The New Statesman Essay - A tide that cannot be turned

Irwin Stelzer argues that economic self-interest is a better guide to immigration policy than humani

The populations of the world are on the move. The UK accepted 97,120 persons for settlement in 1999, up about 39 per cent from the previous year, and almost double the number of ten years ago. The US welcomes around 800,000 legal immigrants annually. Indeed, America is in the midst of what Harvard's Professor George Borjas, in his book Heaven's Door: immigration policy and the American economy (1999), calls the "Second Great Migration [which] has altered the 'look' of the United States in ways that were unimaginable in the 1970s".

But legal immigration tells only part of the story. The British Home Office estimates that 30 million people are smuggled across international borders every year, in a trade worth between $12bn and $30bn annually. Each year, roughly 500,000 illegal immigrants enter the European Union, about 120,000 of whom are women and children. The US Immigration and Naturalization Service estimates that there are between five and six million illegal immigrants living in America, as well as three million illegal aliens who were granted residence under a special amnesty in 1987-88.

What has given the immigration debate new urgency is not just this huge growth in numbers, but also the corporatisation of illegal immigration. No longer is the illegal alien a single brave soul, or member of a family that has trekked or sailed miles to find a more congenial home. With the exception of those trying to escape Fidel Castro, the lone entrepreneur has been replaced with well-capitalised, internationally organised people-smuggling rings. The UN Office for Drug Control and Crime Prevention reckons that their trade is now more lucrative than drug smuggling.

As with the drug trade, so with the people trade: the first reaction of policy-makers is to interdict the traffic - step up border patrols, set up mechanisms for international co-operation, increase the penalties for smuggling. In Britain, lorry drivers are now fined £2,000 for each illegal immigrant found hidden in their vehicles, and Prime Minister Tony Blair and his Italian counterpart are calling for 14-year prison terms for those who profit from the trade, at the same time promising to protect those "fleeing persecution". Whether traffickers who willy-nilly save people from persecution by trafficking in them should be driven out of business is a question that Blair chooses not to answer. He is not alone in his ambivalence. In America, the very groups calling for stricter border controls are so appalled by the deaths of illegal immigrants in the Sonoran Desert that they have set up water stations for those Mexicans who do succeed in evading US border guards.

By no stretch of the imagination can these efforts at stemming immigration be called successful. In Britain, the special police unit set up to stanch the flow of immigrants concedes that the number sneaking in through Dover has increased by 500 per cent in the past six years. Germany, France, Spain and Italy all report similar rises. Nor has the attempt to distinguish "real" asylum-seekers from those "merely" seeking economic advantage been very successful. It may sound sensible to reserve asylum status for those threatened directly with death or genital mutilation. But think of the early days of Germany's assault on its Jewish population, when a progressive tightening of the economic noose was taken by many Jews as a warning to get out. They found no nation willing to accept them, leaving them to become victims of the Final Solution.

In earlier times, there was no real conflict between an open-door, humanitarian immigration policy and a nation's best economic interests. The tempest-tossed immigrants who were seeking better lives were willing to work hard at menial tasks, and did not seek aid from the state, relying instead on their own efforts and a bit of help from voluntary agencies or their families.

Then came the welfare state, creating the possibility that immigrants might seek a handout rather than a hand-up. Pragmatists came to regard closing the door to all who might be a burden on the state as the unambiguously correct policy. But it is arguably no easier to distinguish immigrants who might add to the national wealth from those who will be a drain on it, than it is to distinguish legitimate from bogus asylum-seekers. This is not just because nations with declining populations need younger workers. The Economist last year argued that, for a city to be attractive to the young, internationally mobile, entrepreneurial types who are creating the new businesses and most of the new jobs in the economies of the developed nations, it must be trendy and culturally diverse - in short, "cool". That requires the presence of "young, trend-setting bohemians". And "for real bohemia you . . . need immigrants . . . to create cultural diversity and to challenge the complacent mono-culture".

These immigrants are often poor - fledgling artists, fashion designers, musicians, even street vendors. Think of New York City, where the ambience created by the lower-income inhabitants of SoHo proved an attraction to those hip, high-tech, high-income types who developed Silicon Alley.

