Let them in

In City AM today I have a piece on the refugee crisis, arguing that the costs that many are (understandably) worried about may not actually be a problem:

A recent study looked at the impact of Yugoslav refugees on Danish workers in the 1990s and 2000s. Because Denmark’s resettlement policy distributed these refugees across the country without respect to local labour market conditions, this is a case study in how “exogenous” immigration affects natives. . .

Instead of starting a race to the bottom, as some feared, this influx of workers allowed the Danish economy to become more complex. Adam Smith’s “division of labour” increased, as jobs became more specialised and hence more productive. . .

Crime is on people’s minds too. And it’s true that asylum seekers do seem to increase property crime rates in the places in Britain they go to, though interestingly they seem to reduce violent crime rates.

But this seems to be a consequence of the tight restrictions that effectively prohibit asylum seekers from working for at least the first 12 months that they spend in Britain. If we liberalised those rules, we could solve that problem.

It's important to get the numbers right. The UK has accepted around 5,000 asylum applications from Syrians, not 216 as many people are claiming – that 216 is the number of Syrians we've actually evacuated from Syria directly. But I think there's a strong case for letting in many more than that.

Owen Jones is entirely right here: refugees' lives matter too

It's not often that we write with unreserved praise for Owen Jones but his piece today deserves it:

As the news of up to 200 dead refugees, drowned off the coast of Libya, filters fleetingly into news coverage, the only guarantee is that more will drown. And with news of more than 70 refugees found dead in a truck in Austria – to try to imagine their last living moments triggers a horrible feeling in the pit of the stomach – we know that more bodies will be found in more trucks. Those of us who want more sympathetic treatment of people fleeing desperate situations have failed to win over public opinion, and the cost of that is death.

For those who believe that hostility to human beings from other countries who lost the lottery of life is somehow hardwired into us, there is evidence to the contrary. Germany takes in around four times as many refugees as Britain does; and for every Syrian asylum seeker received by Britain, Germany gets 27. And despite German generosity comparing starkly with our own, half of Germans polled support letting in even more refugees.

Like Alex Tabarrok, I am not aware of any mainstream moral theory that does not tell us that all humans matter, not just the ones who look like us or were born near us. I often wonder how different our approach to trade and immigration policies would be if we took it as axiomatic we don't just care about people lucky enough to be born in Britain. This is the 'big assumption' I ask people to make when I talk to them about liberalising immigration – and if we made it, the debate about immigration's impact on natives' incomes would be a mere sideshow.

There are valid questions about the most humane policy towards the asylum seekers trying to cross the Mediterranean or English Channel. And I am much more optimistic than Owen about the potential for migration to reduce global poverty. But, as he rightly says, the baseline for all of these debates must change. When people are dying from drowning and suffocation, we have to accept that we are not the only ones who matter.

If you hate sweatshops, you should love immigration

Last week I argued that sweatshops are good for workers in poor countries. They usually pay more than the alternatives their workers have near them, they seem to reduce child marriage and pregnancy rates for girls who live near them, and when you actually ask workers in poor countries, they tell you that sweatshops are the best options going. But that isn’t sufficient, because compared to even very bad jobs in Western countries, sweatshop jobs are still exhausting, poorly paid, and dangerous. Garment workers in England are typically paid far, far more than garment workers doing almost the same job in Bangladesh.

Branko Milanovic argues that location is the main determinant of income, not class – you’re better off being near the bottom in a rich country than being near the top in a poor country:

All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty. [In a world of low international migration] most of one’s lifetime income will be determined at birth. [Chart above from here.]

Why might this be? Different skill levels are certainly a part of the difference, but a worker who moves from Bangladesh to England can still expect to significantly increase their earning power. There is a network effect whereby working with people with better skills boosts your own productivity. Christian Benteke is likely to score more goals at Liverpool than he did at the lower-quality Aston Villa, and Uber drivers in New York City make more than Uber drivers in Mexico City.

Capital differences are crucial, of course. Infrastructure and factory equipment are usually better in richer countries. And one big reason for this is institutional quality – the risks of capital investment are much lower in the developed world.

