All posts by Nathan Smith

Nathan Smith is an assistant professor of economics at Fresno Pacific University. He did his Ph.D. in economics from George Mason University and has also worked for the World Bank. Smith proposed Don't Restrict Immigration, Tax It, one of the more comprehensive keyhole solution proposals to address concerns surrounding open borders. See also: Page about Nathan Smith on Open Borders All blog posts by Nathan Smith

Honduras’s Great Experiment

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There’s been a bit of content at this site previously about charter cities. See my posts “Open Borders and Derrida’s Cities of Refuge” and “Hong Kong: City of Immigrants,” as well as this page, with a Bryan Caplan video and several more links. Here’s Bryan Caplan’s open letter to the Gates Foundation on the topic. It also links to this brilliant Michael Strong post, “Gated Communities and Nation States: The Cartel Responsible for Global Poverty.” The same blog (different writer) links to this Guardian article about the project in Honduras. I had heard about this project before, but I thought they were of limited relevance, because I didn’t realize that:

The “model cities” will have their own judiciary, laws, governments and police forces. They also will be empowered to sign international agreements on trade and investment and set their own immigration policy. (my emphasis)

Well, now, that makes things even more interesting. Or shall we say, more relevant, closer to my thinking. Three cheers! Sure, it’s risky, it’s a long shot– but very worthwhile! We should all wish it the utmost success. And while there are plenty of failure scenarios, what’s really striking is that some of the success scenarios are really big success scenarios, and they’re remarkably plausible. As Paul Romer… but let me stop a moment and introduce Paul Romer, because he’s a big player in all this. Here’s Paul Romer in a recent interview. Romer is one of the leading thinkers, possibly the leading thinker, on economic development in the world. His academic work elucidated the way technological innovation adds new non-rival ideas to the endowment of mankind, thus driving long-run economic growth, since ideas accumulate. For the past few years, Romer has been championing the idea of charter cities. The idea of charter cities isn’t, as I see it, directly related to Romer’s distinctive contributions to growth. Romer is, in effect, deferring to the institutionalists here, and attributing development mainly to laws, norms, and social infrastructure. He wants to export good institutions.

Immigration policy is the key. Social infrastructure depends on, among other things, having the right people. One needs complex networks of specialization, and it’s unlikely that all the people to fill those niches are now living in Honduras. But if you can let people come in from all over the world, you have huge networks of people to draw on, and you should be able to thrive. Of course, just because you’re able to let them in, doesn’t mean they’ll want to come, even if– a big if– you can offer them good money. There are a lot of local non-tradable or public goods that will be hard to reproduce in a new city being built from scratch, and the absence of which will deter people from coming. Still, the world has a very large population, and even if a lot of them don’t want to move, and many more don’t like Honduras’s climate, and others aren’t adventurous enough to go to such a novel and experimental kind of place, you can probably still find a lot of people willing to come. In many parts of the world there are people that Amy Chua, in her book World on Fire, called “market-dominant minorities.” When I was working for the World Bank in Africa, I saw this phenomenon vividly. Every business in the city operating out of a proper building was run by some kind of foreigner. There were four main groups: Europeans, Chinese, Indians, and Arabs. People from civilizations, as V.S. Naipaul puts it in his book A Bend in the River. Of course, some of these minorities had lived in Africa for two or three generations, so in a sense they could have called themselves “natives,” but they were not at all assimilated to the black Africans they lived among. They didn’t want to be, mostly, but probably couldn’t have even if they tried. The government, meanwhile, was run by black Africans. The market-dominant minorities lived fairly well, at levels comparable to Westerners, albeit with a very different mix of consumption goods. They couldn’t go down the street to the hardward store and buy something they needed: they had to know how make it themselves. On the other hand, they could hire as much labor as they liked for next to nothing, and land was cheap, too. Now, I think it would be easy for a charter city to attract these kinds of people. They know the value of good laws, and they know the nuts-and-bolts of how to get from primitive point A to developed point B. Later on, you could attract Western do-gooders, NGO types, out-of-work academics, and a variety of talented people who fall through the cracks of the global visa regime. You might get Romeo-and-Juliet types, tragically separated by visa regimes, willing to try an adventure in a new place to be together. Maybe you could be a magnet for deportees from the United States. Clever Indians might come too. Missionaries. Dissidents. One can’t really predict it exactly: the idea is too new. And there’s a hugely important expectations game here: early arrivals would be banking on success. There are “multiple equilibria” here, with a vengeance. People like to be around other people, and that gives the whole game an all-or-nothing dynamic. But it could work.

