The economics of diasporas

In Borderless Economics: Chinese Sea Turtles, Indian Fridges, and the New Fruits of Global Capitalism, Robert Guest trots out a lot of the usual arguments for reducing barriers to migration, breezily surveying the evidence of the economic benefits to the host nations and especially to the immigrants themselves. Guest does a thorough job of this and his casual style with liberal dashes of his gentle British humor makes this book one of the best out there for the lay reader who wants an introduction to the subject.

Where Guest really contributes is describing the ways migration enhances the processes of globalization. Obviously the movement of people between nations is itself a fundamental aspect of globalization. But migration also facilitates the movement of goods and ideas across borders (the other facets of globalization). It does this by creating channels of increased trust and local knowledge across borders.

Guest focuses quite a bit of attention on China, noting that with ~60 million Chinese abroad the Chinese diaspora is one of the biggest. The emerging importance of China on the world economic stage is a well-chewed over topic. But doing business in and with China is not necessarily a simple matter.

The overseas Chinese serve as a bridge for foreigners who wish to do business in China. They understand the local business culture. They know whom to trust. In a country where the rule of law is, to put it mildly, uncertain, that knowledge can be the difference between success and failure. Studies show that American firms that employ lots of Chinese Americans find it much easier to set up operations in China without the crutch of a joint venture with a local firm.

This fits with what we know about trade patterns between countries. The stronger the cultural ties between two nations, the more they trade with each other. Pankaj Ghemawat, of IESE Business School in Spain, calculates that two otherwise identical countries will trade with each other 42 percent more if they share a common language and 188 percent more if they have a common colonial past.

Trust is a key ingredient to all economic exchange because trading with others involves uncertainty that your trading partner will follow through with their part of the bargain. Diasporas in other nations allow you to interact with people you have a common history and cultural understanding with, reducing the trust barrier. Guest provides an example of a Nigerian factory owner, Dr. Obidigbo, who purchases capital equipment from firms in China.

Dr. Obidigbo travels to China from time to time, but he does not speak the language and he cannot fly halfway round the world every time he wants to buy a new soap machine. So he relies on the Nigerian diaspora to connect him to Chinese suppliers. When he wants to inspect a product he has seen on the Internet, to make sure that it is exactly what he wants, he asks a Nigerian agent in China to go look at it. He has met several such people at trade fairs in China. They are all from Dr. Obidigbo’s tribe, the Ibos.

Advocates of open borders are often accused–sometimes fairly–of being rootless cosmopolitans, idealists who fail to recognize the reality of the strong ties people have to their nations, ethnic groups, and coreligionists. Guest readily acknowledges these strong ties; indeed the ability of these social bonds to survive separation by distance and borders is the very heart of his analysis. Migration skeptics will likely appreciate this nod toward ethnic bonds, but the flip side of this is incomplete–or perhaps merely retarded–assimilation. One flavor of arguments against permitting large numbers of (especially unskilled or lower class) immigrants suggests they do not assimilate to the culture of the host society quickly enough, or possibly at all. The idea is that if host countries must accept immigrants, then those immigrants should do their best to adopt the host culture, rather than keeping one foot in their old home and one foot in their new home. There is possibly a tension then between the desire for immigrants to assimilate and the desire to maximize the economic rewards of immigrants who straddle borders. This tension applies to migration enthusiasts as well, who may be tempted to dismiss too quickly concerns about immigrant assimilation: one must tread carefully when arguing on the one hand that immigrants all eventually assimilate and on the other hand that the greatest economic benefits they lend to their new home involves their maintaining contacts with their old homes.

Migration is not all about economics, of course. Migrants bring ideas with them across borders and, keeping in touch with their homelands as Guest describes, they send new ideas back.

History provides many examples of returnees swaying politics. Vladimir Lenin plotted the Russian revolution while exiled in Munich, London and Geneva. Many of the leaders of South Africa’s antiapartheid struggle agitated from safe havens in Britain or Zambia. One of them, Thabo Mbeki, later became president. Between the cold war years of 1958 and 1988, some 50,000 Soviet citizens visited America through cultural exchange programs. Nearly all were members of the cultural, scientific or intellectual elite. Upon returning, they brought with them ideas and attitudes that helped to pave the way for glasnost–and ultimately, the collapse of the Soviet Union. Migrants are “agents of democratic diffusion,” as Clarisa Perez-Armendariz, of the University of Texas, who has written a study on the subject, puts it.
As Guest illustrates with his examples, some ideas are good and some ideas are bad (at least, I’m going to go out on a limb and say Russia would have fared better had the emigrant V. I. Lenin severed ties with his erstwhile home). This is an example of migration being double-edged, and migration skeptics could leap on this, pointing to the danger of immigrant ideas. There is such danger, and Guest even includes a chapter on bad ideas that thrive on the tribal networking he describes, including religious extremism and crime rings. But Guest’s primary point is that migration, via diaspora networks, facilitates the flow of all commerce and information, good and bad. He argues throughout the other chapters of his book that the good of this greater flow vastly outweighs the bad. I concur, though the reasons for my optimism are too many and varied to delve into for this post. Basically, I think humanity is the ultimate resource, and the logic of human interaction leads us to favor cooperation over conflict.