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Trading Barriers

Immigration and the Remaking of Globalization

PRINCETON UNIVERSITY PRESS

Immigration and the Shape of Globalization

MIGRATION WAS ONCE A WAY FOR THE POOR to escape crushing poverty and even an early death. In 1840s and 1850s, more than a million people died in the Great Famine in Ireland, but another million escaped that fate by emigrating to the United States. Thousands more escaped to Great Britain and the British dominions. These migrants also sent money to remaining family members (support known as remittances), saving them from starvation as well. Famine struck again in the mid-1980s, this time in Ethiopia and East Africa, killing about a million people. But there were no great waves of Ethiopian immigrants to the United States. Immigration from the whole of Africa to the United States for the entire decade was only about 140,000, or one-tenth what Irish migration had been. Comparatively, it had a much smaller impact as well: Irish immigration increased US population by about 5 percent whereas African migration increased it by less than one-tenth of 1 percent. Instead of getting a chance to escape famine and poverty, these famine victims got a pop song ("We Are the World").

The situation for those escaping conflict, persecution, and poverty has only worsened since the 1980s. In the West, countries have made it much more difficult to claim asylum, contributing to three refugee crises in the first half of the 2010s alone: the Central American child refugee crisis in the United States, the Rohingya refugee crisis in Southeast Asia and Australia, and the Syrian refugee crisis in Europe. Instead of providing a safe haven for those fleeing conflict, persecution, and violence, in all three cases, wealthy countries — including the United States, Australia, and the European Union (EU) — have prevented entry to those seeking a better life. They have foisted the problem on developing countries, essentially paying developing countries (through development aid and other benefits) to host migrants and prevent their entry into developed states. These developing states, however, often have worse human rights records and give migrants fewer rights, leading to additional abuse of an already vulnerable population. Yet the West has not always been so ungenerous to those fleeing conflict. In the 1970s, Western countries resettled 2.5 million of the 3 million people fleeing the Viet Cong. The Syrian Civil War, which had produced almost 5 million refugees by spring 2016, has seen much lower rates of resettlement.

Immigration policy has become more restrictive not only for those fleeing conflict or natural disasters, but also for those seeking a better life for themselves and their families. Today, few developed states open their borders to immigrants, especially low-skill immigrants. Comprehensive immigration reform has stalled yet again in the US Congress over the issue of whether undocumented immigrants, who are almost always low-skill, should have the right to stay in the United States. Old EU member states like Great Britain and the Netherlands are seeking ways to stop low-skill immigration from the new member states — in the case of Great Britain going so far as to vote to leave the EU (what is known as the Brexit) — as well as from outside the EU, while pressuring these same new member states into taking more refugees, so they don't have to. Even states like those in the Persian Gulf or Singapore that had recently been relatively open to immigration are seeking to slow the flow of low-skill immigrants.

It was not always this way. The nineteenth century did not have migration crises like those we have seen in the twentieth and twenty-first centuries — with refugees crowded into camps or migrants desperately running across borders hoping not to be caught — because migrants, regardless of their reasons for migrating, were allowed entry to most countries. Immigration to the New World and within Europe, Africa, and Asia was largely unrestricted. Instead of trying to outdo one another in their antiimmigration stance, statesmen argued that "to govern is to populate" and invited the world to send them "your tired, your poor, / Your huddled masses yearning to breathe free." In fact, King George III's unwillingness to allow immigration into the American colonies was the third complaint listed in the Declaration of Independence, far above taxation without representation. Migrants, especially those from Europe, but also from the Middle East and Asia, could legally move to almost any country they wished as long as they had the money. The demand for immigrant labor was so high that even those without the means to relocate often received subsidies from foreign governments or businesses to help them move. This brings us to the first puzzle that this book seeks to answer: Why is immigration, especially for those with fewer skills (what I term low-skill immigration), much more restricted today than it was in the nineteenth century or even, for that matter, in the immediate post–World War II period?

Restrictions on low-skill immigration are even more puzzling when we compare them to policies governing trade and foreign direct investment. The same wealthy countries that have put immigration restrictions in place have greatly lowered trade barriers, including on low-skill-labor-intensive goods such as clothing, toys, and electronics. They have also tolerated, and at times encouraged, businesses making these goods (what we refer to as firms) to move production to countries with cheap, low-skill labor (what I term firm mobility). As has been much decried even by pro–free trade politicians, this openness to trade and offshoring production has increased competition with foreign workers and led to the loss of "good middle-class" manufacturing jobs. This brings us to a second puzzle about the shape that globalization has taken: Why are politicians today willing to let their constituents compete with foreign labor overseas but not at home?

