Tag Archives: DRITI

How rational can we expect nation-states to be in setting immigration policy?

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A recent comment by Christopher Chang made a point that I feel we haven’t adequately addressed on this site: if open borders is such a great deal, why has nobody tried it? Using a similar structure of argument as Bryan Caplan employed in his blog post on motivating sheep or Gary Becker employed in the now-standard argument that market forces gradually erode discrimination, Chang writes:

It does not matter if 90% of actors are inefficiently biased, as long as some subset of the other 10% knows what they are doing; that subset, and its future imitators, win in the long run. This has happened over and over and over again in political, economic, and military history. Both you and Paul fail to comprehend the nature of “collective assessment” that requires only one yes vote. As I’ve mentioned numerous times, you can even provide much of the yes vote yourselves, and according to all your economic claims, this would be quite lucrative. (This does not mean that any particular individual’s failure to do so is damning; life circumstances frequently interfere. But the fact that none of you have done anything like this does, in fact, add up to a strong revealed preference against your claims. Your failure to even seriously openly discuss this among yourselves strongly implies that you do not actually want your rosy projections tested.)

I like the general reasoning behind the generation of these types of questions. Claims that the status quo is radically suboptimal should be met with skepticism, and should be taken seriously only if the people making the claims can offer a convincing explanation for why the suboptimal system is stable. In this post, I explore some possible explanations. Read and judge their strength for yourself!

Note that this post is not, in and of itself, a complete argument for open borders, or open borders with keyhole solutions, being optimal. It’s rather an explanation for how the current state of the world (far from open borders) is consistent with the possibility of open borders being a lot better. It seeks to address a potential inconsistency, rather than offer complete proof. Therefore, my rhetoric in the post will assume the open borders position and simply demonstrate that there are no obvious contradictions.

There’s a connection between this post and my earlier post on whether migration levels under open borders would be optimal, too high, or too low. But whereas that post is about the decisions of individuals holding state policies constant, this post is about the creation and tweaking of the policies themselves.

#1: The gains from pure open borders go to quite an extent to migrants and their descendants, and even though existing residents of migrant-receiving countries gain somewhat, the gains are a lot less

Why don’t we have pure open borders, if it benefits the world so much? The short answer is that the people with the power to decide this (the people in political power and the voters and special interests that they cater to) are not the people who benefit the most from open borders. As Nathan Smith notes here and here, immigration policy is quite “undemocratic” in the sense that potential immigrants have no (direct) electoral say in a matter that affects their freedom.

This point has a number of different aspects:

  • If the gains from migration went mostly to the immigrants and not to non-immigrants in the target country, the people who gain the most don’t have a say in the electoral process. Note that this point is valid even in the absence of disparity or asymmetry between nations. If immigration from Canada to the US significantly enriches the Canadians who migrate to the US, but has little effect on US natives, then US natives (who vote in the elections) have little incentive to push for freer migration from Canada.
  • One possible remedy to the above would be to push for free migration through reciprocity, for instance, freeing migration from Canada to the US in exchange for freeing migration from the US to Canada. This would work in the case that the fraction of the population in either country that has an interest in the option of migrating is large enough: if enough Americans want the freedom of easy migration to Canada, they may vote for a treaty that frees migration both ways. If, however, the fraction of people interested in migrating is small, then they may not be able to push for freer migration even if the absolute gains they experience are huge. That’s because democracy is based on counting votes, rather than on winners compensating losers.
  • In the current world, there are significant international disparities in wealth and wages, and a strong directionality to potential migrant flows. In light of this, the spotlight falls on the migration policy of countries that have greater per capita income or wages or are otherwise attractive migrant destinations. The degree of solidarity between potential migrants and the set of people who have the most influence over the most relevant migration policy is now quite low: the former are people from low-income countries, and the latter are people of prosperous countries. Even though the latter set is expected to gain somewhat in expectation, the gains are smaller in absolute terms, and even smaller when viewed as a proportion of how well off they currently are.

Note that many of these can be fixed, at least in principle, if we relax from pure open borders to open borders with appropriate keyhole solutions such as pro-native tax-and-transfer schemes. So why don’t we have instances of the latter? Actually, we do, to some extent. We’ll get to this later in the post.

