in agricultural markets dominated by other nations, or by going the sweatshop-cheap-labor route. None of these options are super-attractive. And even small economies can generate entrepreneurship for the non-hotel/non-resort part of the business.

Sure, tourism has its downsides which I will talk about in a later posting. Let’s start with the upside. What’s good about tourism when it is done right?

1. Tourism creates jobs for people with low levels of education.

Tourism is labor-intensive and has lots of openings for people of low to middle levels of education. This means that people in the slums have a meaningful shot of getting a job here.

There is nothing that drives me nuts more than people who look at global poverty and sigh, “The only solution is to improve education.” Education matters, but this is the cop-out of the week. You put a girl in first grade and she does not graduate high school until twelve years later. She does not graduate college until sixteen years later. When you are saying, “Education is the only fix”, you are saying “I don’t intend to do anything about global poverty for the next twelve to sixteen years”. Sorry, folks, the poor people of the world can’t wait.

The people in the slums need jobs they can get right now. They can work as chefs in a restaurant. They can work as gardeners in a hotel. They can work as the repair people in hotels. (Those jobs are particularly well paid.) They can work as drivers. They can work as chambermaids.

Of course, Americans will say “But the pay for hotel chambermaids is so low!”

Hotel chambermaids are not paid well compared to computer programmers. They are paid non-trivially well compared to the other jobs available to slum dwellers. Sitting on a corner selling cans of Coca-Cola out of a cooler is not the most lucrative work in the world.

In my book on Brazilian development, I compared the salary of hotel and restaurant workers with the salaries of the rest of the Brazilian population. Hotel workers, if they were formal with their government benefit cards, were at about the fiftieth percentile in Brazil on income. If they were informal and working off the books they were at the thirty-fifth percentile. This means that even the hotel workers who were being maximally exploited were better off than one third of the rest of the Brazilian population. If you are in the bottom twenty percent of the Brazilian population, getting a hotel job double or triples your income, even if you are informal. It can quintuple your income if your employer is willing to give you state benefits. Many big hotels pay full legal benefits because they are such obvious targets for government inspection.

2. Tourism promotes ecology, kind of.

Never mind eco-tourism although that is nice too.

Tourism gives at least some portion of the capitalist class a good reason to defend the environment since natural beauty and non-pollution are essential to their business model.

A hotel owner does not want a butane plant to open next to his establishment.

He does not want lumbering next to his forest resort.

All too often the environment is protected only by idealistic greens, or by international organizations. Tourism gives the environment a handful of big money advocates, some of whom will have connections with the political establishment.

(Note: Don’t get too excited about this last point. Tourism development often leads to real estate development – since rich people like to have their condos next to locations with physical beauty and entertainment. All of these condos generate a huge amount of traffic and a huge amount of human waste that has to go somewhere. Tourism can often look very green at Stage 1 and just awful at Stages 4 and 5 when the tourist district “fills in”.)

3. Tourism Stimulates Access to Clean Water and Sewerage.

Access to clean water and human waste disposal is a big deal in parts of the world where women have to give birth next to open sewers. Tourists are not going to want to eat in restaurants next to open sewers. Hotels can not survive without a supply of clean water. So tourism tends to be associated with substantial expansion of the water and sewerage nets.

This has two effects both of which are beneficial.

a) Even though the initial plumbing projects primarily benefit the hotel areas and any wealthy neighborhoods around them, a significant amount of this expansion benefits poor neighborhoods. In some cases, the poor neighborhoods are conveniently located near where the pipes would have to run anyway. In other cases, the poor neighborhoods do not benefit from the first round of expansion. However, elected politicians or technocrats who want to extend the network to poverty populations find that it is now easier to do so since a substantial proportion of the infrastructure is already built.

b) The water and sewerage projects produce substantial economic growth in and of themselves. Some of this is short term construction. However much of this comes from the fact that the availability of utilities facilitates all sorts of other development, such as retail or light industry. In my own work on Brazil, I found one of the most important correlates of a state’s increase in GDP per capita was the number of water and sewer projects that had been completed in previous periods.

