Markets & Finance

Bordering on Absurdity


Cars can move more easily from country to country than people, and that is crimping both human potential and economic growth

What's the best long-term immigration policy for the global economy? Right now we have an international system where goods and services move easily across national borders, but flows of people are strictly regulated. The 149 countries that belong to the World Trade Organization are committed, by treaty, to a "substantial reduction of tariffs and other barriers to trade." No such organization or commitment exists for global immigration reform.

I think that's wrong. It should not be the case that toys and cars can move from country to country more easily than people do. Instead, pulling down the barriers that impede immigration should be our long-term goal. Immigration policy should facilitate the movement of people, just as trade policy facilitates the movement of goods.

From an economic perspective, this is a no-brainer. Right now, there are massive differences across countries in the rewards that skills garner. According to a new paper from Mark Rosenzweig, an economist at Yale, immigrants to the U.S. who are high school graduates earn far more than they did in their home countries. The same is true for college grads. An immigrant from Mexico with a college degree can earn almost 10 times more in the U.S. compared with what he or she would receive in Mexico.

WAGE WORRY.

In such a world, an open immigration policy produces massive gains to trade, as people move to countries that can make the best use of their skills and pay them accordingly. It's unambiguously good for the overall global economy if an entrepreneurial Mexican or Chinese can move to the U.S. and start a new business. Similarly, it's good that an ambitious and smart young Russian or Indian can move to the U.S., go to business school, and become a hot-shot consultant or an investment banker, either in the U.S. or elsewhere.

Such a world of open borders would mimic, on a larger scale, the situation that already exists within the U.S. People can move long distances from one part of the country to another, chasing better jobs and higher pay. Florida and Arizona do not erect barriers saying, "No more immigrants from the Midwest." Instead, they welcome them and even boast about the number of people moving to their states as a driving force for growth.

What are the objections to such an open-borders policy? The obvious one is that letting in a higher number of immigrants would drive down wages. However, economist David Card, of the University of California at Berkeley, has shown that there's little evidence that pay has gone down significantly in cities with large immigration populations (see BusinessWeek.com, 5/08/06, "The Economic Case For Legalizing Illegals").

VALUE ADDED.

This seemingly incomprehensible result makes more sense if you realize that an influx of immigrants is little different than native-born Americans moving to a new city, as happens all the time, or even a spate of children reaching working age. In each case, additional workers will create new jobs by their spending on food, housing, entertainment, and the like, even as they take existing jobs.

Another objection is that a higher number of immigrants will add to the country's fiscal burden, through higher future medical and education costs. There's more validity to this argument. It costs local governments a lot to educate immigrant children, and future Medicare and Medicaid expenses could effectively bankrupt the government, according to current projections.

But these problems are not as big as they seem. As the children of immigrants grow up, their contributions to the overall economy should exceed the costs of their education, even though that may not help the finances of the towns or cities where they grew up. And the long-term state of Medicare and Medicaid is an issue that is going to have to be dealt with regardless of whether or not there are immigrants here.

A DRAINING DILEMMA.

The biggest genuine obstacles to an open-borders policy are political and cultural, not economic. The first is that an excessively rapid and large influx of entrants from other countries could overwhelm the existing culture in a country or a region. This is a serious issue and not merely a reflection of cultural bias.

Second, an excessively rapid and large outflow of emigrants from a country -- particularly an outflow of especially well-educated people -- can lead to a brain drain that damages the viability of an existing society. In the extreme, if enough people leave, it could create what Lant Pritchett of the World Bank calls a "ghost country." Nevertheless, the ability to move should be a fundamental right.

Open borders for immigration are not going to happen anytime soon. The political and cultural obstacles are too large, as the latest immigration debate in the U.S. shows. But over time, facilitating the free flow of people is going to be a critical step toward achieving a truly global economy.

Mandel is chief economist for BusinessWeek.

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