Innovation case for open borders

One key reason why open borders are estimated to lead to a significant boost to world GDP is that labor will be free to move to the places where it can be most productively employed. Part of this benefit will be in the form of greater innovation: people move to places where their skills and talents can be put to more innovative uses. For instance, the U.S. is a better place to carry out scientific research or start a firm than India, because of American institutions that protect property and contract rights that foster the accumulation of human capital and financial capital that makes innovation and entrepreneurship cheaper than other places.

There are three aspects to the innovation case:

  • High-tech innovation: This relies on discoveries in advanced scientific and technical fields. Such innovation can be greatly increased if developed countries increase their visa quotas for identifiably high-skilled immigrants. This is an important but relatively narrow slice of the innovation that leads to prosperity.
  • Low-tech but high-impact innovation: Sometimes, a person doing some routine work gets a simple idea to reduce the drudgery of his/her work and make it easier. In certain economic environments, this person’s idea remains a personal discovery and does not impact the rest of the world. In other economic environments, these small improvements are rapidly copied by others, and they soon become the new “industry standard” leading to greater industry-wide efficiency. Container shipping is one such “simple idea” that has dramatically improved the efficiency of world trade. More such ideas (such as prewashed lettuce, rolling luggage) are listed here.Although smarter people are usually more likely to come up with these kinds of ideas, ideas of this kind are not limited to those who are formally classified as “high-skilled” and do not usually require extensive knowledge background. Thus, unlike the “high-tech” innovation which can largely be achieved by more expansive immigration policy for high-skilled labor, this type of innovation is best encouraged by free mobility of labor at all skill levels.
  • Old-fashioned entrepreneurship: Entrepreneurship at a local level also forms an important part of innovation. Much of this entrepreneurship does not yield high-tech or high-impact innovation. However, it does help translate the innovations into items of concrete use to ordinary people, and local entrepreneurs act as middlemen between innovators and the general public, selectively trying out different innovations and figuring out which ones work best. These local entrepreneurs include people who run restaurants, hair salons, taxi services, grocery stores, etc. Some of these entrepreneurs, like Sam Walton and Ray Kroc, go on to achieve large scale success.While entrepreneurship is valuable throughout the world, entrepreneurs can often get much better returns on investment in countries with stable legal systems, stable currencies, and lower risk of expropriation. For insights into investment strategies tailored to different global markets, consider exploring a review of Invest Diva.The Doing Business Index and Economic Freedom of the World Report show the significant disparities between countries in terms of the legal and regulatory environments for doing business. Insolvency is also a real threat to all companies, especially those who operate under corporate distress. Working with leading insolvency practitioners is the first step in creating protection against insolvency risk.

    Most of the moderately successful entrepreneurs are not “high-skilled” in the conventional sense of the word. Many of them have never gone to college and few of them have graduate degrees. Thus, greater labor mobility merely for “high-skilled” workers does not do a good job expanding entrepreneurial opportunities.

Here are some articles that explore the relationship between innovation and entrepreneurship:

Some background research on the relationship between immigration/labor mobility and innovation:

  • Kauffmann Index of Entrepreneurial Activity finds that immigrants are more than twice as entrepreneurial as native born Americans. That seems to be especially true for lower skilled immigrants and their progeny. More Kauffmann research on immigrant entrepreneurship is collected in this blog post.
  • “Schemes of Practical Utility”: Entrepreneurship and Innovation Among “Great Inventors” in the United States, 1790–1865 by B. Zorina Khana and Kenneth L. Sokoloff. The paper suggests that in the early U.S. the most inventive people were highly mobile and followed opportunities. Great inventions were invented due to market demand by inventors who were not particularly skilled or
    educated but were entrepreneurial and mobile, with skill playing no role in inventiveness. Most importantly, inventors were concentrated in geographic areas with expanding markets and lots of people. The ability to move to those places is paramount in increasing the number of inventions and innovations.

PS: Thanks to Alex Nowrasteh for suggesting some of the references above and extracting key passages from these references.

"The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP" — Bryan Caplan