Tuesday, November 17, 2015

Immigration: The economic case for open borders

This is about the worst time to write that we should open our borders.

One of the suicide bombers who took part in the Paris attacks was a refugee, or at least had the passport of someone who was let in as a Syrian refugee.

The assistant speaker of the NSW Parliament has called on the Prime Minister to close our borders to Islamic refugees, at least until we have a better idea of who we are letting in. Yet, the case for opening our borders, as part of a staged process, in concert with other countries, is extraordinarily strong.

Worldwide, the best guess is that if all borders were opened and people could move where they liked, global income would double. By way of comparison the gains from removing barriers to trade such as tariffs amount to only a few per cent of global GDP.

Harvard economist Lant​ Pritchett says even if the barriers to immigration were loosened just a bit (enough to boost the US labour force by 1 per cent) global income would grow by more than all the world's official foreign aid combined. US economist Alex Tabarrok​, writing in the October issue of the The Atlantic, describes immigration as the greatest anti-poverty program ever devised. 

But what would freer immigration do for us, at the receiving end? We can take it as read that it would improve the lives of those who moved here. That's why they'd do it.

In a draft report released on Friday, the Productivity Commission presented the preliminary results of modelling it is conducting on the effects of immigration on income per head. It said that without any further immigration, Australia's real income per head would climb 42 per cent by 2060. With immigration, continued at its present rate, income per head would climb 50 per cent.

Immigration makes us richer. Without further immigration the proportion of the population aged 65 and older would swell from 14 to 28 per cent and the number of workers would shrink. Continued at present levels, immigration would hold the proportion at 22 per cent.

Australian National University professor Bob Gregory believes the government's first intergenerational report got immigration wrong. It said that immigration was of little use in stopping the population from aging, because immigrants themselves aged. Gregory says while this is true in the very long-term, from decade to decade the effect is enormous...

Immigrants are typically young, but not too young, between the ages of 18 and 40 – exactly the age range in which they are the least likely to use government services and most likely to pay for them.

So big has been the economic boost from increased immigration over the past decade that Gregory compares it to the mining boom. He says it eclipses the potential boost from lifting productivity, except while the mining boom came and went, the boost from increased immigration will last.

It is already beyond our control. Immigration soared way beyond what planners expected in the first half of the last decade, and then dived at the start of this one, making a mockery of the former prime minister John Howard's famous declaration that we would decide who came here and the circumstances in which they came.

New Zealanders can move here without limit under an agreement signed decades ago. In better times, 45,500 a year moved here. Now, with the New Zealand economy looking better and ours worse, it's only half that.

An astounding 345,600 foreign students live here with the ability to work (down from 434,000 when times were better), 188,000 workers live here on temporary 457 visas (down from 202,000), and 143,900 work here while on holidays.

All of these programs are uncapped, all give the people who use them the inside running on permanent migration, and all eat away at the fiction that we control our borders. Loosening control further is likely to help, rather than harm us, so long as it boosts immigration.

It's true that immigrants put a greater strain on our cities and on our environment, but we have scarcely begun to manage those things properly. Charging for road use and carbon emissions would be a start. And by contributing to Australia, immigrants give us the resources to build more infrastructure and protect our environment, if we have the will to do so.

Immigration boosts incomes because it allows people to move to where they can reach their full potential. Imagine a world in which the citizens of Ballarat were walled in and prevented from taking advantage of the opportunities in Melbourne. Imagine that the citizens of Melbourne gave them aid and bombed their enemies, telling them they would do anything to help them, other than letting them in.

Even worse, imagine that we locked up the citizens of Ballarat who tried to reach Melbourne, preventing them working, deliberately wasting the greatest resource on earth.

When the father of modern economics, Adam Smith, wrote The Wealth of Nations, he was referring not to wealth in the form of gold or silver, but to the wealth embodied in people able to exercise their full potential.

Yes, we would need to free up immigration slowly in concert with other countries, perhaps as part of trade agreements, and yes, we would need to be on the lookout for terrorists and criminals, just as we need to be on the lookout at home.

But the benefits of freeing up immigration dwarf those of anything else imaginable. In time, I think we'll see these benefits.

In The Age and Sydney Morning Herald



Recommended reading

. The real benefits of migration - Tim Harford, Financial Times, October 27, 2015

. The Case for Getting Rid of Borders—Completely - Alex Tabarrok, The Atlantic, October 10, 2015

. If People Could Immigrate Anywhere, Would Poverty Be Eliminated? - Shaun Raviv, The Atlantic April 26, 2015

. Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? - Michael A Clemens, Journal of Economic Perspectives, Summer 2011

. Let Their People Come: Lant Pritchett, Center For Global Development, Washington 2006

. What makes a terrorist? - Alan B. Krueger, Vox, 11 September, 2007

. Open Borders: The Case website