Things like the rule of law and decent, stable governance make it easier to invest with confidence, and seem to be some of the hardest things for poor countries to develop themselves. The cost of running a factory is lower in places where you know that factory won’t be seized by the state. I am not quite convinced that institutions are the most important driver of economic growth but they clearly matter a lot to maintaining a decent level of development.

All of which strikes me as a good reason to try to allow would-be sweatshop workers in the developing world to come to the richer world to work. Letting them work here effectively allows us to stretch our institutions over them, boosting their incomes productivity and incomes.

Given political constraints, this might be best done in the form of a new ‘guest worker’ visa that allows firms to bring people guaranteed a job from poor countries to the UK to work. The firm could be required to post a bond equal to the cost of that immigrant returning home, so nobody is stuck here against their will, and so that we don’t have to worry about immigrants sponging off the state (not that that happens much anyway).

If we targeted this guest worker scheme at people from the poorest countries in the world, we would be able to reduce poverty dramatically. We might see the emergence of industry built specifically for those low-paid workers, who nonetheless would be earning far in excess of what they would earn at home. There is evidence from New Zealand’s guest worker programme that this has large positive effects in the long-run for migrants’ families as well:

We find that the RSE has indeed had largely positive development impacts. It has increased income and consumption of households, allowed households to purchase more durable goods, increased subjective standard of living, and had additional benefits at the community level. It also increased child schooling in Tonga. This should rank it among the most effective development policies evaluated to date

The Gulf States’ guest worker policies, on the other hand, are ugly and brutal in many ways, but people still keep coming because their alternatives are worse. Sweatshops are ugly and brutal in many ways, but people want to work there because their alternatives are worse. How good it would be if for once we could give poor people a better alternative – just by letting them come here to work.

Finally, an idea on international aid we can get behind

Should we clothe the naked, feed the starving and succour the ill favoured in our world? Yes, no doubt we should. Emergency aid isn't one of those things that really causes much controversy. There might be arguments about how it is done, should we ship food or ship money to buy food locally, for example? (The answer is the second). But that's not what international aid is these days: it's rather more about paying the EU to teach people to take trapeeze lessons.So, we entirely welcome this suggestion:

First, the language of investment better reflects the reality of modern aid. The charity paradigm has long been considered patronising by most poor countries, and is increasingly considered old-fashioned even in many “donor” agencies. The reality that strategic and economic interests have always been at play in aid-giving is recognised by most DAC, or developed country, donors somewhat cautiously, but is explicitly promoted by the “emerging” contributors of development cooperation in the global south.

These “emerging donors” eschew the term aid because of its simplistic connotations, preferring the language of “mutual benefit”. They want to imply “horizontal” relationships between equals, fundamentally similar to business transactions. Investment, not charity.

Yes, we're all for this. Firstly, doing it as investment means that at least some attention will be paid to how effective it is. That is, what is the return? It's not necessary for this return to be appropriable by the investors, but just the calculation of whether there will in fact be one or not would have a bracing effect upon decision making.

But there's another point to be made here as well. We don't, domestically, think that governments are very good at investment. So, there's no reason at all for us to think that they will be very good at foreign investment either. Thus, if we are to move over to an investment paradigm, as we agree we should, then it's not going to be government that does the investing. Thus the end of Overseas Development Aid altogether, and the replacement with proper commercial investment.

As of course should happen anyway in our view. As has in fact been happening. ODA is of the order of $100 billion a year these days, Foreign Direct Investment, FDI, is of the order of trillions a year globally. The ODA is only a remnant rump of the process making the poor of the world richer anyway. So, no problems if it gives way to the more efficient and effective investment, is there?

Britain should leave the United Nations

Much talk these days is made of Britain leaving the EU. But what of other bodies that violate Parliamentary Sovereignty? What about, for example, the United Nations? The EU, is made of 28 member states, most of whom could broadly be described as liberal democracies . The UN is made of 167 non-micro states, 88 of whom The Economist would describe as “Hybrid regimes” or “Authoritarian regimes”. Only 25 are full democracies. When dictatorships have a say on the policy of Great Britain, one should not be surprised when the results are bad. Britain, if serious about Parliamentary Sovereignty and democracy, should leave the UN.

