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January Outlook

A Case for Open Borders

The word “globalization” makes most people think about things like
outsourced manufacturing, trade agreements, foreign exchange rates and
international supply chains.

For Robert Guest, business editor of The Economist, the most important
aspect of globalization is the movement of people. More than 200 million
people around the world now live outside the country where they were born
– far more than at any other time in human history. Policymakers in the U.S.,
Europe and other developed regions are grappling with how to control their
borders and slow illegal immigration. Developing countries, meanwhile, fear
depleting their human capital when their most educated, skilled, ambitious
citizens leave to seek a better life.

Nonetheless, Guest argues that the free flow of people and ideas is, on
balance, highly beneficial. Migration and more open borders, he says, fuel
the exchange of ideas and make nations smarter, more innovative and
competitive.

Guest has recently published a book on the subject, called “Borderless
Economics: Chinese Sea Turtles, Indian Fridges and the New Fruits of
Global Capitalism.” Guest has lived in a half dozen countries and reported
from nearly 70. His ideas stem not only from experience covering world
economies, but relationships formed and personal anecdotes gathered during
his career.

Outlook: How mobile is the world’s population today compared to previous periods
in human history?

Robert Guest: For most of history, people lived very local lives. They seldom ventured
more than a few miles from the village where they were born. There were
occasional great migrations, of course; otherwise we’d all still be living in
Africa. But most people didn’t move much.
As technology improved, things changed. Ocean-going ships allowed people
to colonize the New World. Steam trains opened up the hinterland. Cars
brought mobility to the masses.
We now live in a world of cheap air travel and virtually free communications.
A journey that once took months, now takes only hours.
And people can talk to their friends thousands of miles away for free, using
Skype.
All this makes us far more mobile than we were a generation ago, and far
more interconnected. Some 215 million people live outside the country
where they were born. That’s about 3 percent of the world’s population, and
an increase of about 40 percent in the past two decades. Nearly all these
migrants communicate constantly with people in the countries they came
from, so they form bridges between nations.
This has far-reaching consequences, mostly because when people move
around, they pick up new ideas and spread them.
I asked the chief executive of a large Indian software company what
proportion of his top people had studied or worked outside India and he said,
“all of them,” as if that was completely obvious.

OUTLOOK: The core idea of your book is that a more open, free exchange
of people and ideas helps promote economic growth. Explain.

RG: My central idea is that migration makes the world brainier.
Suppose you are at work and you encounter a problem. You wander over
to the water cooler and bounce it off a colleague. Maybe she can solve
your problem or she knows someone else who can. Or maybe she makes a
suggestion that stimulates you to think about the problem in a different way,
and you both solve it together.
This is how a lot of progress occurs – through collaboration. I’d argue that the
wider the circle of people you meet, the more ideas and ways of thinking you
are likely to encounter.
When a nation welcomes immigrants, it widens its circle of contacts.
Immigrants bring ideas and connections. They turn the national water cooler,
if you will, into a global one.

OUTLOOK: Give us an example of this dynamic at work.
RG: Three Indian-American engineers – Uttam Ghoshal, Himanshu Pokharna
and Ayan Guha – had an idea for a cheap refrigerator. One of them had
worked at IBM for several years. They figured out how to adapt the cooling
mechanism that you use in a laptop computer so that it worked in a fridge.
They thought their idea would be ideal for the Indian market because millions
of Indians can’t afford standard fridges.
They needed a partner to make the device. So they approached a big
manufacturer in Mumbai called Godrej and Boyce. One of them had gone
to business school with the daughter of one of the founding families. That
connection helped them get a foot in the door, and it led to a fruitful
cross-border collaboration. The Indians in the U.S. worked with the Indians
in India to produce a small, portable fridge that costs about $70. It may be
the cheapest in the world. They are on the verge of mass-producing it.
This is an example of how migration creates connections that speed the flow
of ideas across borders. It is also an example of the next ‘big thing’ from Asia:
frugal technology. There are hundreds of millions of people in Asia who have
a bit of spare cash, but nowhere near as much as Americans. They want
modern products, but they can’t afford to pay much for them. So companies
in India and China are saying, “How do we make things 10 times cheaper?”
And the results are stunning. We’re talking about $300 prefabricated houses
and heart scanners that cost a tenth as much as their Western equivalents.
Frugal products don’t have all the frills we expect in the West but it turns out
many of these frills are unnecessary. Frugal technology is sweeping Asia, and
it’s eventually going to make a difference in the West, because we appreciate
value for our money, too. If we want to plug into all these new frugal ideas, we
need to let in brainy immigrants from the places that are producing them.
Let me give you a counter-example that illustrates my point. In 1995, I went
to North Korea, the world’s most isolated state. I walked into a library and
asked the librarian what kind of books people read there. He said they read
books by the Great Leader Kim Il Sung and his son the Dear Leader Kim Jong
Il. “Do they read any other books?” I asked. He went completely silent.
The North Korean regime has shut out nearly all contact with the outside
world. When you do that, you shut out ideas. And over time, this makes you
poor. South Korea, which was poorer than the North when the two Koreas
split, is now 20 times richer.