Let me adopt the mode of giving advice to Michael Strong, or whoever the decision-maker is, maybe the first governor of one of the privately-run cities. Even I wouldn’t be so bold as to advocate immediate open borders, or even open-borders-with-migration-taxes. I advocate that for the United States because the US has huge reserves of stability and could manage the flow to its advantage, and because it’s so large that it can buffer some uncertainty in the scale and nature of global for migration that an open borders policy would reveal. Even then I wouldn’t mind the change being gradualized somewhat. In the case of a charter city, I’d recommend a visa policy that is quick and transparent but initially with some room for discretion. Later, you would try to develop rules, and at some point, you might move to a full-fledged open-borders-with-migration-taxes policy.

An early step might be to outsource some visa issuance. That is, you might make deals with corporations that set up shop in the charter city, authorizing them to issue visas. Let’s say Nestle wants to establish a major production facility. You could say, “OK, Nestle, if you invest $20 million and show us plans that will create 6,000 jobs, you can recruit anywhere in the world you want to, and issue visas to whomever you recruit. Just collect a bit of data on them and let us know who you’re letting in.” Or again, I think it would be a great idea to encourage some US universities to set up satellite campuses in the new cities. You could tell them, “Anyone you admit to your Honduras campus, you can write a visa for.” You’d eliminate a lot of uncertainty. You might actually create the only place in the world where certain kinds of teams could be put together quickly and without any risk of adverse visa decisions disrupting your plans. Now, if there were enough demand for migration to the charter cities, agencies might actually have an incentive to seek visa-issuance authorization and then just sell visas. That might be fine: the visa distributers would become a revenue source. Or it might be better to set up a visas-for-taxes scheme and run it through the government.

My guess is that there will initially be a big role for the governor in negotiating with private businesses, building confidence, coordinating. Some businesses might want to invest only if others did. Thus, Verizon might be willing to set up a cell phone network if a garment manufacturer is going to build a factory, so that there will be sufficient demand. There’s a snowball effect here, or positive externalities if you prefer. You might assemble a portfolio of provisional deals, and then sign them all when it is clear you have critical mass. One important business to establish early, I think, is university campuses. This is the age of human capital. Education pays like never before. Institutionally, it’s one of the hardest things to replicate. So I would go after US universities early, and encourage them to set up satellite campuses in Honduras. Why would a US university want to risk its reputation on a campus in Honduras? Well, for one thing, even if most wouldn’t, there are a lot of US universities, so some might. Universities might have a charitable motive, to try to promote global development. But from a business point of view, it allows them to recruit globally. They do that anyway, but student visas can be a headache. There are a lot of students who might not come because they can’t get visas, others who don’t apply because they’re not sure they can get visas, others who don’t come because even if they can get visas, their family members can’t, or they can get student visas but can’t work. University satellite campuses would attract crucial high-quality personnel. You could probably find a lot of unemployed American academics who would go to Honduras for the sake of an academic position. Of course, Hondurans will have automatic access to the charter cities, which should hopefully allay their concerns about ceding sovereignty.

Did Border Closure Cause the Productivity Slowdown?

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By “the productivity slowdown,” economists have generally meant the slowdown in GDP per capita growth rates that occurred after 1973 (e.g., see here). Note that the word “slowdown” is a bit misleading: it doesn’t mean that we’re getting poorer, just that we’re not getting richer as fast. Still, it’s an unwelcome change, and calls for an explanation. There was then a productivity acceleration in the 1990s, but not a return to the “halcyon days” of the 1950s and 1960s.That productivity slowdown can’t have been caused by closed borders, because the borders were already closed in the 1950s and 1960s.

