Open Borders with Migration Taxes are the Optimal Policy

I just posted my article, “Open Borders with Migration Taxes are the Optimal Policy,” at SSRN. The abstract:

For some reason, economists are less willing to advocate open migration than free trade, even though the traditional free trade models, such as Ricardian comparative advantage and Heckscher-Ohlin, cross-apply to migration. In fact, however, the case for open migration is stronger than the case for free trade, because it is possible to tax foreign-born beneficiaries of open migration policies, through migration taxes. It is here proven that a policy of open borders with migration taxes is Pareto-superior to the alternative of closed borders (or discretionary migration control). Political norms of local inequality aversion seem to prevent the adoption, or even consideration, of such a policy, and the enormous gains in human welfare that would result from it. Some proposals, including a World Migration Organization and passport-free charter cities, are proposed as steps towards a world of open migration.

The proof is straightforward enough that I would have expected someone to come up with it before I did, but as far as I know, no one has. The proof is probably clumsier than it needs to be, reflecting the limits of my own skills. Others are welcome to refine it.

The proposal that may be most startling, and perhaps an addition to Vipul’s keyhole solutions, is the idea for World Bank-administered passport-free charter cities:

Another interesting possibility for advancing global freedom of migration is based on Paul Romer’s idea of charter cities (Romer, 2010). Romer asserts that Hong Kong is the most successful development project in history, and thinks its secret was the combination of British institutions—which have been conducive to successful development in many places—with a Chinese population self-selected for their entrepreneurial dynamism through immigration. What I want to propose is that passport-free charter cities could be created, to satisfy some of the huge global demand for emigration while applying the Hong Kong principle that migrants can succeed spectacularly if good institutions give them the chance. These cities would be established explicitly as foreign aid projects, and in the initial stages would be financed by rich countries’ development agencies. I envision a commitment by rich countries to hand out a good deal of money to make these projects work, motivated by the moral desire to make more emigration options available to people whose life in their home countries is intolerable and who have nowhere else to go. The best agency to run them would probably be the World Bank, though it would have to expand and evolve to meet its new responsibilities.

A general offer would be made to all countries in reasonably good standing with the international community, that they could temporarily alienate small bits of territory, to be developed into passport-free charter cities under international administration. Why would a country accept this offer? First, donors would pay charter cities’ host countries substantial sums up front to secure their cooperation. Second, the territory (probably a small amount of lightly developed and populated land, but near the sea) would be scheduled to revert to the country’s control after the expiration of a lease that might last, say, 49, 69, or 99 years. Third, the charter city’s constitution would make provision for regular transfers to the host country government, say 5% of the area’s GDP. Fourth, the large initial expenditures, and later the economic prosperity that would hopefully arise, in these cities, would create spillover effects for the host country. Mere proximity would make it likely that many of the charter cities’ residents would come from the host country, likely raising their earnings, gaining access to international contacts, capital, and technology, then later returning home or sending remittances. The Hong Kong example might be a persuasive precedent, for Hong Kong was not only spectacularly successful, but it also catalyzed booming economic growth throughout southeastern China. Fifth, military advantages, such as a defensive alliance with NATO, might be provided where appropriate. Sixth, the charter cities’ constitutions should, from the beginning, make some provision for maintaining integration with the host country. For example, while English would probably be the dominant language in these new multinational cities, the inclusion of the host country’s language in school curricula would be guaranteed in charter cities’ constitutions, and the host country might be given the right to conscript charter city residents into its armed forces temporarily, even if they generally lived beyond the writ of its laws. Finally, host countries could look forward to the time when a thriving commercial metropolis, built by the international community, would revert to its control.

The first task for donors, once the territorial arrangements have been settled, would be to build. Coastal sites would be the most promising, and a containerport and airport would likely be essential, as well as roads and streets, a power plant and an electrical grid, cell phone towers, water supply, sewer systems, perhaps subways and transport systems, and some apartment buildings. With a physical infrastructure in place, the city would be opened to all comers, with no passports required. Open borders would be the charter city’s raison d’etre and its most fundamental constitutional principle, during all the time that the cities are under international administration. The World Bank has extremely extensive experience with policymaking in developing countries, and World Bank-appointed technocrats would be able to tap into this expertise, as well as that of donor countries more broadly, in designing the institutional and legal arrangements of the new city, but limited representative institutions might also be found expedient. A pool of cheap and disciplined labor would probably emerge quite swiftly, and attract global manufacturing interests. At the same time, the lack of visa restrictions and the World Bank’s imprimatur would be likely to make the cities attractive sites for the regional headquarters of global companies. NGOs would be another element in the institutional matrix of the emerging cities.
To make freedom of emigration a global reality, an archipelago of ten to twenty such charter cities might be sufficient, each with a population of many millions. The charter cities would eventually create their own passports, not to regulate entry into their own territory, but to enable their native-born residents, refugees with no other valid passport, or those whose passports are unhelpful, to travel internationally. The charter cities might become stepping stones towards immigration, both to rich countries, and perhaps to their own host countries. The set of charter cities would change over time, as some charter cities would be reabsorbed into their host countries and new ones would be established.

I am afraid this suggestion may horrify some of the more purist libertarian supporters of open borders, since it involves foreign aid and empowering the World bank. It’s not quite an open borders proposal in the sense usually meant at this site; rather, it would be an attempt to make the right to emigrate a global reality. How such passport-free charter cities would evolve in practice could be a topic for fascinating speculations and debates.

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

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