#2: The full gains from open borders take time to materialize

Estimates of significant increases in world production after open borders are not estimates of overnight gains. Rather, these are estimates of how the world would look a decade or two from the opening of borders, relative to how it might look in the counterfactual. Even if the estimates were correct, the full magnitude of the gains would be felt after a fairly long time-lapse. Thus, there may not be good electoral incentives for democratic governments to support freer migration for the economic benefits. Some of the economic benefits would be reaped immediately, but it would be an order of magnitude less than the long-term gains. Note that this is similar to the reason why we expect individual migration to be less than what seems economically optimal, as discussed in my other post.

#3: In so far as there is a citizenist case for open borders, it relies on a tax-and-transfer scheme combined with somewhat draconian enforcement

Nathan Smith has previously argued that there is a citizenist case for open borders: use a tax-and-transfer scheme such as immigration tariffs or DRITI to hold natives harmless and distribute the gains away from migrants and towards natives.

Schemes like DRITI present a dark side: they exacerbate the visibility of poverty and, even as they reduce the unfairness of the system as a whole, make it more visible. So, in addition to open borders advocates who’d worry about such schemes (see, for instance, here and here), there are many others, such as immigrant rights activists, who would reject these schemes. Even if open borders started out with such “keyhole solutions” it’s not clear that they’d be stable.

The combination of citizenism and the form of local inequality aversion make tax-and-transfer-based keyhole solutions a hard sell in many countries. I don’t think the problems are insurmountable. But I don’t think it’s surprising that we haven’t seen a lot of progress on these so far. It’s fruit, but it’s not very low-hanging fruit.

Incidentally, one prediction of this setup is that countries that are less democratic, and where governments have more authority to carry out more draconian enforcement, might be more likely to have implemented citizenistic migration liberalization. This is indeed the case, as we’ll see in #5.

#4: The incentives of democracy

The incentives of the politicians and bureaucrats running the government are not perfectly aligned with the long-term interests of the citizens. There are two broad problems:

  1. Citizens themselves don’t know what’s best for them, so they may not reward their representatives in government for choosing better policies or delivering better outcomes.
  2. Politicians often cater to special interests rather than the needs of citizens.

In the context of why there hasn’t been more significant migration liberalization, I expect (1) to be a far bigger reason than (2). The general phenomenon of political ignorance in the electorate in advanced democracies has been well-studied (the political knowledge elsewhere is highly unlikely to be better, and quite likely to be worse). Explanations such as rational ignorance and rational irrationality have been offered. Given generally low levels of political knowledge and decision-making skill on the part of the electorate, we shouldn’t have strong reason to expect a democracy to converge to a good outcome. But we might still expect that, by random chance, some democracies would converge to good outcomes in a given area. So a bit more is needed.

Bryan Caplan has posited that one particular aspect to voter irrationality is anti-foreign bias: people systematically underestimate the benefits of interactions with foreigners. Are people inherently anti-foreign? I think that people have inherent tendencies to support their ingroup and resent or discount the welfare of outgroups. But the particular use of nationality as the criterion to define ingroup and outgroup is probably an artifact of the political process: there is an existing governance infrastructure that facilitates discrimination on the basis of nationality, and an existing ideological infrastructure that gives particular importance to national identity. So people’s diverse ingroup-outgroup choices get projected to divisions based on nationality and citizenship even if that’s not the best way of describing the distinctions in their own minds. The upshot is that we might expect the political process to produce an anti-migration bias relative to what’s optimal, and while this reflects some discomfort that individuals experience interacting with foreigners, it’s often a result of a political process translating other forms of discomfort people have to the language of discrimination based on nationality (this is a somewhat tricky point, and I hope to elaborate in a future post).