To be clear, such a move would likely mean the entire UN would disband. Unless there were major consequences imposed upon our country, the world would remember that membership of the UN is voluntary and thus nations are free to leave at any point in time. And what would the world really lose? Peace has been maintained primarily by two forces over the last 70 years:

1) Democracy- Democracies are less likely to go to war than Autocracies. 2) Free Trade- Building trade relations between countries means going to war with other countries is extremely expensive in terms of lost trade.

The UN facilitates neither and discourages both. By passing numerous binding resolutions- often against democratically elected governments such as Israel, it violates the principle that National Parliaments are sovereign and furthers the neoconservative delusion that imperfect countries can be perfected through the “General will” of other countries, many of whom are far less democratic than Israel.

The UN also implements trade sanctions. The UN claims that this is peaceful, but aside from economic damage- we should also learn from Otto Mallery (Not Bastiat) who said “When goods do not cross borders, armies will”. Iraq makes a good example. On August 6th 1990 the UN approved trade sanctions against Iraq which lasted until 2003.

These sanctions resulted in the deaths of over 576,000 children, and agitated Iraq further into isolation and radicalism. Mallery‘s lesson was proven when the US and UK invaded Iraq in 2003. This was not only an example of the UN failing to secure peace- it was an example of the UN actively discouraging it.

Membership of this organization is at best useless and at worst malign- it is time Britain set an example and left.

Theo Cox Dodgson is winner of the Under-18 category of the ASI's 'Young Writer on Liberty' competition. You can follow him on Twitter @theoretical23.                             

Liberalising Immigration is a Win-Win scenario

Draconian immigration rules represent the largest restriction on liberty in the UK today. They restrict the personal and economic potential of millions of people and achieve little in return. How to roll back these limits on freedom? Think tanks have a difficult dilemma. They want to build a reputation as radical thinkers, but at the same time propose moderate policies. Early drafts of this essay argued that Britain should be more open to this or that group, but the truth is that both hard-headed economics and human decency demand wholesale liberalisation. Immigration restrictions curtail our ability to hire, sell to, befriend and marry the people we want to. People understand this – it's why people view immigration to their local area much more favourably than on the national level. And they have an enormous economic cost.

The ASI's namesake argued that the division of labour is limited by the extent of the market. Everyone accepts the case for free trade, but that leaves markets incomplete, because non-tradable services (like haircuts) can't travel across borders. Freeing people to move where they wish would let people go where their talents would be best used. The productivity of someone with an engineering degree – the amount can achieve with their labour – is many times lower in some areas of the developing world than it is in the UK.

The benefits to migrants are best illustrated by the lengths migrants are willing to go to to cross borders. Smugglers charge thousands for passage from Libya to Europe, and the journey is fraught with risk, but hundreds of thousands make the journey anyway. Migration lets people escape poverty, war and authoritarian regimes.

The Mariel Boatlift is an example of this. In 1980, 125000 Cubans fled Castro's regime, landing in Miami. Their liberation increasing the size of the local labour force by 7% almost overnight. But economists found almost no impact on wages and the labour market.

7% of the UK labour force works out to approximately 2.3m people. The government could auction off permanent residency permits to that many people each year. Such a radical policy would be disruptive. It would have costs, losers as well as winners. But the potential benefits are too colossal to ignore – a Britain where not only workers and jobs but husbands and wives, parents and children, potential pub geezers would not be separated by arbitrary borders.

Theo Clifford is winner of the 18-21 category of the ASI's 'Young Writer on Liberty' competition. You can follow him on @Theo_Clifford, and read his blog at economicsondemand.com.