OUTLOOK: What are some other examples of idea exchange driving
economic growth?
RG: A Chinese woman named Cheung Yan came to America. With her
outsider’s eye, she noticed two things: first, that Americans throw out a lot of
wastepaper; second, that lots of ships come from China to the U.S. packed
with consumer goods and go back to China almost empty.
She took that insight and created a business out of it – Nine Dragons Paper.
It gathers American wastepaper, sends it to China on those empty ships,
and recycles it into cardboard boxes. Many come back to America with TVs
inside. She’s now the richest self-made woman in China, with a net worth of
$1.6 billion in 2011. Her success depended on her being a migrant. Had she
never moved, she would not have spotted the opportunity. And had she not
had contacts in China, she would have found it hard to set up a factory there.
Here’s another case: Devi Shetty, an Indian doctor who studied heart surgery
in London, took the skills he’d learned in Britain and combined them with
mass production techniques of the sort you’d see in a car factory. He went
back to India and set up the world’s cheapest heart hospital. His surgeons
perform many, many more operations than they would in America, and
because they do so many, they’ve learned to do them fast and well. He
charges only $1,800 for an operation that might cost tens of thousands of
dollars in America, yet his success rate is the same.

OUTLOOK: You talk about the United States being one of the first great
experiments in open migration. How so?
RG: The country was built on mass immigration. Waves and waves of people
moved there to escape the stifling old hierarchies of the places they came
from. They moved to America because it was a free country and it didn’t
matter who your parents were. They married each other, intermingled and
swapped ideas. From this great mixing they created a society that was
wealthier and more dynamic than anything that had come before. America
has its flaws, but that’s still broadly true.

OUTLOOK: The economic downturn significantly increased the jobless
rate in the United States, which in turn has increased concerns about
immigrants taking jobs away from Americans. How do you answer that
concern?
RG: I think it’s unfounded. Most studies show little or no evidence that
immigrants take jobs away from Americans.
Skilled immigrants clearly create jobs. Often they are hired to fulfill a role
that no local can fill. Hiring them enables a company to grow and hire more
Americans. Plus, because they are skilled, they command high wages, so
they spend money in restaurants, hire gardeners, et cetera.
With unskilled immigrants it’s less clear-cut, but they often create jobs, too.
If a college-educated American woman hires a Mexican nanny, that enables
her to go out and work. If you don’t think cheap childcare matters, look at Japan, which
allows virtually no unskilled immigration at all.
It is almost impossible to find cheap childcare there, unless the grandparents volunteer. So
college-educated Japanese women are much less likely than their American sisters to get
jobs. Newly-arrived Mexicans in the United States often do hard work that locals shun. It’s
worthwhile for them because wages are so much better than in Mexico. Over time, they
move up the income scale, perhaps by saving their wages and opening a taco stand and
then maybe a restaurant. I know people who have done this. In general, immigrants come
when they’re needed and they go away when they’re not needed. When the housing market
crashed, close to a million Mexicans went home, because there were no longer jobs on
building sites.
Unskilled immigrants boost all kinds of businesses. Say you want to hold a
conference in a big hotel. Immigrants change the sheets, clean the rooms,
serve the drinks and probably built the hotel in the first place. That’s one
reason why hotels in the U.S. are much cheaper to stay in than they are in a
place like Japan.

