Essay: The Economic Argument for Open Borders

Man is born free, yet everywhere he is in chains, Jean-Jacques Rousseau once famously remarked. Nowadays, man is born free, yet everywhere he is being caged by barbed-wire, concrete walls and artificial political structures. Twenty-eight years after Ronald Reagan’s call to Mikhail Gorbachev to “tear down this wall”, we live in a world with borders and walls tucked up so high and nationalist ideas in the hearts and minds of many politicians and citizens so fierce that we fail to see the beauty and importance of open borders. It’s a popular idea now in Europe that the influx of immigrants harms our economies. But it’s an erroneous idea: open borders benefit everybody.

The immorality of borders

Imagine the following: you’ve grown up in a rural town somewhere in the northern parts of the provence of Groningen. You were raised as the son of a farmer, yet the future of long days in the hey and making little money seems grim to you. To find a different and hopefully better life, you aim for application at Leiden University. As the distance between your house and your faculty is too far and the traveling too time consuming, you move to Leiden and search for a room. Yet at every room you find you are faced with the same restriction: you are not allowed to move to another provence and another city where graduating from a university would increase your prospects in life.

Does the above sounds ridiculous? Probably. But this is exactly what borders on a politically higher level do. Borders not between cities or provinces, but between nation states keep people from moving to places that offer a better life. Why? There is no justice in caging people behind the artificial lines drawn in the sand by kings and emperors in days far behind us that we call borders. The political ideology of nationalism, that in these years of political, economical and social crisis has made a strong comeback on the stage of European politics, and the restricted or even closed borders that are a political consequence of this ideology, keep the world poorer can it could have been. Morally poor in the realm of the artificial construct of the nation state, blocking a truly cosmopolitan, human ideal of progress; economically poor as it prevents us to reach even higher levels of wealth through a more flourishing, innovative economy that benefits both immigrants and domestic workers. Closed borders are the antithesis of social and economical progress. They are political structures that keep the lives of the global poor nasty, brutish and short.

The Economic Benefits of Open Borders

Yet restricted or closed borders are a popular political idea nowadays. The idea that to secure the wealth of our nation we need to restrict immigration, because immigrants come and take the jobs native workers have to compete for with so much effort, combined with the then paradoxical statement that immigrants get more out of the system of welfare than they put into it, is popularized by many European politicians and citizens, not just on the Right, but on the Left as well. It was the then Labour-leader Ed Miliband that stood proudly next to a stone with the electoral promise to “control immigration” inscribed in it.

But there’s a problem with this: it’s wrong. Migration does not hurt the global and national economies. Actually, it benefits them both. It might just be the best way to lift people out of poverty, here and there. Broadly speaking, there are two fallacies in the economic line of arguing against immigration: that economies are fixed, inflexible entities, and that foreign workers directly substitute domestic workers.

It is estimated that the opening of borders could lead to a doubling of the world’s GDP. While the elimination of barriers for trade policy and capital flows is only estimated to gain the global GDP by a few per cent, the gains to the global GDP with the abolishment of barriers for the free movement of people are estimated between 50 and 150 per cent.

Here is why, and how, migration favors economic prosperity.

Immigration fosters innovation

First of all, immigrants bring new skills to the economy. There’s a joke about how in heaven the cooks are French, the lovers Italian, the mechanics German, the cops British and the Swiss make everything run on time. In hell, then, the cooks are British, the mechanics French, the cops German, the lovers Swiss and the Italians make sure everything runs on time. They are stereotypes, but it nevertheless reveals an interesting thing: different people bring different skills with them, which could then benefit the economy.

These different skills can foster innovation. It’s not a coincidence 22 of Britain’s 116 Nobel Prize winners, or the co-founders of successful companies like Google, Yahoo!, and eBay, were born abroad. Immigrants tend to see things different from conventional, domestic wisdom and thereby add creativity and innovation to an economy. By looking at problems from different perspectives, groups are more likely to solve them. Diversity in groups avoids the fallacy of group think and fosters creativity and better outcomes.

But it’s not just groups: more diverse and creative cities attract even more creativity and innovation; they are magnets to innovative, talented, and risk-taking people. It’s the diversity of peoples, skills, and talents that makes cities like London and Los Angeles flourish – not homogeneity. While many politicians – and citizens – argue against immigration because migrants are different, it is exactly because they are different that they add value to societies and their economies. By bringing together complementary skills and alternative approaches of domestic and foreign workers, economies are boosted with innovation, creativity and, ultimately, growth.

Immigrants are productive

Immigrants are not just innovative, but also enterprising and hard-working. This is a second reason why immigration benefits the economy: immigrants make an economy more productive. Immigrants are also emigrants: they have left behind friends, families and countries. Once you’ve arrived in your new country, having left behind everything is a great incentive to make it a trip and risk that was worth making it, and create a successful life not just for you, but also for your children and following generations. When immigrants put their labour to use with more advanced production factors of their new economies, their ethos of working hard to fulfill the dream of finding a better life benefits productivity. This higher productivity benefits domestic workers as well: a German study found that a one per cent increase in the share of foreign workers raised blue-collar workers’ wages by 1.3 per cent, and increases domestic workers wages in general by 0.6 per cent.

