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Online Extra: "A Massive Economic Development Boom"


In the heated debate over what to do about illegal immigrants in the U.S., few participants are as unabashedly in favor of swiftly legalizing them as Dr. Raul Hinojosa. The 48-year-old professor of political economy at the University of California at Los Angeles is one of the leading experts on the undocumented immigrant population and its impact on the U.S. economy.

A former adviser to President Bill Clinton and an early architect of the North American Development Bank, the principal financing institution for the North American Free Trade Act (NAFTA), Hinojosa argues immigrants from Mexico and other Latin American countries are the threads that inextricably knit the U.S. and its southern neighbors together -- and prop up a labor market desperate for cheap workers.

Indeed, Hinojosa, a fast-talking, pony-tailed graduate of University of Chicago's PhD program, is cashing in on the boom in illegal immigration himself. His startup, No Borders Inc., pedals debit-like cards on which immigrants can store cash, send money home to Mexico, make phone calls, and join medical discount plans.

BusinessWeek correspondent Brian Grow spoke with him about the emerging trend of companies big and small targeting the booming illegal immigrant consumer market -- and whether mass deportation, which some politicians have suggested, is a viable economic solution. Edited excerpts of their conversation follow:

Q: How is the undocumented immigrant community affecting the U.S. economy?

A: First and foremost, it's a source of value added. The total goods and services that they consume through their paycheck, plus all that they produce for their employers, is close to about $800 billion.

They're also producing at relatively lower costs because the undocumented population typically gets about 20% less in wages than if they were legalized. That leads to lower prices for us and higher profits to employers.

In addition, they're obviously a huge consumer base. We've seen that 90% of the wages that the undocumented population gets are spent inside the U.S. Remittances are sent abroad, but that only represents about 10% of immigrants' income. The numbers are becoming quite huge. We estimate about $50 billion dollars in remittances this year. That means that total consumptive capacity remaining in the U.S. is $400 billion to $450 billion.

Q: Why are companies waking up to the largely untapped opportunity to target the undocumented?

A: This is by definition a segment of the economy that has almost purposely been pushed underground by our neglect of immigration policy. We know we need these workers. Nevertheless, we haven't brought [this issue] out of the shadows, so it hasn't been on the radar scope for most companies. But now they're turning around and realizing that these workers are everywhere, and they're not only consuming in the mom-and-pop stores, they're increasingly going and buying all types of goods and services.

Companies are also seeing it as a hugely growing segment of the population. The other element is that they're a group that has traditionally paid cash and been outside the credit system. If you're able to bring them into a creditworthy capability, that's even a bigger impact. For example, we estimate that if undocumented families were allowed to buy houses, they've got the capability to buy more than $75 billion in new mortgages.

Q: If more companies embrace illegals, how might it reshape the way the nation thinks about this segment of the population?

A: I think it could change the discussion so that we wouldn't call them illegals. We would probably call them legalized workers. The assumption has always been that somehow you're doing something illegal, you're taking away from the society, when in fact everybody is now seeing that their irregular immigration status is something that should be done away with.

Also, it would make corporations understand that there's huge untapped potential for growth of markets right here within the borders of the U.S.

The other thing that would be extremely important is that, to the extent that the undocumented are bought out of the shadows and into the economy, it [would be good for] lowering of inequalities. What we've created in this country is in effect a two-tier economy where we literally have an underdeveloped economy isolated in certain ghettos that are thriving actually.

To the extent that those markets could be integrated, that would be good for cities and for those families, as well as the economic wellbeing of all of us.

Q: You had a cameo part in the movie, A Day Without a Mexican, which tried to depict how the deportation of illegal workers would affect daily life in the U.S. What would the impact of a mass deportation be on the U.S. economy?

A: If you took away the undocumented population, it would be the worst economic disaster in the history of the U.S., particularly in the case of California, where it's estimated that half of the undocumented [live].

You could easily be talking about an impact of hundreds of billions of dollars. Actually, A Day Without a Mexican is very much a sugar-coated Hollywood version of how things would be. What you really would have is a halt of all types of vital services.

We have also looked at what would happen if you actually did pass laws that are currently being proposed to take away immigrants' access to identification cards, to being able to call for basic social services. It's not going to stop the magnet for undocumented labor in the U.S. All that it would do is simply push it further underground.

Ironically, by pushing the rights of these workers further underground, the only thing you've done is lower their wages, and therefore actually increase the demand for undocumented immigration.

Q: Congress is trying to figure out how to stem the flow of undocumented immigrants, but Corporate America is figuring out how to embrace them more. Why the divergent paths?

A: Congress simply doesn't get it. They should take a page from that great American Ronald Reagan. He looked hard at the issue and basically said what we need to do is let the market work. As President Bush has said, let willing workers and willing employers have a level playing field to be able to bring the workers that we need for our economy. Our studies have shown movement towards legalization would actually reduce demand for undocumented illegal workers.

That may sound paradoxical but it's exactly what happened after Reagan signed the Immigration Reform & Control Act in 1986. As workers became legalized, the number of people crossing illegally into the U.S. dropped dramatically. [The] 1986 law [also] increased the ability of workers to move from job to job and look for higher pay, eliminating the worst-paying jobs, raising wages at the lower end of the economy, and actually eliminating a lot of the sweatshop jobs that at one point dominated -- and now again dominate -- the immigrant economy.

The best solution for the entire country from a public-policy perspective is to bring this economy out of the shadows, bring it into the mainstream, empower [these people] with both legal and economic rights. Everybody wins. Immigration reform has been put forth primarily as an amnesty. It's actually a massive economic development boom that we should embrace immediately. EDITED BY Edited by Patricia O'Connell


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