A world without borders makes economic sense

What is the biggest single drag on the beleaguered global economy? Opponents of globalisation might point to the current crisis, which shrank the world economy by about 5%. Proponents of globalisation might point to the remaining barriers to international flows of goods and capital, which also serve to shrink the world economy by approximately 5%. That sounds like a lot. (source: by Michael A. Clemens – The Guardian, UK – 05/09/2011)

But the truly big fish are swimming elsewhere. The world impoverishes itself much more through blocking international migration than any other single class of international policy. A modest relaxation of barriers to human mobility between countries would bring more global economic prosperity than the total elimination of all remaining policy barriers to goods trade – every tariff, every quota – plus the elimination of every last restriction on the free movement of capital. I document that remarkable fact in a new research paper. Large numbers of people wish to move permanently to another country – more than 40% of adults in the poorest quarter of nations. But most of them are either ineligible for any form of legal movement or face waiting lists of a decade or more. Those giant walls are a human creation, but cause more than just human harm: they hobble the global economy, costing the world roughly half its potential economic product.

The reason migration packs such economic punch is both simple and mysterious: a worker’s economic productivity depends much more on location than skill. Taxi driver in Ethiopia’s capital, no matter how talented and industrious, cannot earn more than a few thousand dollars a year. The same person doing the same job in NYC can easily earn $35,000 a year. The reason people will pay him that much is that his driving adds more than $35,000 of value to the New York economy, more value than his actions can add to Ethiopian economy. This has puzzled economists since Adam Smith in the 18th century. It is related to international differences in legal systems and geographic traits, and to pure proximity to other high-productivity workers. But regardless of the reason, the fact remains that simply changing a worker’s location can massively enrich the world economy. And stopping such movement impoverishes it. Stopping movement particularly impoverishes people born, through no choice of their own, in countries with little economic opportunity. A large majority of Haitians to emerge from destitution did so by leaving Haiti, not by anything they or any development agency did within the country. A low-skill male Cambodian can earn a living standard six times higher in the US than in Cambodia, for a similar work. No act within Cambodia can reliably and quickly create so much opportunity for the industrious poor. And the benefits need not be limited to a tiny handful. In the late 19th century, roughly one third of Sweden’s labour force permanently emigrated to opportunity; today, about half of Guyana has left Guyana.

How can the benefits of this, the world’s greatest arbitrage opportunity, be reaped? There are a large number of clear and sound proposals for more economically sensible migration policy. These include Lant Pritchett’s proposals for bilateral guest-worker agreements, the ideas of Pia Orrenius and Madeline Zavodny for raising permanent economic visa allocations, and the proposal by Jesús Fernández-Huertas and Hillel Rapoport for tradable immigration quotas. I suggest using migration policy as one tool to assist people in poor countries struck by natural disaster. Each approach has advantages and disadvantages, but they have in common a drive to generate triple-wins for migrants, destination countries and origin countries, taking advantage of what Pritchett calls “the cliff at the border”. Many people fear that even a minor increase in international migration will wreck their own economies and societies. Those fears deserve a hearing. They are old fears, of the kind that filled US newspapers a century ago. US population subsequently quadrupled, largely through immigration to already-settled areas. Today, even in crisis, America is the richest country in the world. History, too, deserves a hearing. Of course, history is often the brooding and ignored stepchild of policy debate. Political constraints may make it impossible in the short-term to realise the gains from greater geographic worker mobility, just as political constraints blocked other forms of worker mobility in the past. But that can change. All the economic and social arguments against immigrant entry to the workforce could be – and were – deployed decades ago against female entry to the workforce. (“But men built those companies! Why should we allow women to work when there are qualified, unemployed men? Why should a man pay taxes for a woman’s unemployment insurance? Will female employees assimilate and act just like men as we all wish? And what harm will be wrought in the homes they abandon?”) Now these arguments sound worse than ridiculous. Society decides who is or is not a member of the relevant club and, beyond the short-term, that decision can change massively. Though our fears will likely continue to impoverish us for some time, they need not do so forever. 

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Germany: the beleaguered European island

Many outward economic indicators still tell a story of German success. Inside, there are many signs of a troubled country lacking a strategic vision for itself and for Europe. The eurozone financial crisis highlights this vacuum but the heart of the problem is political. Germany’s situation in the early-autumn days of 2011 seems ambiguous, in a way that perhaps befits the strange economic and political times that the country, as well as Europe as a whole, is living through. On the one side, prosperity and growth, a working democracy and a peaceable society, where admitted problems are discussed and shared in a free media; on the other, a landscape of worries and doubt about the scale of Germany’s (and the eurozone’s) underlying financial problems, the direction of Europe itself, and the capacity of the current leadership (especially the chancellor, Angela Merkel) to deal effectively with these problems. If it is hard to reconcile these contrasting images, it is also hard to choose between them – since both represent a genuine description of aspects of Germany’s current reality. So to come closer to an understanding of Germany’s real situation (and given her international position, that means the European Union and the eurozone’s too), it is worthwhile pursuing the surface paradoxes a bit further (…..)

