An Economist Looks at Europe

by Pedro Schwartz (Jan 4, 2016)

Quite some years ago, when I was a very liberal young man writing a doctoral dissertation on John Stuart Mill, I asked my supervisor Lionel Robbins what he thought of the restrictions newly introduced on immigration by the then Conservative government. Robbins answered with another question: “Would you make immigration totally free?” I did hesitate but suggested immigration should be as lightly regulated as it was in the United States at the end of the 19th century—just a medical and fifty cents per head on Ellis Island. I want to consider whether I would give that same answer today for Europe, seeing the size of the displacements caused by the civil wars in Libya, Syria, Iraq, Afghanistan and the Horn of Africa. In what numbers should immigrants from the poorer parts of the world be let into Europe? Should there be limits to internal migration within the European Union? What methods are acceptable to stem the flow of people fleeing violence or seeking a job? Liberal democracies in North America and Australasia face the same general question, to wit: does the philosophy of freedom include the right of people to travel and settle as and where they want?

Mass migrations are not a new phenomenon in Europe. The end of World War II made for very large displacements, whether voluntary or not: the borders of Germany and Poland were moved westward at the stroke of a pen, with millions of people forcibly changing their place of abode. Later came the voluntary migration of thousands fleeing communist oppression and, after the demolition of the Berlin Wall, even more people from Eastern Europe seeking new opportunities in the West. The independence of Algeria from France led the former metropolis to open its doors to people of both French and Algerian extraction. And Spain in the 1980s not only allowed many Moroccans to settle in its cities but was also very generous in granting double nationality to Latin Americans, blessed as they were with the same language, customs and even religion. (My mention of religion is not fanciful,

“Liberal democracies face the same question: Does the philosophy of freedom include the right of people to travel and settle as and where they want?”

for much heavy weather is made of the difficulty of assimilating a large Muslim population in countries of Christian tradition today.)

A further development in the European Union is that its treaties mandate the free movement of European citizens within the EU, including the full enjoyment of their welfare and social rights. This freedom is reinforced by the obscurely named “Schengen Treaty”, whereby there are no inside border controls in the EU, so that you can drive or fly freely from Finland or Hungary to Portugal or Malta, just as when you travel from Maine to New Mexico. Even where border controls remain, as in the United Kingdom and Ireland, Europeans can seek employment there: ‘the Polish plumber’, as the catch-all phrase goes, allegedly puts the local worker out of a job. Finally, you have immigrants from outside the EU, either applying for refugee status or simply slipping in illegally—or drowning by the thousands in their attempt to come in by sea.

Let us see some numbers. The EU has become one of the regions that the rest of the world looks up to as a destination for a better life. According to the European Commission, immigration into Europe excluding refugees and asylum seekers was from 2010 to 2014 a steady 1.4 million per year. The result is that in 2014, residents in the EU born outside Europe numbered 33 million—or 7% of its population. This may look large but not when compared with the 14% foreign born in the US, 20% in Canada or 27% in Australia, also in 2014.

Thus the immigration phenomenon is one of old standing, but the present rush to enter the EU at any cost by people coming from Africa or the Middle East is causing alarm. Asylum applicants plus people crossing illegally were 540,000 in 2013, 911,000 in 2014, and 1.5 million in the first six months of 2015. Though 40% of asylum applicants are currently being rejected, this progression will certainly increase the 1.4 million immigrants per year entering the EU that I mentioned above.1

This poses two kinds of problems for the EU. The most immediate one is the bureaucratic nightmare of dealing with unmanageable numbers of destitute people banging on its doors. According to European law, it is the country of first arrival that should check and classify the newly arrived. But the main points of entry are the minute Italian islands in the Mediterranean, the tiny member-state of Malta, and the Greek islands a stone’s throw away from the Turkish coast. They cannot cope, nor can the small states on the mainland crossed by refugees and illegal immigrants heading towards Germany and Sweden, where most want to go. The second is the hopeless attempt to distinguish between ‘asylum seekers’ fleeing political or racial oppression and ‘economic migrants’ who simply come to find a job or learn a new trade. That distinction is artificial: though some are forced to move under duress, all come for a better life for themselves and their families. An indication of this is that 65% of the applicants for refugee status in the first nine months of 2015 were young men, clearly looking for employment, and that a sizeable proportion of the ‘refugees’ is made up of unaccompanied children who have a greater chance to be allowed in and start a new life.