Low-Skill Immigration and the Political Dilemma Of Globalization

In this book, I argue that the two questions posed in the previous section are related through a political dilemma: wealthy states, those that are likely to receive low-skill immigrants, can either import the labor they need to produce low-skill-intensive goods or import those goods from countries that have low-skill labor in abundance. Similarly, firms can either bring low-skill labor to their factories or move their factories to countries with low-skill labor. What states cannot do, for political reasons, is open low-skill immigration, trade, and firm mobility simultaneously.

I argue that the political behavior of firms creates the political dilemma. Opposition to immigration is omnipresent, even if it is not always organized; thus open low-skill immigration is always a difficult choice for policymakers, one for which they will need support from a powerful interest group. Although there are other pro-immigration groups — immigrants themselves, humanitarians, and cosmopolitans — firms were once the pro-immigration interest group without equal. Given that firms are powerful forces in both democracies and autocracies, they often got what they wanted: an open low-skill immigration policy. Restrictions on low-skill immigration, I argue, are not the product of declining (relative) power of firms — most political analysts still believe that firms have outsized power in the political system — but are due to changing incentives for firms to push for open low-skill immigration. It is trade and firm mobility, along with technology, that have changed these incentives.

As I show in this book, trade and firm mobility affect the number of firms that use low-skill labor, and thus affect the level of support for low-skill immigration. Trade barriers in wealthy countries allow low-skill-labor-intensive domestic production to expand by sheltering the goods produced domestically from competition with comparable goods produced overseas; with expanded production comes increased demand by firms for immigrant labor. Because firms are a powerful interest group, low-skill immigration policy opens, all else equal. Trade openness — whether due to policy change or to transportation advances that decrease the costs of trade — leads many low-skill-labor-intensive firms to close, taking their support with them. This allows anti-immigration groups, such as nativist organizations or organized labor, or the anti-immigration mass public to have more of a voice in deciding immigration policy, leading to restrictions. Firm mobility — again, whether it is due to policy changes or to technological advances — has a similar effect: the easier it is for a firm to move its factory to another country, the less likely it is to support open immigration at home. Finally, technological development affects low-skill immigration policy: technology allows firms to do more with less labor, reducing their incentive to lobby for immigration.

These changes in the international economy, which were often the result of exogenous policy choices or technological developments, sapped the support of low-skill-intensive firms for immigration at home. It is not the case that the remaining firms do not want more immigration, only that they are unwilling to pay the political costs to get it. My argument, thus, boils down to the options firms have: if firms have other options — the ability to move overseas, or a new technology that will reduce their need for labor — or simply have closed owing to trade, anti-immigration groups have the loudest voice, leading to greater restrictions on immigration. The difference between earlier eras of immigration and today is that the antiimmigration forces are winning because businesses have left the playing field.

My argument on the cause of this political dilemma helps to answer both questions about immigration and globalization. It helps explain the temporal change in low-skill immigration. In the nineteenth and early twentieth centuries, trade was more costly owing to both technological impediments and, in the last quarter of the nineteenth century and the interwar period, relatively high tariffs. Moving production overseas was all but impossible until the early twentieth century, as firms simply did not have the communications technology or managerial know-how to operate production far from headquarters. Even then, only a handful of the largest firms could operate in other countries. The only choice most firms had was to bring labor to their capital.

After World War II, trade barriers fell and shipping costs dropped dramatically with the rise of container ships, allowing trade to flourish. Growing trade, especially with the developing world, led to the closure of many low-skill-labor-intensive manufacturing firms (what is termed deindustrialization). For other firms, increased international competition prompted them to increase their use of laborsaving technology or switch product lines to ones that employ less labor. The reduction of capital controls and restrictions on foreign direct investment (FDI) after the end of the Bretton Woods agreement in the early 1970s, along with improvements in communications technology, made offshoring possible. The ability to move overseas gave these firms another option in the face of international competition: if they could not beat the competition, they could join them.