However, Alexander Field’s A Great Leap Forward: 1930s Depression and US Economic Growth casts a different light on things. Field’s most surprising finding is that the 1930s actually experienced the highest rates of productivity growth in the 20th century. Manufacturing, whose productivity rose at its highest-ever pace in the 1920s, slowed down a bit in the 1930s, but fast productivity growth spread to other sectors. The fast productivity growth of the 1950s and 1960s was actually a decline relative to the 1930s, and the post-1973 productivity slowdown a further decline.

I am not always convinced by Field’s analysis. He often seems insufficiently suspicious of aggregate numbers that have to be calculated on the basis of market prices which change over time and can’t easily be adjusted for quality changes. Still, Field altered my view of 20th-century economic history, and my tentative best guess would now be to defer to him. Let me now tentatively and speculatively extend his analysis a bit. The post-1973 productivity slowdown that attracted so much attention was something of an accident, in the sense that the oil price spike and macroeconomic conditions created a kind of “joint” in the path of GDP, but the lasting productivity slowdown had to do with long-run trends and not really with anything that happened in 1973 per se. In the “halcyon days” of the 1950s and 1960s, two non-technological factors masked an ongoing slowdown in the pace of technological innovation. First, demographically, the US population was quite young, and it’s characteristic of young people to learn and become more productive at a faster rate than their elders. Second, competent monetary policy and much reduced political uncertainty relative to the 1930s contributed to investment and capital formation, enabling the macroeconomy to exploit much more fully the space of technological possibilities that had already been opened up by the innovative 1920s and 1930s. Productivity growth slowed down in the 1970s because the exploitation of the technological backlog from the Depression and war years, as well as the demographic boost from the youthful post-WWII population, had played themselves out. Continue reading Did Border Closure Cause the Productivity Slowdown? →

The Old Testament on Immigration: Follow-Up

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My post The Old Testament on Immigration was discussed at Reddit. Briefly. Here’s the initial comment:

This is filled with inaccuracies about OT law. One example:

“In walking through the grainfields (which were certainly not their own since Jesus was a traveling preacher), and picking heads of grain while they passed, Jesus and the apostles were doing what was allowed by the Law.”

The act of gathering on the Sabbath is explicitly forbidden in the OT. Numbers 15:32-26

OK, I admit the wording was an error here, and I’ve put an update in the original post to reflect that. What I meant, and I think it’s quite clear from the next sentence, is that what Jesus and the apostles were doing was allowed by the Law, except for the fact that they were doing it on the Sabbath. Of course, this particular “inaccuracy,” if that is what it is, has no bearing on the topic of the post. That people were allowed, under the old Law, not only to walk through one another’s grain fields, but even to pluck heads or pick fruit by hand while doing so, is a striking contrast with modern property law, and is relevant to immigration since it relates to issues about physical movement through land, and suggests (as do many other verses) that nothing comparable to modern immigration restrictions was or would have been countenanced by the Law of Moses. Sabbath regulations are quite a separate question.

I am tempted to say that if a reader who claims to have found “multiple inaccuracies” can offer nothing less trivial than this, he (or she) is bluffing, and I’m even more convinced of the argument of the post than I was before. But no, I shouldn’t go there. I’m not an expert in the Law of Moses, which I’ve found off-putting for much of my life. I’ve read the New Testament much more than the Old, despite its being so much shorter. My Old Testament post was based on some Google searching and reading chapter by chapter, here and there. I haven’t read the entire Mosaic Law from beginning to end, let alone studied it closely. So I could certainly be wrong, and would be grateful to anyone who can explain why. I would be glad to hear of the “multiple inaccuracies,” and to see if they would force me to modify my position, probably not on open borders per se, but on the Mosaic Law’s attitude to open borders. Certainly I have been given no reason to do so yet.

Someone else read the post and wrote to me about it privately. I hope he won’t mind my quoting his letter (if so, I’ll remove it, and I’ll leave him anonymous for now but will be glad to put his name if he wishes it):

[Removed, on second thought, for lack of permission from the person who wrote this to me.]