The EU is being less than efficient in dealing with the immigration phenomenon as a whole. “Frontex”, a European Agency for the management of external borders is just beginning to help frontline states to cope with the refugee influx. A European coast guard is in the process of being launched. There has been an attempt by the Brussels Commission to set minimum quotas for the numbers of refugees that the different nations must accept but most are refusing the imposition. Germany is among the exceptions for it has promised to accept an even large number in 2016 on top of the 800,000 taken in last year. The United Kingdom is among the least generous of European countries, as it has limited its total intake to 20,000 refugees over the next five years. Political resistance is growing in Hungary, Poland, Denmark, and France. Even Angela Merkel is seeing dissent in her party. The anti-refugee reaction in some European countries has led Peter Sutherland, the UN special envoy for migrants and refugees, to condemn it as contrary to UN principles and international law: he has reminded Hungary that free Europe accepted 200,000 refugees after Russia put down the Hungarian revolution in 1956.

The debate on an open door policy

For background information, seeImmigration, by George Borjas in the Concise Encyclopedia of Economics.

Ted Rall is not my kind of liberal but he recently drew a cartoon for the Los Angeles Times that goes to the heart of the immigration problem. A poor white man sitting before his TV screen sheds a tear for the drowning Syrians and wonders aloud why Europeans do not let in all those refugees; but he calls for his gun when his wife cries ‘Mexicans in the garden’.2 This ‘not-in-my-backyard’ attitude to immigration of so many otherwise generous people may be understandable, but is misguided.

As Peter Sutherland has put it, “locals in destination countries believe that migrants are stealing their jobs, depressing their wages, or exploiting their welfare systems”. A widely unionised and protected workforce will indeed complain that enterprising, hungry-for-work entrants unfairly compete with them. It is true that in the short run immigration exerts downward pressure on local wages, especially of the less well prepared. But over time competition forces progress, which can be painful but will in the end be for the good of all concerned. This resistance is on a par with the attitude of trade-unions in Europe when they resist legal changes to allow older people to prolong their working lives: they fear this will reduce jobs for the young. Behind these arguments lurks the fallacy of believing that the total number of jobs is a fixed quantity. Much to the contrary, the greater the number of people in gainful employment, the more jobs are created, both directly by increasing productivity and indirectly by demanding labour inputs from other suppliers.3

On the same lines, the middle classes in Europe and in America complain about their lost status compared with the famed 1% at the top and blame it on globalisation and its concomitant, immigration. But surely accepting immigrants must be seen as a reduction of inequality. It is only human that people should squint up the earnings scale and reject more equality with those below them.4 To quote Peter Sutherland again: “Migration—when it is safe, legal, and voluntary—is the oldest poverty reduction and human development strategy”.5

Then there is the pressure on public services, especially schools, health care, and eventually pensions. The concern under this heading has two elements. One is that limitless benefits granted in welfare states are a powerful magnet for immigrants. The other is that entitlements for immigrants increase the cost of public services for existing taxpayers. I have indeed witnessed abuses of the free National Health Services in the

United Kingdom and in Spain by immigrants with a short history of Social Security contributions, who then bring in their families for expensive operations. But immigrants, as I said, tend to be young, healthy, and eager for work. If they are legal, the present value of their taxes and contributions will cover their social costs, except for schooling—but this can be seen as a beneficial investment for the host country in the long term. The positive effect is even greater when one notes the importance of young workers for alleviating the finances of non-contributory pensions. Also, this cost benefit analysis is not complete unless one takes into account the more than off- setting contribution of immigrants to the national product.6

For more ideas and information, see Changing the Continent?, by Anthony de Jasay, Library of Economics and Liberty, November 2, 2015; Schengen, adieu, by Alberto Mingardi, EconLog, December 14, 2015; Why the Conventional View of Immigration Is Wrong, by Daniel Kuehn, Library of Economics and Liberty, September 2, 2013; and An Economic Case for Immigration, by Benjamin Powell, Library of Economics and Liberty, June 7, 2010.