#5: Some countries that are undemocratic or less democratic, and have more deference for elites, tend to have citizenistic and numerically liberal migration policies

Carl Shulman has been doing yeoman’s work of late examining some interesting “open borders with keyhole solutions”-type regimes. He looked at Singapore in a blog post titled Migration levies and unskilled labor mobility in Singapore, where he discussed Singapore’s large temporary guest worker program for low-skilled migrants, that combines fairly huge numbers of migration with fairly stringent restrictions on what migrants can do, as well as taxes on the migrants that make them fiscally good for the government. In a blog post titled What does migration to the United Arab Emirates tell us about labor mobility?, he looked at the UAE, where a significant majority of the population is foreign-born, and where there are significant differences between the rights and privileges accorded to a native elite and a large foreign-born workforce. In both cases, their policies created a win-win for natives, the government officials, and migrants. In Singapore, the success of these policies arises from an effective one-party system and considerable deference to elites in policymaking, despite the general population being less pro-migration than in many First World countries with far stricter limits on migration. The UAE is a federation of hereditary monarchies, which insulates it from the pressures of competitive democracy. The population is also less likely to push for liberal ideals of equality that jeopardize the stability of keyhole solutions.

Relatedly, a recent book called The Price of Rights by Martin Ruhs (to be reviewed later) empirically came to the conclusion that there’s a trade-off between the number of migrants a country admits and the package of rights that are accorded to people after they migrate. A similar point had been made in a post by Michael Carey a while back on immigration and class struggle. If modern liberal democracies tend to be strong on the package of rights and privileges, this (often) comes at the expense of the number of migrants they admit.

#6: If many countries tried citizenistic open borders, competition would drive down tariffs eventually, bringing the world closer to open borders

In #1, we (sort of) ruled out the plausibility of pure open borders (barring dramatic changes in people’s views of moral permissibility and side-constraints). But in #5, we pointed out that we do have partial approximations to “open borders with keyhole solutions” and these could be taken further. So how far are “open borders with keyhole solutions” from pure open borders?

We can think of pure open borders as migration with zero government-imposed barriers or taxes. Suppose most countries have prohibitively high barriers, and a few countries experiment with selectively reducing taxes to the level of “open borders with keyhole solutions.” These few countries can still afford to keep the taxes at their profit-maximizing level, because they’re effective monopolists: all the other countries are out of the running because their barriers are too high. The policies of these few countries are a Pareto improvement over the status quo, but they still carry the inefficiencies of a monopoly. If, however, more countries start getting drawn into the game of open borders with keyhole solutions, then there is more competition between countries that exerts a downward pressure on the taxes and barriers. Thus, as more countries do it, we get closer to open borders. We probably don’t get anywhere near pure open borders, but we do get a lot closer than if only one or two countries were trying it out.

PS: Open borders isn’t the only policy proposal for which we can ask this sort of question. I’m quite curious to hear the thoughts of proponents of drug legalization, free trade, organ trading, and other such cutting-edge proposals. The situation with some of these seems to be a bit better than for open borders, but not by a huge margin. For instance, consider the case of drug legalization. According to this Wikipedia page, there is only one country, Uruguay, where the possession, sale, transport, and cultivation of cannabis (marijuana) are all legal. But there are a number of nation-states (plus member states in nations) where the possession of marijuana is legal, or illegal but decriminalized, and there are others where marijuana use is de facto tolerated. So even though full-blown legalization is rarely embraced, we have enough variation in the direction of legalization to address the question of “if it’s such low-hanging fruit, why has nobody plucked it?” This is roughly similar to the situation with open borders.

PS2: I wrote up a condensed version of an early draft of this post in the form of an Open Borders Action Group post.

Make More Singapores!

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I have advocated the DRITI policy– instead of coercively restricting migration, tax it and use the proceeds to compensate natives– for years, and Principles of a Free Society was written, if you like to think of it that way, as a political philosophy suited to undergird DRITI policies. By now, this has become a standard part of the case for open borders. Thus, in “Meant for Each Other: Open Borders and Western Civilization,” Bryan Caplan writes:

Still worried [about open borders undermining natives’ wages]?  There’s a cheaper and more humane remedy than keeping foreigners out: Charge them an admission fee or surtax, then use the proceeds to help displaced native workers.

