The rise of modern communications technology has drastically changed the way humans interact with each other. Physical distance matters less than ever. You my dear reader may be seeing this post of mine from 10 minutes away from my apartment or from 12,000 miles away. Indeed the difference in time which you might theoretically be able to first read this is insignificant between those two locations. Compared to times when it took six months to traverse the silk road from Europe to China that is absurd. And this technology is not limited by borders (with some important exceptions, though just like real borders people find ways to sneak around that). Looking at the author list for this site even it’s possible to find people from across the globe writing about open borders. Technology might be beating us to the punch on open borders (for a similar argument that poverty might end before we open the borders see Vipul’s earlier post). So if this is all true does this mean there’s no point to open borders advocacy? Has technology already won the battle for us?
Sadly this post doesn’t end with me cracking open a bottle of champagne and celebrating victory (or maybe just a beer, champagne isn’t really my thing…anyways…).
To start, let’s consider the case for technology obsoleting borders on its own. There is a bit of historical precedence for this actually. As rail travel spread across Europe, most European states decided it was just too much of a hassle to try to control their borders anymore and even went as far as scrapping passports. Technology outpaced the standard border controls, but only to a degree of course. And during World War One border controls and passports made big comebacks. But times are different. Now it’s not just about preventing a person from physically crossing a border, but stopping information.
Today international conference calls can be done online for free. Internet business is big with the internet adding perhaps 5% to the US economy and 8.3% for the United Kingdom. These numbers are increasing and thus reduce the need for physical proximity. One study have even reported that from 2004 to 2008 the percentage of businesses allowing employees to work from home had increased from 11% to 46%. If we aren’t at effectively open borders through technology perhaps we’re getting there.
But now before we get too excited there is a question hanging, if technology is getting so great why are the estimates of economists still that open borders would double world GDP? One might think that the recentness of the internet revolution just hasn’t sunk in yet. Indeed, the internet revolution hasn’t penetrated everywhere yet with several continents having less than half their total population online as of 2012. But even if the internet does penetrate to European or North American levels in these places there is still good evidence that the internet is not enough.
There are a few economic reasons why location still matters and is likely to matter for the foreseeable future. Specifically, non-tradable goods/services, weak local institutions, and place premiums that persist even within countries.
Tradability is the most straight forward of these concepts. Put simply, a non-tradable good or service is one that must be made or performed in close proximity to where it is sold. For instance, gardeners typically can’t tend to a garden too well when they are stuck a thousand miles away from where they are supposed to be working. Another example is a factory. Factory workers generally need to actually be in the factory to add any productivity to the process. Factories may often be built overseas and the goods they produce are often highly tradable, but depending on the industry issues such as proximity to supply or being built-in a positive institutional environment (for instance in countries where rule of law and property rights are respected), factories may have a hard time coming to developing world workers. Many of the low-end services that low-skill immigrants perform fall into this general non-tradable category. Technology may be gradually obsoleting some of these low skill jobs, but other immigrant-heavy industries find it difficult to replace human workers. As long as that remains true for significant portions of the low skill job market open borders will still be a good way to connect workers and employers.
Another concept is the importance of institutions. For this, a quote from Daron Acemoglu and James Robinson’s book Why Nations Fail is instructive (page 42):
Bill Gates, like other legendary figures in the information technology industry (such as Paul Allen, Steve Ballmer, Steve Jobs, Larry Page, Sergey Brin, and Jeff Bezos), had immense talent and ambition. But ultimately he responded to incentives. The schooling system in the United States enabled Gates and others like him to acquire a unique set of skills to complement their talents. The economic institutions in the United States enabled these men to start their companies with ease, without facing insurmountable barriers. Those institutions also made the financing of their projects feasible. The US labor market enabled them to hire qualified personnel, and the relatively competitive market environment enabled them to expand their companies and market their products. These entrepreneurs were confident from the beginning that their dream projects could be implemented: they trusted the institutions and the rule of law that these generated and they did not worry about the security of their property rights.