4. Tourism Stimulates Transportation Infrastructure Which Produces Growth.

Whether or not tourism projects actually bring in new tourists, the airport or road development that occurs in order to support the tourism project in general can have its own beneficial effect on future employment growth. My Brazil work found that airports were even more powerful stimulators of growth than were water and sewerage projects. Roads and bus station projects had their beneficial impacts as well.

Here is an example of how this works in practice:

The state of Pernamubuco in Northeastern Brazil expanded its airport in its capital city, Recife, as part of an initiative to support tourism in the state. As soon as the airport was completed, a bunch of businessmen built a number of refrigerated warehouses right next to the airport. Now that they had refrigerated warehouses, they took a set of nearby farms that were producing fruit and organized an export business, sending prime fruit to Europe where it could be sold at the peak of freshness. Export pineapples had never been remotely on the minds of the planners when the original plans for an airport supporting tourism had been developed. But the increased GDP from agriculture dwarfed the impact of any increase that actually occurred in Pernambuco tourism itself.

5. Tourism brings in foreign exchange.

In a world with foreign debt, countries in the Global South need all the dollars they can get. This is especially true since many key inputs, such as computer software or medical supplies, have to be purchased overseas with foreign rather than local currency. Debt crises in the Global South originate from poor countries needing to purchase more foreign inputs than they can realistically afford given the value of their exports. Tourism provides a relatively pain-free way to bring in more of those scarce foreign dollars.

6. Tourism can produce opportunities for major fun for the locals.

This is a case-by-case phenomenon – but when it works, it works well.

I will start with a negative example: Chiang Mai in Northern Thailand. This is a city that was already the cultural capital of Thailand. It is flooded with Chinese and American/Australian tourists. It is not clear that tourism has provided any entertainment value at all for the locals. The Chinese go to Chinese restaurants. The Western expats and tourists go to their own restaurants or hang out with the Chinese. The locals go to their own places and do their own things. On events they would have had anyway, such as markets, the tourists join them.

But there are times when the tourism boom provides an entertainment boom for the locals. Aracaju in Northeastern Brazil was a small and fairly staid seaside city. As part of a push to make Aracaju a tourism destination, the local state government arranged for the building of a spectacular on the waterfront and a long seaside stretch of new bars and restaurants. This turned Atalaia, the seaside district of Aracaju, into a hot entertainment district. The international tourists never came. Foreigners continued to prefer Salvador and the beaches of Bahia, which are spectacular cultural locations, or Fortaleza if they want seamier sexually-based tourism. But Atalaia turned into “the place to go” for the locals. On any given night, the bars and restaurants are packed. The park on the waterfront is filled with local families. On the weekends, the bus stations get a lot of traffic from poor people in the interior coming into Aracaju for a day at Atalaia.

It goes without saying that entertaining the locals was an immensely profitable business.  Atalaia represented a gigantic boon to the Aracaju economy.

So sometimes tourism development can lead to huge improvements in the quality of life, even if not a single foreigner shows up. Sometimes, fun is just fun.

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Does this mean tourism is nothing but wonderful? Does this mean that every foreign tourist represents a golden pig that brings nothing but benefit to the nations they are visiting?

No – there are significant downsides to tourism as an industry – just as there are significant downsides to nearly every form of capitalist endeavor. Marx was not fooling when he said there are constant contradictions between the forces and relations of production. Tourism is subject to flagrant contradictions as well.

But those visiting tourists really are golden pigs who bring huge amounts of money into a country. In some cases, the social costs of bringing in the golden pigs are not that great.

We consider the downside of the visiting tourists in a later essay. But for now, think about all the taxi drivers who are making decent money driving foreigners around (often at inflated prices).

Think about how much economic distress there would be if all of those fare-paying passengers went away.