Which is the same idea as DRITI. Not that I’m blaming Caplan for borrowing the idea from me without acknowledgment. Caplan knows I advocate migration taxes. He even wrote one of the blurbs for Principles of a Free Society. But Gary Becker proposed a migration tax to the IEA back in 2010. Actually, that was four years after I published the idea, but Becker had written about it before, in an op-ed in the 1980s. Recently, at the APEE conference in Las Vegas last April, Richard Vedder also proposed a migration tax. The idea is really too obvious to quibble over its paternity. It’s a simple cross-application of the standard free-trade advocacy truism– “yes, free trade has winners and losers, but tax the winners to compensate the losers”– to migration policy. I’m not sure whether Caplan got the idea from me. I’m pretty sure that if he hadn’t got it from someone, he’d easily have thought it up on his own. It’s a no-brainer for economists, but somehow policymakers are blind to it. Or so I thought.

What I didn’t realize is that Singapore already has something close to a DRITI policy in place, as Carl Shulman reports. From 1970 to 2010, the number of foreign workers in Singapore rose from just over 20,000 to more than a million, a third of the labor force, and still rising. Most of these are not the high-skilled workers that OECD democracies tend to privilege. Nearly a million are here on low-skilled “work permits,” including foreign domestic workers (214,500) or construction workers (319,100). How is the number of immigrants regulated? First, by Foreign Worker Levies, i.e., migration taxes, a policy variable. There are also Dependency Ceilings, maximum foreign shares of an employer’s workforce. Shulman doesn’t say how often these are binding, but they seem liberal, e.g., 87.5% of construction crews can be foreign. And how much do migration taxes raise?

Levies for unskilled workers range from $3,600-$9,000 per annum. With around a million workers subject to levies, the proceeds to Singapore should be in the billions of dollars (all figures are Singaporean dollars, about 0.8 $USD each).

Total levies collected amounted to $1.9 billion in 2010 and $2.5 billion in 2011. Total government operating revenues in 2010 were $45.5 billion and $50.5 billion for 2011, so worker levies alone accounted for 4-5% of operating government revenue. Since then the migrant population has grown substantially and levies have been hiked, by a third or more in many cases, with further increases scheduled, so the current percentage is likely significantly higher. Even so, the figure will be small compared to the economy, because low-skill workers contribute disproportionately little to economic output, but is high as a proportion of compensation costs. While Singaporean natives with such low incomes would pay no income tax, the top levy rates for unskilled workers (charged to employers) can be half or more of wages.

In short, while we can quibble about details, Singapore more or less understands and is applying and applies the citizenist case for open borders. Singaporeans benefit from cheap cleaners, bus drivers, and domestic workers. And they don’t just benefit themselves; foreign workers also gain opportunities. As Vipul Naik pointed out in conversation, if all developed countries adopted policies like this, migrant wages and wages in migrant source countries would be competed up. I might argue for slightly different moral side-constraints (e.g., I wouldn’t endorse deportation of pregnant women), but it would be a great thing for both economic development and freedom if other developed countries followed Singapore’s lead.

Lastly, a more general point. Singapore is amazing. Every time I read about policy in Singapore, I find myself involuntarily thinking Wow! This is the most enlightened regime on earth. Perhaps that’s a slight exaggeration, but few would deny that Singapore is a spectacular success. So why don’t we make more of them? Much of the key to Singapore’s success seems to be simply that it’s a sovereign city-state. In general, sovereign city-states make wildly disproportionate contributions to civilization. Think of the city-states of ancient Greece, Athens and Sparta and Corinth, birthplaces of philosophy, history, science, and democracy. Or the city-states of Renaissance Italy– Venice, Florence, Genoa– which were also gloriously accomplished in arts and letters and sciences. Today, Hong Kong has a kind of partial sovereignty. It, too, is a dazzling success, whose success has spilled over in a massive way. Hong Kong has been a major catalyst for China’s economic take-off. Yet, perversely, we have established a system of international sovereignty which makes it impossible to found new sovereign city-states. We need charter cities.

Immigration-backed Bonds

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Nathan Smith has proposed a scheme for a keyhole solution: DRITI, that has as its main features return deposits, surtaxes, and savings accounts. While I found it interesting, it looked a little complicated to me. In a similar vein, Anu Bradford suggests that a bond be posted by companies for the immigrants they hire. I liked that idea, too, but I share David Henderson’s reservations regarding the exact scheme.

Now, allow me to offer my own proposal. I am for real open borders. So it is only meant as a compromise that could work with most people being skeptical or even hostile to open borders. For want of a better name, let me call it an “immigration-backed bond” (unfortunately, “immigration bond”, which would be a better term, already refers to bonds that immigrants have to post to get out of detention).

