Thread: IMMIGRATION & FREE TRADE

http://frum.nationalreview.com/archives ... asp#094411

David Frum
APR. 7, 2006: IMMIGRATION & FREE TRADE
An interesting editorial in the Wall Street Journal this morning calls for permissive immigration as a natural concomittant of free trade.

This is a point of view often asserted but seldom examined - for when examined, it quickly falls apart.

Economic theory would suggest that in a world of free trade, immigration would sink to very marginal importance. In a world with zero barriers to the movement of goods, capital, and people, you would expect to see people move only when it was cheaper to move them than it is to move goods or capital - which will not happen often. You might expect to see cheaper labor moving to do construction work or restaurant service or other functions that must be rendered in the place where they are consumed. But you wouldn't expect to see people moving to harvest crops or pack meat or sew garments. You would expect rather that those jobs would move abroad in pursuit of labor.

The Journal takes note of this point and assumes (without proving or even arguing) that it would be bad. If American carpet makers cannot import cheap labor, then American carpet jobs will go overseas! But who loses if they do? Not American workers - the jobs are already lost to them. Not American consumers, who can import the carpets. Not American investors, who can shift their operations abroad and earn equivalent returns. Not American governments, which can still tax the sale of carpets to Americans. Of course there would be some genuine losers - local landowners for example, who might see the value of their property drop if no higher value use replaces the carpet factory. But then their losses have to be balanced against the costs to other third parties from migration: and as this debate proceeds, we are learning that those costs are much higher than has until now been commonly understood.

The Journal disputes that point by citing a study by my good friend Diana Furchtgott-Roth, an economist at the Hudson Institute. Diana argues that the negative assessments of the economic value of immigration begin by assuming that immigrant labor substitutes for native-born labor. But, to quote the Journal: "In the real labor world, immigrants often fill niche markets and bring varied skills."

However, in the really real world, almost all of the migrants to the United States arrive with virtually no skills at all. The "niche" they fill is the niche for labor that is fearful and compliant because it lacks legal standing or political rights. Tragically, that niche has been expanding very rapidly in recent years.

Minus Furchtgott-Roth's heroic counter-assumption, the evidence is that immigration offers very large benefits to some, but that it is not much of a net benefit to society overall: very unlike free trade.

Indeed, you could argue that historical experience suggests that a country typically chooses one strategy or the other, not both. In the heyday of economic liberalism, the 19th century, the paradigmatic free-trade country, Britain, exported labor. And the paradigmatic migration country, the United States, was protectionist.

(You might also draw an ominous lesson from the experiences of the 19th century societies that relied most heavily on guestworkers: South Africa and Argentina. In Argentina, migrants were discouraged from attaining citizenship, creating an Italian-speaking underclass radically alienated from the political order: one of the crucial backgrounds to the rise of Peronism and Argentina's unhappy 20th century history of political instability. South Africa imported Indian labor, which it slotted without political rights into its already elaborate system of racial subordination and separation.)

I'll agree with the Journal that the Pat Buchanan view - restrict both migration and trade - is economically illiterate. But frankly the Journal view - that a free-market country must allow both to proceed unrestricted - is in its own way economically fetishistic.

A fetish is an idol that is worshipped by devotees who mentally invest an inanimate object with the powers of some powerful force that it happens to resemble. If they fear pains in the stomach, then they pound a nail into the stomach of a wooden doll in hope of transferring the pain from the person into the carving. In the same way, unrestricted migration from the poor world to a handful of Western countries may look like a genuinely open international trade and investment order - but it is no more similar than a doll's midsection is to a human abdomen.

I'm with the Journal to this extent: the right kind of immigration policy can powerfully enhance both welfare and security. The right kind of immigration policy focuses on skilled labor - people who really do bring the varied skills and occupy the niches Furchtgott-Roth cites. Such immigration unfortunately tends to make worse off the countries from which the migrants come - but since those countries are usually driving skilled migrants away with oppressive and corrupt policies, it serves them right. There should be plenty of room in the New World for the Ismaili Muslims driven out of East Africa by racist persecution, for Soviet Jews, for educated Indians frustrated by a society that offered its best opportunities to the connected and fair-skinned. This was the kind of immigration policy America ran in the 1950s and 1960s and that Canada ran in the 1970s and 1980s. It raises the incomes of both migrants and native-borns, creating a large net positive sum for all of society. It's not the policy the United States is following today - a policy that the Senate seems bent on finding ways to make even worse still.

http://www.opinionjournal.com/editorial ... =110008201

REVIEW & OUTLOOK

Jobs Americans Won't Do
Want to make the country poorer? Close the borders.
Friday, April 7, 2006 12:01 a.m. EDT

President Bush is taking knocks from all sides in the immigration debate over his argument that the U.S. needs foreign workers to fill "jobs Americans don't want." Economists on both the left and right say Mr. Bush is ignoring the role of "prices"--and that more Americans would happily mow lawns and bus tables if those jobs paid more than they currently do.