OUTLOOK: The United States awards 65,000 H-1B visas each year to
highly skilled foreign workers. Is that enough in your view? At what point
do those numbers become detrimental to the U.S.?
RG: For highly skilled people, I don’t think there should be a limit. If
you graduate with a hard science degree in the United States – physics,
engineering, bioinformatics or something like that – you should have a green
card stapled to your diploma.
Many of these graduates will work in America. Some will stay for a while
and then go home. When they go home, they’ll continue to talk to their old
colleagues and that will continue to benefit America.
The U.S. should make it easier for people to come and study. American
universities are the best in the world by far. When a foreign student comes to
America and pays $50,000 tuition to a university, that’s an export. That’s like
selling a $50,000 car to China, but better. That person who has studied in
America picks up a taste for American products and meets Americans who
he’ll want to do business with in the future.
Right now the hoops you need to jump through to come to the U.S. are
incredible. And the main effect is to keep skilled workers out. The unskilled
ones may be prepared to crawl through the Mexican desert in the middle of
the night to get in, but the doctors and engineers are not.
Borders matter a lot, but the American government makes less effort to
woo skilled migrants than any other rich country I can think of. It actually
graduates foreign engineers and then deports them. Michael Bloomberg calls
this “national suicide.” He is right.
So my advice to governments is: open the doors. Allowed unlimited migration
of highly-skilled workers and unlimited migration from other rich countries.

OUTLOOK: What about unskilled labor?
RG: I think America could absorb at least 3 million immigrants a year, skilled
and unskilled. That’s about 1 percent of the population every year – far more
than it currently allows in, but not absurd when you see how much of the
country is practically empty.
Immigrants are people with get up and go. The dynamism that results from
them coming is immense. And it is good for humanity if more people live
under American law, governed by American institutions. Immigration raises
the proportion of people in the world who are free.

OUTLOOK: “Brain drain” is a term that’s often used to characterize the
cost that out-migration imposes on developing economies. Is that a major
problem?
RG: People look at very poor countries like Liberia or Congo and say, “All of
their doctors have left; western countries are poaching these doctors with
higher salaries; it’s terrible and should be banned.”
There is a little bit of truth to this argument, but on balance it’s wrong. The
brain drain actually reduces global poverty, in several ways.
First, the prospect of emigrating gives people an incentive to acquire valuable
skills. For example, many Filipinas work abroad as nurses. Their sisters back
home see them earning good money and train as nurses, too. But not all
those nurses emigrate. Some decide not to leave after all, perhaps because
they get married. Some work abroad for a while, save money and come
back. So even though the Philippines is the largest exporter of nurses in the
world, they still have more nurses per capita there than many rich countries.
If you told them they couldn’t leave, they wouldn’t burn the midnight oil at
the library to get their nursing degree, and the Philippines would have fewer
nurses. It’s very counterintuitive, but it’s true.
Another thing to keep in mind is that many migrants, when they go overseas,
send money back. An engineer who makes $5,000 a year in a poor country
can move to a rich country and make $40,000 a year in a similar job and
send $5,000 home. He’s still contributing as much to his own country. These
remittances we’re talking about are very, very large and they’ve gotten much
bigger. They are far more important to poor countries than foreign aid.

Finally, migration creates connections that benefit poor countries. For
example, I met a guy in Nigeria, Chike Obidigbo, who runs a factory making
soap. He buys his machines from China, but he doesn’t speak Chinese and
he can’t afford to travel there every time he needs a new machine.
So when he needs a new machine, he contacts a migrant from his tribe who
lives in China. Mr. Obidigbo knows he can trust a fellow Ibo, (the name of
his tribe), because it’s a close-knit group. If one Ibo cheats another, no Ibo
will work with him again. The trust that’s fostered through kinship ties is very
important in countries that lack the rule of the law. It’s not like in Britain or
the United States where you can settle disputes in court. In India, China and
most of Africa, contacts matter more than contracts. And migration creates
cross-border contacts.
For all these reasons, most poor countries should celebrate emigration. One
study found that losing up to 20 percent of your skilled workers is beneficial.
So basket-cases like Congo don’t need to lose any more, but places like
China and India would benefit from seeing a lot of more of their people spend
some time abroad.