The main points that I would like to change are these:

  • The above proposals rely on individual and private contracts. It would be preferable to exploit economies of scale and create a market with public information.
  • A product that needs to attract a lot of capital has to be reasonably simple. Even better if it conforms to some standard template.
  • There is often a complaint that proponents of open borders want the benefits for themselves, but risks are socialized. It would be nice if you could instead put your money where your mouth is.
  • Self-interest has been a reliable motivation for ages. So those who supply the capital should reap a profit commensurate with risks taken.
  • To increase political feasibility, I would also like to create a material interest on the part of the government.

The basic structure of an “immigration-backed bond” may look complicated, but only relies on rather standard features that have been around for a long time, e. g. for corporate and mortgage-backed bonds. It is a bond that has a certain maturity, e. g. in ten years, and is then paid back. In the meantime it pays a regular coupon. The coupon depends on a pool of immigrants and how they behave. It might pay back before maturity (in part or whole), i. e. there is a “callable” provision. And in extreme cases what you receive at maturity could be less than 100%. Of course, the coupon would have to be high enough to compensate you for the risks you take.

How does this relate to the immigrants?

For every, let’s say, $20,000 in bonds issued, there is a visa for one immigrant. The visa is “shall issue” and not “may issue”, i. e. the government can only refuse to issue it if there are some predefined reasons (e. g. no clean criminal record, affiliation with a terrorist organization). “Shall issue” is in line with a prima facie right to immigrate, whereas the current “may issue” is not. The bond insures risks from the immigrant, and the $20,000 serve as collateral if there are any problems that result in expenses to the government or third parties (e. g. fines, damages, cost of repatriation).

Unlike with current visas, the immigrants keep their visas as long as they pay up. So losing a job or changing employers would not be a problem per se. Or someone else might pay for them, e. g. a charity, family members or a spouse. If the immigrant does not incur any such costs, or less than some limit, they become permanent residents at maturity. If they default on payments or cross the limit, they can be sent back to the country they came from.

It still may not be clear how this would work on an operational level. So let me elaborate. To make it very concrete I suggest a rather specific implementation. However, I don’t think that the specifics are in any way optimal. They are only meant to show that there is no inherent problem.

The main part would be to set up a special legal entity (usually called a “Special Purpose Vehicle”) that obtains a certain amount of money from investors, let’s say, 500 million dollars for ten years, which would correspond to a pool of 25,000 immigrants. Half a billion dollars would be more than enough for a liquid market in the bond. In principle, the Special Purpose Vehicle could directly handle everything and have a dedicated staff for that purpose. However, that is not particularly likely because it is inefficient to start all over again for each new bond. Instead most operations would probably be outsourced to external parties who receive a fee from the Special Purpose Vehicle for their services.

As for the external parties involved I could imagine the following:

  • Investment banks set up the Special Purpose Vehicle and take care of bringing the bond to market.
  • A bank takes over the financial side of operations.
  • Rating agencies might supply a rating for the risks involved.
  • An accountancy firm supervises the different operations.
  • Probably a law firm takes care of handling charges from the government and re-couping them from the immigrants.
  • One or more human resource consulting firms originate the pool, i. e. select the immigrants (and probably also match them with job offers).
  • Some other party (e. g. a telephone operator) collects payments from the immigrants.
  • Insurance companies might also be involved, e. g. insuring extreme risks.

What is perhaps unclear is how some party (probably a human resource consulting firm) would originate the pool. Here’s how this could work:

The Special Purpose Vehicle comes with a definition for the characteristics of the immigrants. That’s because investors probably want to have an idea of what the risks are. The human resource consulting firm would then try to find people with the relevant profile in the usual way via ads or going through their databases (and probably also match them with respective job offers). Or it could be the other way around: the human resource consulting firm has a larger pool of potential immigrants, they “repackage” part of their larger pool and offer it to someone who wants to set up a Special Purpose Vehicle. An accountancy firm certifies they follow a defined protocol. To make the originator interested in delivering a good result, they could be asked to take on some of the risk themselves, e. g. with payments staggered until maturity, dependent on whether there are unexpected losses.