Well, we're always happy to see leftish economists paying attention to prices. Would that they also did so when promoting minimum-wage laws and health-care mandates. Less helpful is to see allegedly free-market sorts embrace the idea that something called "the economy" can be closed off at the national border. These fair-weather free-marketeers need a little re-education on global labor markets.

Certainly if we could somehow seal the border--and good luck with that--the market would adjust to the shrinking supply of labor; wages and prices would adapt. The country could survive without foreign labor in the same way we cope with shortages of steel, or sugar for that matter. But economics is about trade-offs. So the real question isn't whether living in a closed economy is possible. It's whether the U.S. is better off moving in that direction.

Our answer is that a closed economy ultimately would make America a less competitive and hence poorer country--because we'd have less human capital, and because we'd be using the human resources we did have less efficiently. Among higher-skilled and -educated workers, pulling away the U.S. welcome mat means all of that talent would go to work creating wealth and jobs in other countries.

But keeping out foreign laborers for the alleged benefit of low-skilled U.S. workers is equally short-sighted. Yes, immigrants compete for these entry-level jobs most directly with Americans who lack a high-school diploma. But the percentage of Americans between 18 and 64 without a high-school degree has been dropping relentlessly for decades, which is a good thing. Even without immigration, poorly educated Americans would still have to compete in a global economy that increasingly places a premium on skills.

In any case, most economic studies have found only a very small negative immigration impact on the wages of even the lowest-skilled American workers. Restrictionists advertise the study by Harvard's George Borjas, who found the widest impact across all income levels. But Diana Furchtgott-Roth of the Hudson Institute points out that his study assumes that immigrants and native-born workers are perfect substitutes. In the real labor world, immigrants often fill niche markets and bring varied skills.

Immigrants also increase the demand for labor, not just the supply. That is, they are also consumers who create jobs by buying goods and housing here. Former Federal Reserve Chairman Alan Greenspan often pointed out how immigration has been driving housing demand. And if immigrants really were "stealing" American jobs, we wouldn't have had the remarkable job growth of recent years.

Perhaps the biggest fallacy is that the same jobs that foreign workers now fill would exist in their absence. That's not likely to be the case. Seal the border, and what you'd see is not the same number of jobs at higher wages but, rather, fewer of these types of jobs overall in the U.S. This is certainly the case in parts of Europe, where some services (such as dry cleaning) are rare and cost a fortune.

"The biggest disruption probably would come in light manufacturing," says Dan Griswold, who follows immigration at the Cato Institute. "Our textile industry has managed to hang on to the extent that it has because North Carolina textile mills have be able to hire immigrants. The domestic carpet industry based in Georgia has managed to survive and thrive due to immigrant labor. The same holds true for meat-packing plants in the Midwest."

Eliminate the immigrant labor force and these jobs don't--presto!--start paying more to attract Americans. In a global economy, they're much more likely to disappear or move overseas as domestic employers find themselves less able to compete with foreign producers. And many of the same politicians who complained about "cheap" immigrant labor would then want to block the import of products that were once made here.

Businesses can't raise wages or prices willy-nilly without respect to the ability and willingness of consumers to pay for a good or service. The agriculture industry certainly would attract more Americans if it paid $50,000 a year to pick lettuce in the noonday sun, but not without raising the cost of food and other things. It would be more expensive to eat out, for example, and fewer people would do so as a result, affecting the restaurant industry, among others.

Unlike some of his critics, Mr. Bush appreciates the absurdity of closing off our markets to foreign labor but not to, say, foreign capital and foreign technology and foreign goods. If a company needs financing for a second plant, we don't limit its options to American sources of capital.

Mr. Bush also understands that immigrants play a key role in growing the U.S. economy, which doesn't exist in a vacuum and shouldn't have an immigration policy that pretends otherwise. The problem is not that 11 million foreigners are here working. The problem is that they're here illegally. Efforts to close off future flows, or deport illegal aliens already here en masse, would do economic harm to all Americans, both low- and high-income. Let's hope the Congress figures that out as well.