Vantage point

Friday, September 22, 2006

Immigration - The Acid Test of Globalization

When the same people who call for removing trade barriers, globalizing, and abolishing import duties, also call for a crackdown on "illegal" immigration citing economic reasons, I can't help but marvel at their duplicity.

Free trade means free trade, where only demand and supply rule. Where all that matters is the arrangement between a paying customer and a willing seller. Imposing some unnatural restrictions on trade is wrong, morally as well as practically. Morally, if two consenting adults are mutually agreeing to anything, then a third entity coming and imposing some restrictions in the interests of some other people is wrong. Practically speaking, there is a mountain of empirical data as well as analytical studies which show that trade barriers end up destroying wealth, and hampering prosperity, not just for a privileged few, both even for the have-nots.

Now this logic holds true regardless of what is being traded. So how can someone say that it is OK to remove the restrictions when tangible goods are being traded, but the restrictions must stay when a service is being traded? If true globalization were being carried out, then the removal of trade tariffs would have gone hand-in-hand with the removal of immigration laws. But that is not happening.

Instead, in the Western world, we see increasing rhetoric against immigrants who work on the lower end of the value chain. There are talks among some conservatives of fencing the US-Mexico border.

I support the right of a foreign entity to enter India, and sell cars... or even trinkets. They will succeed only if they provide value to the customer. And "value" is a very complex concept encompassing quality as well as price. Now if Hyundai can sell me a car cheaper than the Hindustan Motors, I am going to buy it. I don't care if it causes HM to shut down, or it makes their workers lose their jobs. Why should I? That's not how trade works. All I am interested in is quality AND price.

Similarly I support the right of the Mexican to come and offer his services to the big farmer in Arkansas. The farmer, also a buyer here, is again interested in value. He wants quality and price. If the Mexican can offer the quality of work he wants at a lower price, why the hell should the farmer worry about others who lose out on the jobs. They are just not offering as much value.

When you force someone to buy goods or services from an entity that is not ofering the best value, you are actually destroying the differential value. And it is being destroyed from your economy. Sooner or later, this destroyed value is going to add up and cause you harm.

The current restrictions on immigration are similar to the restrictions placed by socialist countries on goods trade. These restrictions are non-sustainable. If the restrictions were only morally wrong, they might have sustained. But restrictions on free trade have a practical impact. They undermine your economy, and most of your people are worse off.

China, which thought that it could impose massive restrictions on goods flow, suffered as a result, and had to open up trade substantially, following which it flourished. Just like China is held up as an example of realising the futility of trade barriers, I am confident that in the coming years, or even decades, we will see a country that starts realising the destructive effects of immigration restrictions, and opens up its borders. And others will gradually have to follow suit.

Of course, I realise it is not as simple as that. Immigration is a much more complex issue than goods-flow. Immigration impacts the social make-up, law and order, and the hollow but widely regarded concept of a "collective identity". And as a result it impacts politics. And while pure economics would be in strong support of open immigration, politics may not be. Politics has an incentive-structure completely orthogonal to economic incentive-structure. Whichever countries opened up their product markets substantially, be it India or China, did so because economic and political interests converged.

So whether there is an attempt by governments to open up their labour markets in the same way that they are attempting to open up their product markets depends on whether the political and economic incentives get aligned at some point of time.