Link: http://www.opendemocracy.net/ulrike-guerot/germany-beleaguered-european-island

Will China’s Rise Spoil the Trans-Atlantic Relationship?

Strategic circumstances and brute economic realities are starting to push Europeans and Americans into different places when they think about China’s and Asia’s rise. New polling released this month suggests not only a growing divergence in threat perceptions, but also a trend in US public opinion that places Asia, rather than Europe, at the center of Americans’ interests. Without a conscious effort to construct a partnership that is attuned to these realities, Asia’s ascendance threatens to lead to a long-term drift in trans-Atlantic relations. (source: By Daniel M. Kliman and Andrew Small – Der Spiegel – 23/09/2011)

The German Marshall Fund’sTransatlantic Trends survey makes it clear that Europe faces a future in which, for the first time, it can no longer count on enjoying a central place in the minds of Americans. Whereas 52 percent of the Europeans surveyed identify the United States as being of the utmost importance to their national interests, only 38 percent of Americans felt the same way about Europe. Instead, the survey shows a slight majority (51 percent) of Americans viewing the countries of Asia as more important. Likewise, this percentage only grows as the sample group grows younger, with three out of every four young Americans now looking across the Pacific rather than the Atlantic.

There is also a division opening up in public perceptions of China. Surveys have long shown that Americans see China as more of a military threat than Europeans do, this increasingly applies in the economic sphere, as well. The Transatlantic Trends survey now shows a plurality of Europeans viewing China as an economic opportunity rather than threat. In the United States, on the other hand, 63 percent see China as an economic threat, up from 49 percent just a year ago. What’s more, some of the most favorable shifts in opinion were seen in European countries in which the media gave significant coverage to Chinese investments and bond purchases. These developments are partly a matter of public opinion catching up with reality. As a Pacific power, the United States is strategically present in Asia in a way that Europe is not, and its role in dealing with shifts in the regional balance of economic and military power is qualitatively different. However, what should worry the trans-Atlantic partners are emerging splits over China. Since 2004, when efforts to lift the EU arms embargo on China triggered a fierce trans-Atlantic dispute, Europe and the United States have more often than not spoken with one voice, whether in responding to China’s newfound assertiveness or in bringing joint cases against China before the World Trade Organization. As the crisis in the euro zone intensifies, that unity is now showing signs of weakening. China is making a serious effort to increase its investments in Europe during an exceptionally fragile time for the European Union and the entire European project. This is beginning to translate into political credit and public goodwill toward China. Indeed, the Transatlantic Trends survey shows the first serious uptick in Beijing’s numbers in Europe for many years. It will be to the detriment of both sides if trans-Atlantic outlooks drift further apart. Economically, Europe’s role in the Asia-Pacific region is as big as the United States’. It leads the way in negotiating free-trade agreements, and there are crucial shared interests on issues ranging from the protection of intellectual property to managing a new wave of inbound investments by state-owned enterprises.

In the military realm, the US security role in Asia is a public good that also benefits Europeans, who have a vital interest in regional stability. Europe may not play a meaningful military role in the Asia-Pacific region, but it is still important to achieve congruence in strategic thinking about the world’s most dynamic region. This is not just a matter of reinforcing Europe’s aversion to lifting the arms embargo on China or restraining the export of dual-use technologies. Europe’s willingness to take on greater burdens in its own neighborhood, as it did in Libya, would do much to facilitate the strengthening of American commitments in Asia that will be required in years ahead. On values-based issues, from human rights to democracy promotion, Europe remains America’s natural partner in Asia and beyond. Compared to the Soviet threat, the Balkan wars of the 1990s or post-9/11 Afghanistan, Asia provides seemingly fewer natural opportunities for cooperation. In fact, there is still a strong crossover in values and interests. But drawing out these commonalities will be a challenge in a region in which the kind of common threats that have necessitated trans-Atlantic collaboration are less apparent. Still, the news is not all bad. The fact that security threats in Europe are no longer pivotal to US concerns is more of a cause for celebration than for anxiety. But a failure to head off emerging differences could threaten a slow withering of the trans-Atlantic partnership as Asia rises.