How would the definition be set for the pool? The main point would be to target a certain level of risk, and select immigrants accordingly. So any set of attributes that has predictive power, such as age, gender, education, etc. might be interesting as well as indicators for commitment (acquisition of relevant language skills, knowledge about the target country). The originator could also ask the immigrants to post some collateral themselves, or that someone vouches for them (e. g. their prospective employers, domestic citizens in the receiving country, immigrants with a good track record in some other pool, etc.). So parameters like degree of self-collateralization or percentage vouched for by reliable parties could also play a role.

What happens with the money?

Obviously, it would be stupid to leave it in a bank account at money market rates, so it should be invested in something. And here is where I would rely on the interest of politicians and the government: the money is invested in newly issued government bonds. And to make this even more attractive for the government, you could give them better than market conditions, e. g. no coupons or even negative coupons that are paid and not received by the Special Purpose Vehicle. Technically, you would perhaps want to keep the two things separate, so you have standard government bonds that can be sold in the market, plus a regular or lump payment to the government.

Up to this point, this looks like a money-losing operation. Holders of “immigration-backed bonds” would only have government bonds with lower or even negative coupons minus additional costs. That’s why the Special Purpose Vehicle has a claim on the immigrants for regular payments that cover all costs so far (market interest rates as an opportunity cost, expenses for origination and operation, extra payment to the government, a risk premium for investors).

It may be the business of the Special Purpose Vehicle to collect payments from the immigrants. However, it would probably outsource operations to some other party. Any company in the business of collecting money over a wide area would do. One idea would be to collect it via phone bills. Alternatively, contributions could be tacked onto tax payments as a surtax that is routed to the pool (minus some compensation to the government for supplying the infrastructure and costs for collecting the surtaxes). Since immigrants might die or leave the country before the ten years are over, there could also be a so-called “callable” provision, i. e. early payback of part of the principal, either by lot or pro rata. The government might also have to cede any extra payments after that point, so the underlying government bonds can be sold in the market. Or you could do without such a provision and investors would have to bear the risk of the respective defaults.

Could this work in the real world? Just a back-of-an-envelope derivation to see whether the dimensions are okay: If the pool were pretty risky, e. g. on a par with a junk bond with a rating of BB, you would want a premium of perhaps 5% per year to compensate for this. This is a truly risky pool, as over ten years you would expect charges and defaults of about $10,000 dollars per immigrant. You would also want a market rate for a riskless security over ten years. Now those are very low at the moment. A realistic long-term level would perhaps be something like 4%. Then there may be additional costs for origination and operation of 2% and a further 2% to get the government interested. This adds up to 13%. Now 13% of 20,000 dollars would translate to 2,600 dollars a year per immigrant or somewhat more than 200 dollars a month. My guess would be that this is more of an upper bound.

The government would get 10 million per year and half a billion in capital for ten years. The originator and operator (and their subcontractors) would obtain an annual $10 million together. Again this is only meant as a rough estimate and more of an upper bound to see whether something like this could work.

Would a typical government be interested? I think it would. For an extra 100.000 immigrants in one year, the government would have $40 million in extra money per year and an extra $2 billion in government bonds issued. For an extra 100,000 immigrants per year, you would have to do this for ten years in a row and then revolve. Now it is an extra $400 million per year and $20 billion in government bonds issued. Many governments in the Eurozone would have been glad to get their hands on such cheap refinancing. Of course, in that case the underlying government bonds would account for much of the risk premium.

With this rough calculation, my conclusion is that “immigrant-backed bonds” could be feasible and interesting for all parties involved. However, there are all kinds of loose ends and potential problems:

  • Unlike with mortgages that can be originated over an extended time frame and then repackaged, here many things have to happen within a short period of time, e. g. 25,000 applicants with a job offer right now. There could be some leakage with offers or applications being withdrawn at the last minute. However, one solution would be to have an excess of applicants and jobs, so there are always enough to fill the pool.
  • It could be tricky to define when and how much to pay to the government. As for fines and damages, this would be the same as what the immigrants have to pay directly. But how about expenses for court cases, police enforcement, etc.? What about if these charges materialize only after the bond has matured? And how about welfare payments? There could be some moral hazard problems here.
  • Is insurance limited to $20,000 per immigrant (or whatever it is, as the figure was purely arbitrary) or is there a real insurance via the pool where also extreme risks are insured (e. g. one of them perpetrating a major terrorist attack)? In the latter case: What if the Special Purpose Vehicle goes bankrupt? A typical solution would be to insure such extreme risks with a reinsurance company.
  • Asymmetric information and adverse selection: the immigrants who are selected could not immigrate in other ways, so there might be some hidden risks.
  • The originator could be corrupt. Supervision by an accountancy firm might not be sufficient to detect this. However, one remedy is to make them share in the risk via staggered payments that depend on results. The prospect of repeat business and protecting your reputation could be additional motivations for diligent origination.
  • “Asset-backed bonds”, after which this proposal is modelled, have fallen out of favor with investors and regulators in the wake of the financial crisis, but have made a modest comeback since then. So there might be a certain reluctance to participate in an offering, especially in the beginning.
  • It is easy to shoot down such a scheme with moralistic hyperbole: “You are treating immigrants like a commodity.” There is also a lot of potential for harrowing stories how immigrants are “exploited” or about “human trafficking.”
  • There might be perverse incentives for politicians to close down other venues because “immigration-backed bonds” are more lucrative. So there could be some crowding-out.
  • It might be hard to end such a scheme if you want to go for real open borders. On the upside, that would also apply if the government wanted to abolish it for more closed borders.

I am admittedly not an expert on structuring such products, so there might be even major improvements or else arguments why the whole concept would not work. That’s the reason I would like to offer this proposal for debate. However, if “immigration-backed bonds” came to pass as the best possible alternative under given circumstances, I would certainly be interested in investing my own money in them, just to show that I put my money where my mouth is – and to make a profit from a great opportunity to increase wealth.

[I would like to thank the Open Borders team for valuable input on a previous version of this post. I hope I now address most of the points they have raised. As always: all errors are mine. And for full disclosure, I would like to add that I work in the financial sector, but have no professional stake in what I suggest. And I am certainly not speaking on behalf of my employer.]

Is corruption on the part of consular officials good or bad?

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John Lee’s post on US visa policy is, for me, a reminder of how important it is for people to have rights. Rights can sound like an abstruse or arbitrary notion. “Natural rights” sounds like a ghost from the 18th century suddenly walking the earth again. “Human rights” sounds like newfangled UN-speak. But when a person is denied a visa for refusing to laugh at a consular officer’s joke, one feels a certain indignation, a certain repugnance, as if an injury has been done to something rather ineffable but very important. It is not proportional, not fitting, unjust. It is somehow intolerable. The ineffable something that has been injured is human dignity, or in other words, human rights. Rights are the only antidote to arbitrariness and discretion.

Anyway, one of the odd side-effects of an improperly discretionary regime that doesn’t give due respect to human rights, is that corruption can suddenly seem like rather a good thing. Which of the following is more offensive?

1. A visa applicant is rejected for not laughing at a consular official’s joke.

2. A visa applicant is rejected for refusing to pay a $5,000 bribe.

My intuition actually sort of tilts towards (1) being more offensive. I’m very tentative on this point. But at least in case (2), the applicant knows the process. He has more of a sense of being the author of his own life story, of having a say, of knowing the criteria, of being able to plan.

Of course, if I put on my “economist” hat, a very simple analysis suggests itself. If a visa applicant spends his time kissing up to a consular official by researching him and learning what, e.g., laughing at his jokes, puts him in a good mood, resources have been wasted. Perhaps the consular official likes being flattered, but probably he doesn’t value it much, and surely less than the effort to do it is worth. By contrast, if the applicant pays the consular official a $5,000 bribe, both parties clearly benefit. The consular official is $5,000 richer, and the visa applicant apparently values the visa more than his $5,000, or he wouldn’t have paid. Of course, the US public, of which the consular official is supposed to act as a representative, might be deemed to suffer by the decision. But whatever the US public’s stake in immigration may be, it can hardly be claimed that the willingness of visa applicants to laugh at consular officials’ jokes has anything to do with the interests of the US public. So if the consular official is given such discretion that he is entitled to accept or reject visa applicants based on whether they laugh at his jokes or not, then he can’t be injuring the US public by exercising the discretion that has been allotted to him in a fashion that enriches him personally. Efficiency is therefore served by consular corruption.