My reply:

Very interesting, thank you. I don’t know Hebrew and it’s possible that there’s just no way for me to get the exact shades of meaning, but I have read much of the Pentateuch in English translation (not all, I’m sorry to say, perhaps not even half, but a good deal). Could you point to any texts that make this clear? I did kind of get the sense of what you mention… that is, that resident foreigners were subject to the Law to the extent that they were like observant Jews… but there were some texts that seem to point the other way, for example:

Do not eat anything you find already dead. You may give it to the foreigner residing in any of your towns, and they may eat it, or you may sell it to any other foreigner. But you are a people holy to the Lord your God. (Deuteronomy 14:21)

In this case, it seems clear that “the foreigner residing in any of your towns” are allowed to eat what observant Jews are not—which would make them, it seems, not the same as observant Jews. Or is this a different word for “foreigner” here, in the Hebrew? In that case, perhaps there are two statuses, say resident convert foreigner versus resident foreigner who just lives there because he lives there, and why not, and anyone by what right would you kick him out? I would also ask whether the term convert is anachronistic—or at least, whether what the word “convert” means to me, as a Christian, would be anachronistic as applied to Old Testament Judaism. The Jews of Old Testament times had a definite marker of who was “in” and who was “out”—circumcision—but by its nature that can only apply to females, so it’s not clear what it would mean in the story of Ruth. Anyway, very interesting, you’ve provoked me to take a closer look sometime.

Of course, the larger point is that this correspondent’s version of what the Mosaic Law claims doesn’t really undermine the case for open borders at all. Suppose the US were to implement a policy saying that anyone can come to the US, as long as they agree to abide by US laws and participate in national festivals like fireworks on the 4th of July. Surely that would qualify as advocating open borders! It seems to me, then, that ancient Israel did allow foreigners simply to enter without impediment, and they were not even completely bound by the rules of Israel, but there may have been some scope to convert to Judaism, a process akin to naturalization (though here I’m less sure). All the verses about “resident aliens” do seem to cross-apply directly to a modern case for open borders. Indeed, I don’t see how I can escape the conclusion that the Old Testament advocates an even stronger form of open borders than I do. And of course I only covered a small part of the Old Testament. Here’s another perhaps relevant passage:

2: 1 This is what Isaiah son of Amoz saw concerning Judah and Jerusalem:

2In the last days

the mountain  of the Lord’s temple will be established     as the highest of the mountains;it will be exalted  above the hills,     and all nations will stream to it.

3 Many peoples  will come and say,

“Come, let us go   up to the mountain   of the Lord,     to the temple of the God of Jacob. He will teach us his ways,     so that we may walk in his paths.” The law   will go out from Zion,     the word of the Lord from Jerusalem. 4 He will judge  between the nations     and will settle disputes  for many peoples. They will beat their swords into plowshares     and their spears into pruning hooks. Nation will not take up sword against nation,     nor will they train for war anymore.

5 Come, descendants of Jacob,     let us walk in the light  of the Lord. (Isaiah 2:1-5)

So the prophet Isaiah envisions a future in which “all nations will stream to” the mountain of the Lord, which seems to mean Jerusalem; many peoples are exhorting one another to go there, in order to walk in the ways of the Lord. Admittedly, this is a prophecy for a vaguely envisioned and distant future, but that doesn’t seem to help all that much. Isaiah clearly regards this as desirable. What would Isaiah’s attitude be towards a policy that, when the nations resolved to come to Israel and learn its ways, set up passport controls that prevented them from coming? Can there be any doubt that he would regard such a policy as intolerable?

IMF/World Bank Conditionality and Open Borders

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Suppose a country can’t pay its bills. It has a lot of outstanding debt coming due, and it doesn’t have sufficient reserves to pay it. Nor can it find lenders willing to buy its debt. Without money, it will have to stop paying social security checks, interest on bonds, or salaries of civil servants, teachers, and doctors. The problem may take the form of a currency crisis, if the country is trying to maintain a pegged exchange rate which is under attack by forex traders, or simply a debt crisis. It could try to raise taxes, but that would be likely to depress the economy further. Catastrophe looms.