Notably among the group Acemoglu and Robinson use as examples, Sergey Brin was an immigrant taking advantage of institutions outside the country of his birth and childhood. Institutions matter and providing a stable political environment and relatively free market economy is fairly closely linked to a nation’s economic prosperity. Preventing the Sergey Brin’s of the world from coming to a country where they can fully utilize their talents holds back all of us. Even if Sergey had gotten the training and found partners in Russia, the abysmal scores Russia receives on the Heritage Foundation’s Economic Freedom Index, in business, investment, property rights, and corruption particularly, indicate that the conditions there would have killed any attempt to make Google there.
As a short aside, a common fear with open borders is a degradation of these very institutions that attract immigrants in the first place. We’ve covered concerns like these in previous blog posts, so without trying to cover that territory again at too great a length I will go back to Acemoglu and Robinson (this time page 332):
The outcome of political conflict is never certain, and even if in hindsight we see many historical events as inevitable, the path of history is contingent. Nevertheless, once in place, inclusive economic and political institutions tend to create a virtuous cycle, a process of positive feedback, making it more likely that these institutions will persist and even expand.
This certainly appears to be the case with the United States and large-scale immigration in American history has yet to seriously derail those good institutions.
Finally, place premiums seem to persist even within countries with internally open borders and in industries with heavy technology usage. The Gated City by Ryan Avent (though never quite using those terms) tracks this phenomena within the United States. According to Avent, city policies which prevent higher density living arrangements cause high skill workers to be unable to find affordable housing in places like Silicon Valley or New York, causing them to take lower paying jobs and potentially losing the US economy between .25-.5% GDP growth per year. If the technophile industries of Silicon Valley find it advantageous to offer programmers an average of over $100,000 a year, while a programming job in Phoenix, Arizona will only pay $69,000 a year, all within the same country, then there must be something beyond tradability and institutions that makes people be more productive if they congregate in the same physical area. Otherwise smart computer start-ups would leave for Phoenix and save over $30,000 a programmer per year. This could include the ease of setting up in-person meetings with others in the same field or perhaps simply the cultures that tend to form within particular cities. Not to mention that high fixed costs tend to drive people to cluster in hubs and once established stay there for long periods.
And of course there are realms outside of economics (or maybe not always outside that field). Personal relationships are one such area. However much communication technology advances, most people don’t choose to go for long-distance romantic relationships and those that try tend to break up fairly quickly. And even if technology gives such couples new options couples wanting children still generally have to do that the old-fashioned way. But beyond that even meeting people in the first place can be limited. As of 2012, 20% of relationships start online, which is just another way of saying 80% of them still happen in meat-space. I don’t mean to disparage such relationships of course, only to note that being barred from having physical proximity to loved ones or potential loved ones can be difficult. Even outside of romance, friendships of people close in location to you are still important. Online friendships can spawn fascinating discussions and bring together people of similar interests (for instance I know I’ve only met my fellow bloggers here at open borders online), but there are experiences that are impossible to have with people forcibly separated by thousands of miles. I can’t call up an online friend a thousand miles away to go on a hike on a sunny day or out to a bar to watch a football game together. These may seem like minor issues compared to doubling world GDP, but friends, regardless of which set of lines on a map they happened to have been born in, are vitally important to personal happiness. Sadly we will never know all the amazing romances and friendships the world could have had with open borders. And technology hasn’t fully fixed that problem.
I don’t want this post to come across as being in any way against technology or not understanding how amazing it is. I consider myself a major technophile in fact and would likely go stir crazy without access to the internet or smart phones. The achievements human kind makes on a daily basis, from controlling room temperatures year-round to taking a signal bounced from satellites outer space and making it into a TV show, are nothing short of awe-inspiring. But in the end we can’t just wait for technology to solve the border problem for us. Not to mention that even if the economic case for open borders became less relevant, there would still be the issue of the right to migrate and the egalitarian arguments against global apartheid. Being able to beat technology to the punch, even if technology can effectively obsolete borders, can only be a good thing. There are hundreds of millions of people who want a better life for themselves today, and if technology can’t give it to them, the governmental policies of the world shouldn’t block them from reaching for it themselves.