Now, what this leaves out is truth. I presume that consular officials who reject applicants based on an applicant’s not laughing at their jokes are not deemed to have done anything dishonest or illegal, but that consular officials are explicitly forbidden to take bribes. How does that consideration weigh against the greater efficiency of consular corruption?

One goal of my DRITI proposal is to remove such dilemmas by removing consular discretion. Only when the state seeks to discern and protect individual rights can true rule of law exist.

Zen and the Art of Opening Borders

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One of the biggest challenges in trying to present the case for open borders to those who don’t agree is choosing the right mix of logic, evidence, and appeal to emotion. When people talk about the moral case for open borders, it often seems that what they are referring to is moral logic. That is, they are discussing the logical consequences of certain moral propositions.

In my experience, people are usually not convinced by logic. While they might tend to agree with a statement like “we should not discriminate based on arbitrary factors over which people have no control”, if you extend that principle to conclude that they should afford non-citizens the exact same treatment as citizens they will feel trapped by the logic and seek to find a way out. The logic didn’t address all of their concerns, so it feels like a trick.

However, I do think logic plays a major role in understanding how people feel, and in trying to frame arguments in a way that will make sense to them. With that in mind, here is my candidate for an argument in favor of open borders that attempts to balance these concerns:

Proposition 1: As Americans (or citizens of another wealthy western nation) we benefit from a valuable cultural and institutional heritage.

Proposition 2: We have a duty both to protect this heritage and to share it with as many people as we can.

Proposition 3: One of the most best ways to share our heritage with others is to allow them to live and work within our national borders.

This line of argument explicitly acknowledges the importance national identity. Most Americans identify as Americans, and they think that means something special. I agree.

It also acknowledges that we have a duty to protect our heritage. This means that we need to take seriously the question of whether allowing too many immigrants into the country will undermine what makes the country special. It is okay to admit that at some point, enough unrestricted immigration can have negative consequences. I personally think that the optimal level is probably an order of magnitude or so higher than what we currently have, but trying to protect our national culture and institutions is a legitimate concern.

Finally, the argument puts open borders in a category of other useful things that we can do to share our heritage that a lot of other people agree with, such as providing support for emerging democracies and encouraging forms of economic integration that allow people from poor countries to participate in our economy without moving here. (I am a big fan of the web based work sourcing site Odesk. Look it up if you haven’t heard of it.)

What this argument does not do is try to gain a lot of ground by reasoning about whether we have a right to close our borders, or whether closing them should be considered refusing to help or actively doing harm.  These are interesting philosophical questions, but I don’t think they are effective for making public arguments.

The three propositions are quite general, and there are many details to be specified. For example, what exactly is it about our heritage that is so valuable? In some cases we can measure the impact of institutional differences. For example, there is evidence that countries with a legal system that developed based on English common law experience faster economic growth. Other aspects of our culture are not so easily quantified. How valuable is the widespread expectation that the government will not censor the media?

Another important question is once we accept that we need to protect our national heritage what is the best way to do it? Does it require limiting the number of immigrants to a certain quota? If every citizen were instantly replaced by someone from a different cultural background, our heritage would probably be lost. But this is not really how immigration works. When large numbers of immigrants enter the country it takes time before they begin to occupy the most culturally influential positions in society. That is, our judges, journalists, teachers, congressmen, and artists would be largely the same until the new groups began to assimilate

So I personally don’t think  a quota would be necessary if we implemented some of the keyhole solutions discussed here. A student of mine whose family entered the country illegally from Mexico claims that a good coyote can cost up to $25,000 per head these days (Although the average cost is probably much lower). Charging each immigrant a one time fee of $10,000-$20,000 would spare them the risks associated with crossing illegally and mitigate any strain strain they place on the education and welfare systems. It would also create a more flexible constraint on the number of immigrants that enter the country.

These propositions are not meant to specify a certain policy , but rather as a rhetorical framework for discussing the issues. They are meant as a way to put the arguments for open borders in language that makes more sense to people outside the open borders community. I would be very interested to know whether other advocates of open borders find them acceptable.