A lot of countries have found themselves in this situation. It’s basically where Greece has been for the past few years, and more recently Ireland, Portugal, to some extent Italy and Spain. Asian countries found themselves in a position like this in the late 1990s. So did Brazil and Argentina. Typically they go to the IMF, which is the official fire-fighter for these kinds of situations. The IMF will provide money, conditional on some reforms that are expected to improve the country’s ability to pay in future. In return, the IMF provides an immediate injection of cash to pay creditors and dispel the crisis. Often the reforms the IMF imposes are unpopular. They may also be necessary and/or beneficial. Asia recovered strongly after the IMF’s intervention in 1997-98, though whether the IMF deserves much or any credit for that is controversial.

Anyway, I doubt this has ever entered the IMF’s collective head– though possibly I’ve blogged about it before, I forget– but in principle, one of the reforms the IMF could demand in return for assistance during crises is an opening of the borders to more immigrants. Though no one thinks about it this way, every country in the world is foregoing a perhaps substantial revenue source by not allowing foreigners to come and receive working visas in return for paying either just ordinary taxes or perhaps special surtaxes of one sort or another. If the IMF were to demand that a country permit more immigrants to enter, it would be operating very much within the proper scope of its responsibilities as a creditor. It could then offer technical assistance to help the countries set up the institutional means to register guest workers and establish credible legal protections for their rights going forward. The policy would be somewhat counter-intuitive in countries which are going through crises and probably have high unemployment. But foreign workers are likely to be complements to, rather than substitutes for, domestic workers. Some may be entrepreneurs, bringing investment capital and know-how with them, and creating jobs upon arrival. If the policy is unpopular, well, imposing unpopular but wise policies and taking the heat for them is what the IMF is for.

The World Bank isn’t a crisis fire-fighter in the same way the IMF is, but it, too, might be able to play a role in liberalizing the world’s borders. It could encourage to be hospitable to immigrants, both to help the immigrants– “Our dream is a world free of poverty” is the World Bank’s motto– and to facilitate economic development in the host countries. It could monitor inter-ethnic frictions that arise and look for ways to ameliorate them. In some cases, migration might mitigate existing inter-ethnic frictions by giving societies more of a “melting pot” character. As I’ve previously suggested, it could promote and administrate passport-free charter cities.

The World Bank and IMF are staid, groupthinky organizations that don’t pioneer radical ideas. They strive for internal consensus, the content of which they derive from the views of global elites seasoned with bright ideas from academia and from NGO activists. They’d only do this if the tide of ideas swung strongly in the direction of open borders. Not that open borders would have to become standard policy for the IMF and World Bank to make them part of the development agenda, but that there would have to be powerful, widespread, deep-rooted sympathy for the goal of liberalizing migration.

“The Right of a Nation to Exist”

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Open borders is sometimes attacked as a threat to “the right of a nation to exist.” I seem to remember this phrase from various arguments, but I don’t recall any linkable example off the top of my head, however, a critic of Bryan Caplan quoted in Vipul’s recent post says something close to it: “You have to be a special kind of genius to fail to understand basic points like: nation-states exist, and have borders, and have a fundamental interest in controlling those borders, meaning, ideally, via law enforcement.” Of course, an interest is not the same thing as a right– I may have an interest in taking your car, but not a right to do so– so this commenter isn’t articulating the notion of a “right of a nation to exist” which I wish here to critique. However, he seems to implicitly assume this. After all, if it is not presumed that nations have a right to control their borders, to assert that they have an interest in doing so is irrelevant.

Now, I would assert that rights belong only to individuals, or at least that they belong most fundamentally to individuals, and the rights of collective entities such as nations are derived from individual rights. I won’t attempt to prove that in this post. Rather, I will point out some problems with the notion of “the right of a nation to exist.”

Suppose that 99% of the residents of Germany express an intention to emigrate to friendly countries, say Britain, France, and the USA, which agree to accept them as immigrants. Suppose further that the 1% of the German population which will be left behind is too small to sustain national life. To sustain basic services and cultivate the land, they will have to let in English-speaking immigrants, and the German language will soon become nearly useless and probably extinct in a couple of generations. Does this decision by individual Germans violate the right of the German nation to exist? Could Germany justly prohibit the emigration of these people, in order to secure the continuance of its national life? Continue reading “The Right of a Nation to Exist” →