Immigrants relieve demographic pressures

Another reason why immigrants can boost productivity is because they tend to be younger, fitter, more enterprising and more hard-working than local workers. Leaving behind your country with most of your life ahead of you makes more sense than emigrating after you’ve retired from working.

Young migrants also help to relieve some of the pressures demography puts on economies. While emigration relieves poor countries from some of the pressures that can lead to social instability, as identified by Gunnar Heinsohn in his book Söhne und Weltmacht, immigrants lighten richer, western countries from some of the economic problems the demographic pressure of an aging populations creates. Immigration is in no way the final solution to the aging of the western workforce, but it will help. It will increase the dependency ratio, the number of people in a working age potentially able to support pensioners. In the case of Australia, an annual one per cent immigration rate would “save the government about 5 per cent of GDP in health and retirement support”, Australian economist Glenn Withers claims.

They’re not coming for your job

A popular yet erroneous idea about migrants is that they take away jobs of native, domestic workers. But they don’t: open borders actually create jobs.

Far from taking jobs, immigrants actually create them. One of the reasons for this is that immi-grants seem more willing to take jobs domestic workers don’t like. Think about how Asian or Eastern European women take up jobs as nanny’s or clean houses at wages lower than domestic workers, creating a higher demand for their services, or how Polish construction workers build bathrooms in Dutch houses. The wages they get are mostly spent within the local economy, and the higher demand for goods and services this creates, generates even more jobs. Immigrants and native workers are not competitors; they actually complement each other. Study after study confirms that instead of taking jobs, immigrants create new jobs, both for themselves and the locals. Economies quite easily adapt to a growing labor force.

Take a look at the Netherlands. When the Netherlands took in hundreds of thousands of migrants in the 1990s, unemployment didn’t grow. On the contrary: in the years following the large influx of immigrants and refugees, the unemployment rate shrank rapidly, from around eight per cent in 1993, to four per cent in 2000. In the seven years in between, net immigration to the Netherlands included around 200.000 people.

Globalization from below

But the money immigrants make doesn’t just benefit the economies of their country of destination. It also benefits the economies they have left behind.

Most prominently, they do so through remittances, the sending back of money to their country of origin. It is estimated by the Global Commission on International Migration that these remittances include the transfer of around 200 billion dollars every year, while informal remittances might even be twice that amount.

Consider that the average wage a migrant makes in Europe is thirty-five times the average wage in sub-Saharan Africa, and migrants are estimated to send back one sixth of their income; families see their purchasing power boosted by the work their relative does elsewhere. The money that migrants make and spent in Europe has a double effect: first it benefits the European countries through a higher demand for goods and services, then it benefits the poorer economies in a relatively huge amount. There’s a trickle-down effect here: the wealth a migrant creates in richer countries and economies trickles-down through the purses and pockets of his relatives in their country of origin into the local economies.

The economic impact of remittances are huge. Official remittances account for over a tenth of the economy in twenty-four developing countries, and even over a fourth in seven countries, including Moldova and Haiti. The amount of money Mexican emigrants sent back to their families and friends is larger than foreign direct investment in the country. In the first four year after the borders for Polish workers were opened in European countries, remittances to the Central European country quadrupled. Until 2011, remittances had accounted for an estimated 0.1 per cent higher annual GDP growth rate; Poland’s GDP was seven billion dollar higher than it would have been without workers living abroad sending back money. Open borders had “contributed to increased welfare for some of the least well-to-do segments of the Polish population”, one study concluded. As global informal remittances are estimated to be even fifty per cent higher than official remittances, the effects in many poor countries will be even bigger. A study by the economists Richard Adams and John Page estimates that a ten percent increase in remittances leads to a 3.5 per cent decline in poverty.

Even considering that the borders of the wealthy nations are no way as open as they should be, the further closing of them would have huge economic effects in poor countries. The World Bank calculated that if remittances would stop, in the countries where they form a large part of the economy (eleven per cent on average), the part of the population living on less than one dollar a day would rise by fifty per cent. In countries where poverty is already high, thus the poorest countries in the world, poverty would almost double.

Opening up borders might just be the best program against global poverty and the most efficient form of international development: it directly benefits local economies, societies and peoples. The 200 to 400 billion dollars that immigrants send back to their country of origin every year is twice to four times as much as the “foreign aid” Western countries spent every year. And contrary to some of these developmental programs, the money of remittances flows directly into the pockets and purses of local people – not the bank accounts of shady politicians, corrupt NGO’s, or ineffective institutions.

It is globalization from below. Not international institutions such as the IMF and WTO, or multinational corporations and their “free-market economics”, but people themselves improve the lives of millions or even billions of the people living in poor countries.

We don’t need open borders just for beans and Blackberries. Most of all, we need it for people. Closed borders compound global inequalities and injustices. Open borders benefit global justice and equality. Letting people move where they want will see millions, if not billions, of people see their standard of living rise – in already rich economies and still poor societies.

It’s time to tear down the walls we call borders.

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