Sweatshops make poor people better off

Sweatshops are awful places to work. But they are often less awful than other jobs sweatshop workers could take. And this is the basic argument in defence of sweatshops. When people argue against them, the question we should ask is: “Compared to what?”. Most evidence suggests that sweatshops pay better than the alternatives. It’s hard to collect reliable data in many poor countries, but Ben Powell and David Skarbek’s 2006 paper “Sweatshops and Third World Living Standards” uses wage data given by anti-sweatshop campaigners­ to estimate wages for sweatshop workers in ten countries compared to average National Income. This, if anything, should underestimate sweatshop workers’ earnings.

Again, it’s difficult to know how many hours the average sweatshop worker does every week, but most anti-sweatshop campaigners suggest that it is more than 70 hours per week. The results should be taken with a pinch of salt, but Powell and Skarbek found that sweatshop wages exceed average income in between eight and ten out of ten countries surveyed, depending on how many hours were worked.

In nine out of ten countries, “working ten-hour days in the apparel industry lifts employees above (and often far above) the $2 per day threshold.” And “in half of the countries it results in earning more than three times the national average”! (Powell's defence of sweatshops, here, is excellent. His book on the topic is self-recommending.)

Critics of sweatshops point to the 1,000+ people killed and 2,500+ people injured by the collapse of the Rana Plaza sweatshop in Bangladesh in 2013. This was indeed grotesque, and evidence of the poor conditions that many sweatshop workers have to work in.

But what is their next-best alternative? Subsistence farming still dominates many of the countries that sweatshops operate in – in Vietnam, 59% of workers are self-employed in farming; 1.5% work for businesses owned partially or fully by foreign firms. And farming – particularly subsistence farming – is one of the most dangerous occupations in the world.

The International Labour Organisation estimates that agricultural workers suffer 250 million accidents every year, and say that in some countries the fatal accident rate is twice as common in agriculture as in other industries. “Out of a total of 335,000 fatal workplace accidents worldwide,” say the ILO, “there are some 170,000 deaths among agricultural workers.” As horrendous as the Rana Plaza incident was, anti-sweatshop campaigners have not shown that sweatshops are more dangerous than sweatshop workers’ next-best alternative.

Sweatshops seem to have good impacts on women in particular. A study by researchers at the Universities of Washington and Yalethat I blogged about last year looked at different villages in Bangladesh – some close to sweatshops, some not.

In the villages close to sweatshops, girls were substantially less likely to get pregnant or be married off (28% and 29% respectively, and this effect was strongest among 12-18 year olds) and girls’ school enrolment rates were 38.6% higher. The authors say that these effects were likely due to a combination of wealth effects (richer families need to marry off their daughters less early, and can afford to send their daughters to school for longer) and the fact that garment factory jobs reward skills, increasing the value of education.

And what do workers themselves think of sweatshops, given not just wages but other non-monetary compensation as well? Using field interviews with thirty-one sweatshop workers in El Salvador, David, Emily, Brian and Erin Skarbek found that “workers perceive factory employment to provide more desirable compensation along several margins.”

This is not to condemn all work done ‘against’ sweatshops. Using data from Indonesia, the World Bank's Ann Harrison and Jason Scorse found that 1990s campaigns to improve conditions for sweatshop workers in the developing world seem to have led to real wage increases without significant unemployment effects, though some smaller factories did close.

The lesson here may be that work that focuses on improving wages and conditions for sweatshop workers, not closing down sweatshops and trying to wash our hands altogether, may be the best approach. Persuading consumers to continue buying things from sweatshops, but to pay a higher price to give those workers a better wage, might be a decent way of essentially 'bundling' a charitable donation into a normal purchase. Unfortunately, most campaigns in Britain seem to be straightforwardly anti-sweatshop.

And even the most noble-seeming campaigns can backfire. UNICEF argues that early 1990s campaigns to reduce child labour in Bangladesh’s formal economy led to children looking for income in much worse places: stone-crushing, street hustling, and prostitution.

It is understandable that anti-poverty campaigners find sweatshops appalling, and work done to improve conditions in sweatshops might be valuable, but too often people forget that blunt campaigns against sweatshops probably end up hurting people. Instead, people should use the awfulness of sweatshops – and even greater awfulness of other jobs – as proof that we need to do more, much more, to give better options to poor people in other countries.