Finally there is the question of the cultural shock that the arrival of large numbers of immigrants from societies with different traditions, habits and religions may cause to the countries accepting them. Under this heading we can include a number of points. One is the treatment of women by immigrants from different cultures, not only the more conservative Muslims but also the less cultured among Latin-Americans: in fact, in Spain much of the violence visited on women and children comes from immigrant men. However, if one looks carefully, sexist violence is not the monopoly of migrants from alien cultures. In Britain much cruelty to women and their children comes from men who are not married to the mothers and who are not the biological fathers of someone else’s offspring. The real danger comes from their ‘partners’, British or immigrant, who father children with one welfare reliant woman after another.7 This kind of behaviour is not limited to immigrant men, be they Muslim or Mexican. Immigrants always face resistance when they arrive in an established society. 8 The crucial point is that they and their offspring should have no excuse not to look for work and have the opportunity to find it.

More recently, there is the drift of some young Muslims of both sexes towards radical positions and even participation in terrorist groups.9 In the opinion of many, this is the result of the failure of Islamists fully to integrate

in the societies that so openly accepted them: they resist Western values of respect for the ways of others and separation of State and Church. This stress on religion does not go deep enough. Education systems are blamed for failing to teach the young these values. One should rather say that on the whole public education does not teach, full stop. Public education simply does not deliver the service expected of it. Two simple indicators: in Europe and America from 15 to 20 per cent of adults are functionally illiterate, let alone proficient in arithmetic; and many families are led to changing their domicile to place their children in the catching area of decent schooling. Public housing has created ghettoes of destitution and lawlessness in France, Germany and even Britain. These young drifters and their families often lead effortless lives under the dispensation of the welfare state. If school had to be paid for; if health care were mainly based on private insurance; if the young did not automatically have access to unemployment benefits; and if the labour market were truly de-regulated: then immigrants and their families would have to base their lives on steady work and personal effort, free of the incentive to sponge off the state.

There have been many attempts in Europe to make public assistance compatible with poverty reduction, less unemployment, greater self- reliance, and renewed family life. Free public schooling is being extended to include nursery at one end and apprenticeship at the other. Austria makes pensions portable from one job to another and adds whatever the individual has not spent in unemployment benefits to their future pension entitlements. Denmark has made the labour market fully flexible while having government actively retrain the unemployed. In the United Kingdom there are fewer limits to dismissal than is the norm in the EU, but the state demands firms pay a ‘living wage’ over and above the minimum wage. And there are small charges for public medical services in France, Germany and other EU nations. These minimal changes are clearly not enough. As Michael D. Tanner has written (2003), “it is time to end Welfare and replace it with an invigorated system of private charity”.10

Milton and Rose Friedman

In their charming book Two Lucky People (1998) the Friedmans told us how they and their families came to be Americans. Rose was born in the Jewish part of what today is a Ukrainian village. Preceded by her father, the whole family repaired to Portland, Oregon. She moved east to study at the University of Chicago, where she came to share a desk with Milton at Jacob

Viner’s economics course. Milton was born in Brooklyn but his parents came from the Jewish quarter of Berehovo in today’s Ukraine. The Friedmans, when they arrived in America got no help from the state. They were helped by relatives and made their way up by hard work. Milton’s parents met and married in New York. His mother worked in a cloth-making sweatshop and his father tried his hand at business. Young Rose and Milton both worked in their free time.