Declining trade barriers and increasing opportunities to offshore production thus explain the over-time variation in low-skill immigration policy: trade forced many firms that produced low-skill-intensive goods in wealthy countries out of business; firm mobility convinced them to join the competition overseas; and technology allowed them to do more with less. Once these firms exited the marketplace, either by closing or by moving overseas, or moved up the value chain, they no longer lobbied for open immigration. Furthermore, when firms closed, moved overseas, or moved up the value chain, they laid off workers, who could now be employed in other industries, especially in the service sector. As these sectors had more native workers, their need for low-skill immigrant labor declined and, with it, their willingness to lobby for low-skill immigration. With less political support for open immigration from firms, policymakers enacted restrictions.

My argument also explains why politicians let their constituents compete with foreign labor overseas but not at home. To some extent policymakers have not really had a choice in the matter; technological developments have, in large part, driven increases in trade and firm mobility. But policymakers have also made decisions not to counteract these technological developments by increasing trade barriers and barriers to moving capital overseas (what are known as capital controls). Instead, in the past fifty years, policymakers have decreased both trade barriers and controls on capital. By opening up their economies to foreign goods and by allowing home-country firms to invest in foreign countries, policymakers have shrunk the coalition for open low-skill immigration.

Existing Answers to the Immigration Puzzle

The existing scholarly literature on immigration policy has largely focused on only the first question, trying to explain immigration restrictions. There are three major explanations in the literature, all focused on the opposition to open immigration by either organized interest groups or the mass public. Immigration scholars have focused on anti-immigration groups because they have assumed that firms' willingness to act on immigration is constant. In contrast, I argue that although firms still want open immigration — firms want any and all policies that will increase their profits — their willingness to fight for immigration has changed. The first explanation focuses on the role of native labor and labor unions as opposition to immigration. Native labor is thought to dislike low-skill immigration owing to its effects on wages. With increased power due to expansions of the franchise after 1900 and/or increases in the size and power of unions, labor has increasingly won immigration restrictions. The second major explanation examines the fiscal effects of immigrants and the rise of the welfare state after World War II as the source of restrictions on immigration (what is known as the fiscal burden argument). Low-skill immigrants are hypothesized to use the social welfare state more than natives and thus to place a burden on the state. Wealthy natives have to contribute more taxes to pay for these benefits, and poor natives may see their benefits decline as they have to share resources with immigrants. With the rise of the social welfare system, then, both wealthy and poor natives had reasons to oppose low-skill immigration, leading to the increased restrictions in the post–World War II period.

The final explanation, and the one that often appears in the media, is that restrictions are due to culturally based anti-immigrant sentiment (what is known as nativism). Theories on the role of nativism suggest that high levels of immigration in the past led to a backlash and closure, as natives and immigrants increasingly came into conflict with each other over jobs, social welfare benefits, neighborhoods, and culture. Alternatively, proponents of this explanation argue that states have identities that make them more or less receptive to immigrants. For nativism to explain restrictions, it must be the case that nativism has increased in the late twentieth and early twenty-first centuries. Yet every era has its own anti-immigration political parties and associations: the 1840s had the Know-Nothing Party in the United States; the mid-1800s had anti-Asian immigration groups in Australia, Canada, New Zealand, and the United States; the 1920s saw the rise of anti–Southern and Eastern European immigration groups throughout the New World; and today we have the Far Right exemplified by the National Front in France, the Danish People's Party, the Swiss People's Party, and Donald Trump in the United States. If anything, nativism may have declined some or, at least, it has become socially unacceptable in many circles.

Further, although arguments based on immigration's negative effects on labor market outcomes, the welfare state, and nativism may help explain some of the immigration restrictions, they do not help us solve the other puzzle. As explained by the Stolper-Samuelson theorem, opening trade and allowing capital to move overseas should have had the same negative effect on wages as open immigration, as all expose native workers to competition from labor overseas. Arguments based on the power of labor, then, cannot explain the second puzzle — why states are open to trade and allow firms to move — because they fail to explain why labor has "lost" on trade and firm mobility but has "won" on immigration. The fiscal burden explanation is also incomplete; trade openness and offshoring have led to large-scale layoffs, putting increased pressure on the welfare state. So why do natives worry (or worry more) about immigrants' increased use of the welfare system but not natives'? Finally, if nativism is about preserving the national culture, then foreign influences from trade should also be problematic.

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Excerpted from Trading Barriers by Margaret E. Peters. Copyright © 2017 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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