Even an informal policy of turning a blind eye towards poor, illegal immigrants has clear economic advantages. In America, for example, there is no question that, without illegal immigrants, the upward pressure on wages (and hence on inflation) would be greater, interest rates would have to be higher, and economic growth slower. It does not take a very keen observer to conclude that London's hotels would be hard hit were unskilled immigrants not present to make the beds and empty the dustbins; that many construction projects would screech to a halt if every eastern European were deported; and that the availability of groceries and news-papers would be sharply reduced if all the Patels were sent packing.

Employers of high-tech workers are everywhere pressing for a relaxation of restrictions on workers with computer programming and other skills. Ireland is planning jobs fairs in the US, Europe and Canada to attract 200,000 skilled workers. The Germans have, as one employer put it, decided that "German education with its focus on heavy philosophical concepts does not turn out the people we want". So the chancellor, Gerhard Schroder, is proposing that about 20,000 green cards be issued to foreign computer specialists, primarily from India and eastern Europe. But he faces tough competition: at the beginning of this year, only 4,441 cards had been claimed.

Employers of workers at the other end of the labour market - gardeners, bedpan emptiers, unskilled construction workers, hotel workers - are urging their governments to open their doors to applicants, and to relax their efforts to hunt down and deport illegals. In Italy, the government has announced that immigrants who arrived before March 1998 and have a job and an address - between 200,000 and 300,000 in number - can apply for a "no questions asked" residence permit, even if they entered the country illegally. Even America's trade unions, traditionally opposed to immigration, suddenly find themselves conflicted. They know that immigration puts downward pressure on wages, and fear that job- hungry immigrants make handy strike-breakers. But they also know that immigrants constitute the pool from which they will be drawing future members. Los Angeles has long been hostile territory for union organisers. But last year, Local 1877 of the Service Employees International Union was able to organise around 8,500 office cleaners - 98 per cent of whom are immigrants from Mexico and Central America, with their tradition of street marches and labour activism - into an effective economic and political force.

So politicians are under pressure from employers to adopt a more liberal immigration policy. Further, they know that, as the populations of their own countries decline, they need young workers to support a growing number of retired people. However, politicians also know that out there in the middle class lurks a serious objection to the rapid changes in the "look" of their countries.

They know, too, that unskilled workers - the very ones most threatened by globalisation - believe they will pay the price for a continued influx of workers willing to work harder for less. Even the liberal Canadians are upset by scandals involving the illegal importation of Chinese labour and the need to support the intercepted illegals while they avail themselves of Canada's years-long appeals process. In Germany, Schroder's opponents rally support behind the slogan "More education instead of more immigration". In Italy, Silvio Berlusconi's centre-right opposition alliance, likely to take power in the May elections, is attacking the government for granting residence status to immigrants with forged documents, and the mayor of Treviso says that "people here . . . don't want more immigrants and crime". The views of Austrians are too well known to need repeating here.

So politicians vacillate. No satisfactory policy being available, US politicians, for example, temporise by raising the quota for this or that group, promising to crack down on illegals, and then granting them amnesty. Britain's Home Secretary seeks "photo ops" that depict him nabbing those trying to sneak into the country. In Spain - where resentment against Moroccans led to riots in El Ejido, Andalusia's richest town, in February last year, and then to a strike by the Moroccans themselves - new legislation allows the government to deport illegal aliens within 48 hours of their being apprehended, and to fine employers who violate the law. This supposedly puts about 80,000 migrants at risk of deportation. But that legislation stands side by side with other laws to grant partial amnesty to such aliens, 250,000 of whom have applied.

The ambivalence is understandable: Spain, despite an official unemployment rate of nearly 14 per cent, cannot find enough workers to put food on its tables. But it fears the submergence of its national identity by the very workers its employers so assiduously woo. And it has come to realise that the solution proposed by the mayor of El Ejido - to import workers temporarily, and then have them "go back to their own countries" - is not very practical, as the German experience shows. Most of the "guest workers" whom Germany admitted from Turkey stayed on, and have been joined by their families, so that 2.5 million people of Turkish origin now reside in Germany, alongside roughly five million other immigrants.

Andalusia represents the future, one in which nations and regions will want the work that immigrants do, without having immigration. In the end, the need for workers of all sorts will dominate policy, de facto if not de jure. The demand for unskilled workers willing to do the jobs that richer Europeans and Americans won't do will overwhelm worries about the resulting social problems. And with the high-tech economies of most of the industrialised countries scheduled to grow rapidly in the next several years, the need for skilled workers will also mount.

