Innovation and open borders
January 1, 2013 3 Comments
It has sometimes been argued that mass immigration slows technological progress, by reducing pressure to automate and mechanize production process. I agree that open borders would probably result in less automation, and the substitution of labor for capital for many functions. But I highly doubt that there would be a slowdown in technological progress.
First of all, the argument that (a) immigration leads to (b) labor abundance and (c) less automation applies to rich countries only. In poor countries, the opposite would apply. Open borders would make labor scarcer there. So if high labor costs drive technological change, then open borders should slow technological change in rich countries while accelerating it in poor countries. At a global level, the effect would be ambiguous.
Second, the notion that we should deliberately make labor scarce in order to accelerate technological change has some strange implications. It’s not just through migration that companies take advantage of cheap labor. They also outsource production to poor countries and import the goods they make there. That also reduces the incentive to automate. If we want to promote technological change through artificial labor scarcity, we should not only restrict migration, but also trade. Indeed, we ought to regard generous welfare programs that induce cultures of dependency on the government as a good thing, because they reduce the supply of labor and thus motivate automation.
More fundamentally, the argument misunderstands the nature of technological change. Mark Krikorian writes (as quoted in the link above): “The entire history of economic development— starting with the first ape-man to pick up a stick—is a story of increasing the productivity of labor, so each worker is able to create more and more output. But capital will be substituted for labor only when the price of labor rises…” Not exactly. Krikorian is conflating capital-intensiveness with technological progress. They are not the same.
Technological progress involves creating useful new ideas about how to capture natural phenomena for human ends. Expansion of the stock of such ideas is technological progress in the pure sense. For any given state of technology, that is, for any given stock of technological ideas, there will be many methods of satisfying various human needs, some more labor-intensive, some more capital-intensive. Technological progress is presumptively good as long as peace is maintained. There is no downside to having more options about what to do and how to do it. Capital-intensiveness, by contrast, is costly. To adopt more capital-intensive production methods requires a permanently higher investment rate, which cuts into consumption.
Nor does technological progress always involve replacing labor with capital. Sometimes technology progresses precisely by economizing on human capital. Henry Ford’s assembly line did make auto production more capital-intensive, but more importantly, it allowed auto production to be carried out by unskilled workers and even untrustworthy workers. A worker on an assembly line needs to learn only one very simple skill, has no opportunity to shirk, and is in effect supervised by his fellow employees. This is such an important example that it almost suffices by itself to prove the point, that technology may create ways to economize on human capital. Still, I’ll provide a few more. Calculators and computers make it possible for people to do rather advanced math who don’t understand the principles of advanced math. Automatic is easier to drive than manual/stickshift. It takes less skill to drive a car than to ride a horse. Google Navigation reduces the map knowledge needed to be a taxi driver. Cheap mass-produced clothing makes the skill of sewing largely dispensable. Rice makers, bread makers, microwave meals and so on reduce the skills needed to cook for oneself.
Krikorian is right that a rising price of labor and technological progress have been correlated, but the causation runs mainly the other way: new technology drives up wages. Whether there is an important causal link the other way, from a rising price of labor to new technology as opposed to merely greater reliance on capital, is open to doubt.
And if Krikorian can claim that labor scarcity is a driver of technological change, I have just as good grounds for asserting that mass markets are a driver of technological change. Much of the history of economic development consists of things that were once luxuries for the rich being made much cheaper so that they become commodities for the masses. Cars, airplane travel, climate control, artificial illumination, comfortable cotton clothing, and cell phones, just to name a few, were once expensive luxuries for the rich, but capitalism delivered them to everyman. Ford’s business model depended on having a huge market whose needs couldn’t be served by the expensive modes of production that were previously available.
And so it doesn’t surprise me that the golden age of US productivity growth seems to have followed peak immigration with a lag, accelerating in the late 19th century and peaking in the 1920s and 1930s, before a long, gradual slowdown as the task of absorbing immigrants waned. For the same reason, I would look for benefits from open borders as a mass market of relatively poor people spurred a new wave of mass production and frugal innovation. An influx of 150 million poor immigrants to the United States, assuming they could be excluded from the welfare state, would lead to companies falling over each other in their rush to deliver health care, education, housing, food, transportation, and entertainment to these teeming masses in novel ways and at knock-down prices.
Finally, as Matt Ridley says, “ideas have sex.” (Actually, I have arcane philosophical objections to that catchphrase, but never mind them for now). Immigrants are disproportionately entrepreneurial, as this book stresses.) One reason for that, I think, is that coming from somewhere else, they start with a stock of ideas that natives don’t have. These combine with what they learn upon arrival to yield new ideas, some of them commercially fruitful. Cuisine is only the most obvious example of how cross-cultural hybridization of ideas raises living standards: one can dine better in a place where many immigrant chefs have opened restaurants. Aside from the benefits of new ideas, immigrants who expand their opportunities by moving to more prosperous and institutionally developed countries will frequently be able to implement good ideas they couldn’t have implemented at home even if they had been able to think of them there. For all these reasons, I see a strong case that open borders will foster innovation.