Tuesday, January 29, 2008

When can welfare benefits and immigration be separated?

Demographic imbalance continues to be a sensitive issue in the GCC:
"This region will not remain Arab-Islamic in the presence of millions of Asians here. I do not exaggerate when I say that we will soon see a Gulf minister or Member of Parliament from the Indian subcontinent," [Bahrain's Labour minister Majeed Al Alawi] said in an interview published on Sunday in Asharq Al Aswat newspaper.

Al Alawi lashed out at the lazy character of Gulf nationals that has made them almost fully dependent on imported labour even for the simplest tasks and blasted the Gulf business community for their uncontrollable greed, claiming that they were driven "only by financial interests and without any regard for the formidable damage caused by foreign workers."

The minister, a leading opposition figure who was given the labour portfolio in 2002, has now failed twice to have the GCC leaders endorse a proposal for a residency cap to limit the growing influence of the expatriate communities.
I would not describe Gulf nationals as having a "lazy character." I would say that they respond to incentives, and that in many countries in the Gulf nationals benefit from the welfare state that the oil revenues of those countries can support.

By contrast, the ex pats in the GCC have a reputation for working hard. But that is because their income is tied to their productivity; they do not receive the benefits of the welfare state. Arguably - because the GCC is so dependent on foreign labor - it has the most open immigration policy in the world. The economist Milton Friedman argued that open immigration was incompatible with a welfare state. Here's what Lant Pritchett had to say about that in an interview with Reason:
Reason: Milton Friedman has pointed out that open borders are incompatible with the welfare state.

Pritchett: I would have thought Milton Friedman would have taken that as an argument for open borders.

The free mobility of labor is incompatible with the welfare state if every person who is physically present in a location to perform an economic service automatically comes into the same set of welfare benefits as a local. That needn’t be the case.

This is what liberal democracies find hard. But it’s not impossible. You have to confront the injustice of the world and say this person is better off even without the welfare benefits, and this process is good for the world.

Reason: You then create a division between first- and second-class citizens. Isn’t that worrisome?

Pritchett: The world now is divided into first-class citizens of the world and fifth-class citizens of the world. The idea that we wouldn’t help a peasant trying to eke out a living on a side of a mountain in Nepal by letting him work in the United States, just because we have to, if he comes to the United States, endow him with all the rights of U.S. citizens—I think that moral calculus is backward.

So the first answer is: Milton Friedman is wrong. It’s not incompatible with a welfare state; it’s incompatible with a welfare state that doesn’t differentiate between people within its territory. Singapore manages to maintain an enormously high level of benefits for its citizens with massive mobility. Kuwait has one of the highest immigrant populations in the world, and you can’t ask for a more cradle-to-grave welfare state than what Kuwait gives its citizens. So it’s obviously possible to maintain whatever level of welfare state you want and have whatever level of labor mobility you want, as long as you’re willing to separate the issues.

In the GCC it has been politically feasible to admit immigrants and deny them welfare benefits. Would it be politically feasible in the U.S. to separate immigration from access to welfare benefits? Not all Americans would agree, but I suspect the majority believe that if someone is admitted to the country then they should have access to most if not all of the public benefits that citizens enjoy. At the same time Americans do not support open immigration. Thus, most Americans - although they may not recognize it - leave most would-be immigrants worse off than if they could accept second-class residency.

Thanks to freeexchange for the link.

Update - Arabian Business: "Al Aswat warned that the presence of foreign workers in the Gulf was a greater threat to the region than the fallout of a nuclear bomb or an Israeli attack."

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Blogger EclectEcon said...

The analogy to the differences between Alberta and the Maritime provinces in Canada is very strong. People flock to Alberta for high-paying jobs in the oil industry (and hence elsewhere throughout the economy). But the analogy is not perfect. Alberta cannot discriminate between the "immigrants" and its longer-term residents with its various programmes. The province is grappling with difficult questions about how to disseminate its oil royalty incomes to its provincial citizens without creating strong incentives for needy people to flock there. So far, the housing market seems to be having some effect -- it's hard to move there if you can't find or afford a place to stay.

7:05 PM  
Anonymous Lydia said...

It will not succeed in reality, that's exactly what I think.

11:37 PM  

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