One option might be guest worker programmes, targeted at people from the poorest countries in the world, to allow them to come and work in the developed world so that they can send more money back home for investment. And lower trade barriers to goods from poor countries would help them grow, too.

Sweatshops are particularly horrifying because they make us feel complicit in the suffering of the poor. They are not a good option, but they are the least bad option currently available to many people. Washing our hands of the situation and just closing the sweatshops would make their workers worse off, potentially much worse off. If we want to help people, we should give them new options, not take away existing ones.

An alternative for Greece

Three years ago I led an ASI team to compete for the Wolfson prize on leaving the Euro in an orderly manner. We got “close but no cigar”, hearing informally that we made it into the top dozen out of over 600 entries. The current position is more chaotic than anything imagined at the time of the competition, with several overlapping institutional problems.

• The Greeks need relief and devaluation. Neither is possible under the Eurosystem which they also say they want. They are going to have to choose. Meanwhile, it is unrealistic to expect Tsipras or any Greek government to reverse 170 years of political dysfunction and collect income taxes from tomorrow morning. They can, however, place asset sales with an outside body and (more or less) collect VAT.
• The Eurogroup (to simplify divergent inclinations) wants to keep the Euro immaculate, that is free of defection or conspicuous violations of its own rules, where they’re fast running out of wiggle room. Policy-makers also fear that further concessions will inflame populism in the other PIIGS, especially Spain where Podemos is leading the pack into the autumn elections. All in all, these objectives contradict each other, leaving the Eurogroup rudderless.
• The ECB and other official European creditors fear a “haircut” (reduction) on the “principal” (headline sum borrowed). This couldn’t be airbrushed off their balance sheets - unlike grace periods, reduced “coupons” (interest payments), extended payment periods and so on. This makes it hard for creditors to take a lead.
• For much of the Greek crisis, the IMF has given the impression of dancing to the ECB’s tune. At long last, it now seems to be manning up – none too soon, as it has risked its standing in the face of future defaults in “sovereigns” (state issued debt). It still needs to establish clear policy distance from the Bank, which should be taken to have relinquished its standing as an official creditor by “enabling” (as they say in AA) a defaulter.

This adds up to a catastrophic failure of leadership. Thus the following proposal, an exchange instrument which enables the IMF to take back the lead it should never have relinquished, grants Greece relief, and spares the creditors the worst by giving them a share in recovery.

1. First, the IMF must reinforce its recent shows of independence, seeing off the ECB’s claim of pari passu priority as an official creditor. It must insist that the Bank joins with other creditors in a 50% plus haircut on the nominal value of its holdings of Greek debt or “old paper”. The Greeks themselves have spoken of 30%, following the Fund last week. This is unlikely to be enough for medium-term sustainability. There may also be some malarkey as between private and official creditors. The pain for official balance sheets is less than the nominal haircut as they bought much of their holdings at market discounts; it will be also abated by (4).
2. Old paper is to be swapped for an exchange instrument or “new paper” with a nominal value reflecting the haircut. This is to be denominated in hard currency, unregistered and negotiable at par for tax payments to the Greek Government. This makes for a liquid secondary market and sets a floor for the value.
3. New paper is to be undefeased (guaranteed by a third party); but is part-collateralised by (and part-redeemed by the proceeds of) early sales of Greek publicly owned assets under the control of a body answering to creditors. No guarantor is available for defeasement, with the US Treasury uninvolved and the ECB compromised. The asset sales would be the €51bn identified in 2010, of which less than €5bn has been realised; and would underwrite between one quarter and one third of the new paper.
4. The coupon is to vary with increases in (and defrayed by a first call upon) VAT receipts above a threshold. This follows the precedent of the Paris Club (ie, for private holders of defaulted sovereigns); guarantees the coupon and offers upside to those taking the new paper.

This proposal enables the IMF to resume its proper role after sovereign defaults, that is leading the workouts. It also gives Greece and its people the breathing space they need and helps out the country’s creditors with a share in the improvement in Greece’s economy.