Children of immigrants, and in Rose’s case an immigrant herself, we are rather typical of our contemporaries, though less so of our successors, as the melting pot has increasingly been replaced by multiculturalism, and rugged individualism by a welfare state. (Two Lucky People, Preface)

Milton wrote the following words of another immigrant,Arthur F. Burns, but they apply equally to the Friedmans: “What a testament to the benefits that a policy of free immigration has conferred on the United States!” (page 31)

Friedman himself pointed out later in life how big an obstacle a policy of free immigration was to the welfare state. David Cameron, the British Prime Minister, wants to exclude EU migrants from all entitlements for four years after their arrival. He thus falls into the trap of tarring all immigrants with the brush of exploiters of the welfare system. I would put it another way. Since immigration seems to be incompatible with the welfare state, a flood of immigrants, be they political, economic, or stowaways, could be a blessing in disguise: it may have the effect of proving what we suspect: that the welfare state is unsustainable.

Footnotes

1. See the detailed articles on the European Migrant Crisis in Wikipedia for the sources of all these figures. Accessed 26.iv.15. Most of the figures mentioned come from Eurostat.

2. You can see the cartoon on Rall’s blog at rall.com -> african-vs-mexican-immigrants-get-my-gun

3. Dr. Raúl Hinojosa-Ojeda (2010) has noted a counter-productive effect in the United States of the refusal to legalise unauthorised immigrants. Paperless workers tend to accept, and employers to pay, lower wages, thus depressing the wage level. Their emoluments increase as soon as they are legalised. “Raising the Floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform,” Center for American Progress. Available online at:https://www.americanprogress.org/issues/immigration/report/2010/01/07/7187/raising-the- floor-for-american-workers/.

4. As regards the United States of America, from 1970 to 2013, median real income per head has been growing in the US by 1.70% one year with another, which puts inequality figures in perspective. (Bureau of the Census).

5. Peter Sutherland and William Lacy Swing (2014): “Migration on the Move”, Project Syndicate https://www.project-syndicate.org/commentary, March 17, 2014.

6. In the United States, the federal budget gets more from income tax paid by immigrants than it spends on Medicaid, Medicare and pensions for the same group, while states and municipalities incur a net loss due to the weight of public school costs. Daniel Griswold (2012): “Immigration and the Welfare State”, Cato Journal, 32, 1(Winter), pages 159-174. [Available online at:http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2012/1/cj32n1-11.pdf.] Apart from helping considerably with the pensions burden Griswold mentions different studies in states of the Union, where the supply of goods and services added by immigrants more than outweighs the cost of social services, especially that written by Dixon and Rimmer (2009): “Restriction or Legalization”, Cato Trade Policy Analysis, number 40, August 2009. [Available online at: http://www.cato.org/publications/trade-policy- analysis/restriction-or-legalization-measuring-economic-benefits-immigration-reform.]

7. See James Bartholomew (2004, 2013): Chapter 6, The Welfare State We’re In. Biteback Publishing, London.

8. Friedman was lucky that he suffered no discrimination as a Jew except once in his life, in his failed appointment for tenure at the University of Wisconsin in 1941, expressed by the chairman of the Economics Department, a gentleman who later repented his attitude. However, in an interview after being awarded the Nobel Prize he did remember his surprise on hearing his Jewish colleagues at Columbia and more generally New York students complain about anti-Semitic attitudes. (Academy of Achievement, “Milton Friedman, Ph.D.” accessed 18 December 2015). This is the fate of all immigrant stock: yesterday the Jews, today the Muslims.

9. The horror of the terrorist crimes at the beginning of the present century has made us forget that terrorism is an old and repeated occurrence in Western societies. We need only remember Joseph Conrad’s novels The Secret Agent (1907) and Under Western Eyes (1911). Terrorism must be prevented and fought decisively but we must not forget it is a price we pay for liberty.

10. Michael D. Tanner, The Poverty of Welfare: Helping Others in Civil Society, (2003), Preface. Tanner examines in that book the 1996 Personal Responsibility and Work Opportunity Reconciliation Act signed into law by President Clinton. He shows that the Act had good consequences critics at the time of its framing did not expect, such as the shrinking of welfare rolls and the reduction of poverty, especially for children. But he laments that one cause of poverty, out-of-wedlock childbirth, has not abated, and that government assistance is still tying down many recipients to a life of dependence. (chapter 4)