#17: No Borders is “the efficient way to double world GDP”

If only we’d listen to our economists, it could all be so different. Bryan Caplan, professor of economics at George Mason University, describes No Borders as:

“the efficient, egalitarian, libertarian, utilitarian way to double world GDP”

That’s an extraordinary claim, but it’s backed up with numbers. Michael Clemens, senior fellow at the Center for Global Development, Washington, D.C., has collected twelve academic studies examining the “efficiency gain” to the economy from the elimination of various international barriers to trade.

Removing all global policy barriers to the free movement of capital is estimated to have a potential benefit to the world economy of anything ranging from 0.1% and 1.7%. That’s not an insubstantial amount of money, perhaps up to $1.3 trillion, an extra $185 a year for each of us – not to be sniffed at considering that over 700 million people still live on less than $1.90 a day.

Removing international barriers to the free movement of goods is estimated to have an even bigger potential benefit to the world economy of anything ranging from 0.3% to 4.1%, perhaps up to $3 trillion a year, or $450 each.

Dismantling all global policy barriers to the free movement of labour, however, has been estimated to give the world economy a boost of between 67% to 147.3%. That’s at least sixteen times the biggest gain of any other form of deregulation. Even at the lowest estimate, this would amount to an additional $51 trillion for the world economy, or an extra $7,370 in our back pockets every year.

Now can you see why Bryan Caplan ends his short review of Clemens’ work with an unambiguous call to arms for his profession and the wider public:

“If research energy were proportional to the inefficiency of the status quo, virtually every economist would study immigration. And if outrage were proportional to harm, virtually every protest on earth would be in favour of open borders.”

You might at this point be imagining Michael Clemens and Bryan Caplan as anarchist academics, the hard numbers corrupted by personal utopian fantasy. In fact, there is almost complete consensus among economists that borders are a terrible idea. A joint Washington Post, Kaiser Family Foundation and Harvard University survey in 1996 found that 47% of the general public thought “too many immigrants” was a major reason the economy wasn’t doing better; only 1% of economists agreed. Economics professor Alex Tabarrok calls immigration “the world’s best anti-poverty program”, and even the godfather of modern economics, Adam Smith, advocated not only free trade, but also a free labour market, one where workers could move freely to where they were needed.

Michael Clemens suggests that even just slightly relaxing our border controls could add trillions of dollars a year to the global economy. Michael shows how even mass immigration would support the local economy by drawing on the historical precedent of the millions of women who joined the labour market in a short period of time after the Second World War.

“Women entering the labour force are not exactly identical to men,” Michael says in an interview with Freakonomics author Stephen J Dubner, “so they often complement men in the workplace rather than substitute for them.” Similarly, migrants bring new ideas and skills to their work, complementing rather than directly replacing native workers. “Women start businesses that employ men,” Michael adds. “Migrants do too.”

In fact, more than 40% of Fortune 500 companies, the five hundred most successful corporations in the US, were founded by migrants or their children. “Even though there might have been wage-competition between men and women in the ’50s and ’60s, nobody would say now we would make the US richer by banning women from working,” Michael concludes.

What about wage-competition in the UK? In 2008 the Bank of England published a paper that claimed a 10% rise in the number of immigrants working in semi- or unskilled jobs would lead to a 5.2% reduction in pay. In late 2015, the same authors issued an update. Not only had they significantly over-estimated the increase in the number of immigrants taking low skilled jobs, but the reduction in pay was far lower than they expected, just 1.88%.

According to economist Jonathan Portes, this works out to be a reduction of about one penny per hour. This is not nothing, but as Jonathan says, “it stretches credulity to suggest that other things – the level of the minimum wage, the decline in trade union power, technological and industrial change – have not had far bigger impacts on pay in these sectors”.

The flip side to this slight reduction in wages is that some of those savings to business owners are passed on to the consumer. Indeed, in 2008 Patricia Cortes of the University of Chicago found that immigration to the US reduced the cost of a typical shopping basket by about 0.5%.

If you want a large-scale twenty-first century experiment in No Borders, then look no further than Europe. In 2004, seven countries from the former Eastern Soviet bloc joined the European Union. Overnight, about 100 million extra people could move wherever they wanted to work. But, despite the huge differences in GDP between countries like Romania and Sweden, according to economist Philippe Legrain only 4% of people have actually moved, and even then most (perhaps 91%) only intend to move temporarily.

Meanwhile, UCL economists have shown that EU immigrants provided a net benefit to the UK economy of £20bn over the decade from 2000 to 2011, and the most irrationally feared East European migrants made up £5bn of that extra wealth. As for the countries these migrants left, they seem to be doing okay: Poland has outperformed the rest of the EU in terms of GDP growth every year for the last decade.

If the economic arguments are so strong, then what stands in the way of open borders? Well, we do.


Further Reading

Bryan Caplan. ‘The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP | EconLog | Library of Economics and Liberty’. Accessed 2 October 2016. http://econlog.econlib.org/archives/2011/08/the_efficient_e.html.

Clemens, Michael A. ‘Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?’ Journal of Economic Perspectives 25, no. 3 (August 2011): 83–106. doi:10.1257/jep.25.3.83.

‘Survey of Americans and Economists on the Economy’. The Washington Post/Kaiser Family Foundation/Harvard University Survey Project, October 1996.

Alexander T. Tabarrok. ‘Why Ruin the World’s Best Anti-Poverty Program?’ The Independent Institute. Accessed 2 October 2016. http://www.independent.org/newsroom/article.asp?id=1737.

Tabarrok, Alex. ‘The Case for Getting Rid of Borders—Completely’. The Atlantic, 10 October 2015. http://www.theatlantic.com/business/archive/2015/10/get-rid-borders-completely/409501/.

Grieve, Roy H. 1983. Adam Smith’s ‘Wealth of Nations’: the Legacy of a Great Scottish Economist Understanding the Scottish Economy, Publisher: Oxford: Martin Robertson, Editors: K P D Ingham and J Love, pp.pp.41-54

‘The “New American” Fortune 500’. Partnership for a New American Economy, June 2011. p2

Michael Clemens quotes from: ‘Is Migration a Basic Human Right?’ Freakonomics. Accessed 2 October 2016. http://freakonomics.com/podcast/is-migration-a-basic-human-right-a-new-freakonomics-radio-podcast/.

For more detail, see: Clemens, Michael A. ‘Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?’ Journal of Economic Perspectives 25, no. 3 (August 2011): 83–106. doi:10.1257/jep.25.3.83.

Nickell, Stephen, and Jumana Saleheen. ‘The Impact of Immigration on Occupational Wages: Evidence from Britain’, 2015. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2706493.

Jonathon Portes. ‘How Small Is Small? The Impact of Immigration on UK Wages – UK in a Changing Europe’. Accessed 2 October 2016. http://ukandeu.ac.uk/explainers/how-small-is-small-the-impact-of-immigration-on-uk-wages/.

Cortes, Patricia. ‘The Effect of Low-Skilled Immigration on US Prices: Evidence from CPI Data’. Journal of Political Economy 116, no. 3 (2008): 381–422.

Blanchflower, David G., and Chris Shadforth. ‘Fear, Unemployment and Migration’. The Economic Journal 119, no. 535 (2009): F136–F182.

Dustmann, Christian, and Tommaso Frattini. “The fiscal effects of immigration to the UK.” The economic journal 124, no. 580 (2014): F593-F643.

Faris, Stephan. ‘How Poland Became Europe’s Most Dynamic Economy’. Bloomberg.com, 27 November 2013. http://www.bloomberg.com/news/articles/2013-11-27/how-poland-became-europes-most-dynamic-economy.

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