OUTLOOK: In your book you talk about people from China who go abroad
to study and then return home. Chinese slang for these people is “sea
turtles.” How are they changing things in that country?
RG: It used to be that no one went back to China, because under Mao
Zedong the country was a hellhole. Now it’s a much, much nicer place, so
even the Chinese who get degrees from American universities think about
going back.
At least 325,000 Chinese have lived abroad and then returned to China,
mostly in the past decade. These “sea turtles” are typically very bright and
well connected. They dominate China’s technology industry, its universities
and the think-tanks that advise the government on economic policy, urban
planning, the environment – everything.
And they are rising within the ruling party itself. Among the members of the
Central Committee of the Communist Party in China, about 6 percent had
studied abroad in 2002. It was 11 percent by 2007, and it will be 15 percent
to 17 percent this year, estimates Cheng Li of the Brookings Institution.
While studying or working abroad, the sea turtles pick up subversive ideas.
They don’t shout about them, of course. To do so would ruin any chance of a
good job back home. But living in America, they notice that the air is cleaner,
the people are richer and that democracy is an amazing system for settling
disputes without bloodshed. I predict that the sea turtles will eventually turn
China democratic.

OUTLOOK: What about the cultural changes that immigration brings
about in countries? They aren’t necessarily always positive. Is that a valid
concern, particularly in the developed world?
RG: Whether a cultural change is good or bad is a matter of opinion.
Personally, I like Chinese food, African music and the opportunity to work
with people from a variety of backgrounds. I worry about Islamist terrorism,
but that’s a problem best dealt with by the intelligence services, not the guys
handing out student visas.
In the ways that matter, immigrants to the West adapt pretty quickly to the
Western way of doing things. They follow the law; they embrace pluralism;
they learn English. This is especially true in America, which is unusually
good at absorbing people from pretty much anywhere. It’s relatively easy
to become a patriotic American without abandoning the bits of your native
culture that you value.

OUTLOOK: You are very optimistic about globalization and the future of
the world economy despite the significant economic problems that exist
today, particularly in the developed world. What makes you so sure?
RG: It’s a long view. The current economic crisis was caused by people taking
on too much debt and clever financiers not understanding the risks they were
taking. Governments made matters worse, for example by pushing Fannie
Mae and Freddie Mac to provide credit to the un-creditworthy. This was a
massive mess up. It’s like a terrible hangover we’re suffering at the moment,
but eventually we’ll get through it.
Meanwhile, the forces that have always driven progress are fundamentally
unchanged.
Technology gets better every year. Not just electronics, but ideas about how
you can organize your companies, make your supply chain more efficient,
et cetera. Knowledge is cumulative. You don’t have to reinvent the internal
combustion engine or the joint-stock company. You build on the brilliant
ideas that came before you. People keep figuring out ways to do things better.
That’s why we no longer live in caves, and that’s why we’ll carry on getting
richer.
Migration and cheap communications can turbo-charge this process. Ideas
travel around the world faster than they used to. They can be bounced around
and recombined. Matt Ridley, who wrote “The Rational Optimist,” describes
progress as when ideas meet and have sex. Mix two ideas together and the
result is a little like the mother and a little like the father, but you jumble up the
DNA and get something new.

OUTLOOK: Can too much idea exchange threaten a nation’s competitive
edge? How does a country compete when its top people share their
innovations with their counterparts overseas?
RG: It’s a problem when people steal other people’s intellectual property. But
what I’m talking about is the free exchange of ideas. I don’t see how you can
have too much of that.
Nations do best when they collaborate. America, because it has more
migrants from more parts of the world than anywhere else, is at the center of
cross-border collaboration. Other countries like to collaborate with America
more than any other country in the world. And that’s a reason for optimism.

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