Formulating policy that is both sensible and politically acceptable is no mean trick in these circumstances. But we can start where most economics textbooks start. There are three factors of production - land, labour and capital. Land is by definition immobile; capital is highly mobile, a restless creature forever seeking out places where it can be put to its highest and best use; labour is somewhere in between.

Turn to the next chapter of the textbook. The free flow of the factors of production maximises prosperity. National income rises when farmlands are converted to residential communities and industrial parks, when capital is free to move from dying to growing industries, when labourers are free to move from declining manufacturing industries to rising service industries.

This is as true on an international scale as on a national one. Only truly coercive states can build walls high enough to prevent brain and brawn drains when economic opportunities in other lands far exceed those at home. The incentive for immigrants to pursue jobs is overwhelming, and the incentives for employers to welcome them are strong. It is very difficult for any state to intervene successfully when demand and supply are attempting to converge at a price that both parties to a transaction find attractive.

This creates a bias in favour of a more accommodating immigration policy. The British, instead of engaging in the feckless enterprise of distinguishing real from bogus asylum-seekers, could simply take in those who want to work and who can find work. Legalising these workers would provide them with greater legal protection against exploitation by employers seeking to pay less than the statutory minimum wage, and so reduce the downward pressure on wages at the lower end of the labour market.

This policy would make economic sense, and it would be welcomed by many on the left. But it would not overcome the opposition of those who fear the social consequences of maintaining an open-door policy. So I would link a generous immigration policy to three other measures, probably less palatable to most on the left.

First, assimilation must once again be the path down which receiving nations insist newcomers travel. Respect for ethnic origins and traditions must not be allowed to destroy the cultures of the countries that receive immigrants fleeing less attractive places. The tendency of immigrants to concentrate geographically, and to adhere to many of the customs and mannerisms of their country of origin, frightens the native population into believing that theirs is becoming a strange and alien land. Social and legal pressures to assimilate might - just might - ease these fears.

Second, since the economic goal of open immigration is to increase the supply of labour so as to maintain a non-inflationary high growth rate, it seems sensible to permit new entrants to work, but to deny them welfare benefits, at least for a period. This would discourage the lazy and the incompetent from seeking entry, and should reduce some of the political opposition to immigration.

Finally, the immediate deportation of law-breakers, from rapists to beggars, should ease middle-class fears about Britain's inability to maintain the zero tolerance policy that has made America's cities once again habitable, and that has been abandoned in this country in the face of charges of rampant police racism.

None of this goes to the question of just how many immigrants a nation should allow in. The Australians and Canadians assign points to visa applicants based on various characteristics. That seems to me less appealing than some form of bidding for visas. In the US, about 10,000 visas are available to rich foreigners who create at least ten jobs by investing at least $1m (or $500,000 in an area of high unemployment). This could be extended, with visas being auctioned to those who most value and can afford them, or to those who can persuade prospective employers to invest in their entry into the national labour force. Such a policy would maximise the gains accruing to the host country's treasury, and probably add the most to national wealth. This market approach, in Borjas's view, has "logical appeal". But, he adds, "it is likely that most of the ancestors of the current American population would have been unable to buy such visas . . . Many persons . . . feel that there are some things that should not be for sale".

But I find it hard to conceive of a better way. Certainly, the present use of favouritism-cum-corruption is inferior; the reliance on humanitarian considerations has been proven seriously flawed; and the bureaucratic selection of certain occupations for favoured treatment - a sort of "give me your nurses, your teachers and your programmers" policy - is likely to prove once again that markets change too quickly for bureaucrats to keep pace. America had no sooner concluded a bitter fight to increase visas for computer programmers than the dotcom and high-tech bubbles burst.

So this economist, after reviewing the alternatives, finds himself favouring an immigration policy aimed at the rather selfish goal of enriching the host nation (and only incidentally its new arrivals), doing what is necessary along the way to reduce some of the opposition to the social consequences of immigration. But there is more to a nation than its GDP.

I would be inclined to leaven the auction system with a little humanitarianism to allow entry, and a bit of succour, to people demonstrably persecuted and to those genuinely seeking to be reunited with their immediate families. Then the countries of the world might just have a set of immigration rules that makes economic sense, avoids increasing crime and tax rates, and permits policy-makers in host countries to feel that they have done the right thing, both by immigrants and their own nations.

Irwin Stelzer is director of regulatory studies at the Hudson Institute, Washington DC, and a Sunday Times columnist. This article is based on a lecture at the Institute of Economic Affairs

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