We need to get this right about what the Millennium Development Goals have achieved

It's absolutely and gloriously true that these recent decades have seen the largest reduction in absolute poverty in the history of our species. But we need to work out why this is so, so that we can go and do more of that lovely stuff that reduces absolute poverty. And this isn't the answer:

The millennium development goals (MDGs) have driven “the most successful anti-poverty movement in history” and brought more than a billion people out of extreme penury, but their achievements have been mixed and the world remains deeply riven by inequality, the UN’s final report on the goals has concluded.

This is not true. This is to confuse correlation with causality. The MDGs have been around for a time, yes, and they correlate with some of that reduction in poverty. But the actual decline in poverty, the one of those MGD's that was achieved ahead of target, has not been driven by the MDGs. In fact, far from varied chuntering on at the UN being responsible for the reduction in poverty it's been the ignoring of said chuntering that has.

The two things that have led to this vast, and highly welcome, reduction in poverty are the economic development of China and the Washington Consensus. Both, really, being governments getting out of the way and allowing the natural propensity to truck and barter to assert itself. We can in fact prove this in two ways.

The first being that the reduction in poverty hasn't been happening where the UN has been dipping its greasy mitts, it's been in those places that have been taking part in globalisation. Secondly, the reduction in poverty started before, predates, even the consideration of those MDGs let alone their adoption and anyone doing anything directly about them.

This matters because of course, given the success they are crowing about here, they want to make another set of goals. And the correct goal should be to do more of what worked last time, not whatever comes about as a result of the chuntering of the bureaucrats.

What did work last time is that the rich world finally started buying things made by poor people in poor countries. Thus we should do more of this: more globalisation in short. And given that the bureaucrats, the UN, and their targets had almost nothing to do with it all the best thing we should set them as targets is that they should shut up, go home, and let the rest of us get on with making our fellow humans richer.

As we have been and as we'll all continue to do as long as no one interferes.

Which aid is worthwhile?

In the second edition of "How to Win Every Argument" I introduce 12 new fallacies, one of which is the False Zero Sum Game.  This is the fallacy of supposing something to be in fixed supply when it is not.  Some suppose that if some countries are to grow richer, others must become poorer.  In fact wealth is not in fixed supply; it can be created.

Another fallacy I did not include is the inverse of this one, where people suppose an unlimited supply of something limited.  Given that countries will not allocate the whole of their GDP to foreign aid, a limited aid budget is available.  The question is "How can it be spent most effectively?"  One answer is that supplied by the Copenhagen Consensus established by Bjorn Lomborg.  Distinguished economists meet every 4 years to assess how to prioritize limited funds.  Its rigour has earned it a reputation for fairness.

In an article published a year ago, Matt Ridley described how Lomborg handed the UN Open Working Group slips of paper representing worthwhile projects and had them place them in order of priority.  They were startled, coming from a mindset that "everything is important."  Lomborg then had 60 economists calculate the cost-effectiveness of different targets, and list their likely benefits:

1.  Every dollar spent on reducing malnutrition yields $59 in benefits.  Better fed, children's learning improves and they become more productive members of society.

2.  A dollar spent combating malaria and tuberculosis brings $35 in gains.  These diseases cause sickness that reduces the ability to do productive work.

3.  A dollar spent fighting HIV brings $11 in returns, and so on.

By contrast, each dollar spent on programmes to limit global warming to 2 degrees Celsius brings only 2 cents in benefits.

In his article Ridley lists his own top priorities, adding boosting preprimary education, which he suggests might return $30 per dollar spent.  He suggests that universal access to sexual and reproductive health would save mothers' lives and lower birthrates, yielding perhaps $150 per dollar spent on it.  Finally Ridley suggests that expanding free trade could deliver "phenomenal improvements to the welfare of the poor in surprisingly quick time."  "A successful Doha Round of the WTO could deliver annual benefits of $3 trillion for the developing world by 2020, rising to $100 trillion by the end of the century."

It is a rewarding discipline to compare the effectiveness of different projects, and to explore which ones would do most good with the limited funds.  It has the potential to make aid more effective at achieving worthwhile goals.