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The world economy
The magic of diasporas
Immigrant networks are a rare bright spark in the world economy. Rich
countries should welcome them
Nov 19th 2011 | from the print edition
THIS is not a good time to be foreign. Anti-immigrant parties are
gaining ground in Europe. Britain has been fretting this week over
lapses in its border controls (see article). In America Barack Obama
has failed to deliver the immigration reform he promised (see
article), and Republican presidential candidates would rather
electrify the border fence with Mexico than educate the children of
illegal aliens. America educates foreign scientists in its
universities and then expels them, a policy the mayor of New York
calls `national suicide'.
This illiberal turn in attitudes to migration is no surprise. It is
the result of cyclical economic gloom combined with a secular rise in
pressure on rich countries' borders. But governments now weighing up
whether or not to try to slam the door should consider another factor:
the growing economic importance of diasporas, and the contribution
they can make to a country's economic growth.
Old networks, new communications
Diaspora networks - of Huguenots, Scots, Jews and many others - have
always been a potent economic force, but the cheapness and ease of
modern travel has made them larger and more numerous than ever before.
There are now 215m first-generation migrants around the world: that's
3% of the world's population. If they were a nation, it would be a
little larger than Brazil. There are more Chinese people living
outside China than there are French people in France. Some 22m Indians
are scattered all over the globe. Small concentrations of ethnic and
linguistic groups have always been found in surprising places - Lebanese
in west Africa, Japanese in Brazil and Welsh in Patagonia, for
instance - but they have been joined by newer ones, such as west
Africans in southern China.
These networks of kinship and language make it easier to do business
across borders (see article). They speed the flow of information: a
Chinese trader in Indonesia who spots a gap in the market for cheap
umbrellas will alert his cousin in Shenzhen who knows someone who runs
an umbrella factory. Kinship ties foster trust, so they can seal the
deal and get the umbrellas to Jakarta before the rainy season ends.
Trust matters, especially in emerging markets where the rule of law is
weak. So does a knowledge of the local culture. That is why so much
foreign direct investment in China still passes through the Chinese
diaspora. And modern communications make these networks an even more
powerful tool of business.
Diasporas also help spread ideas. Many of the emerging world's
brightest minds are educated at Western universities. An increasing
number go home, taking with them both knowledge and contacts. Indian
computer scientists in Bangalore bounce ideas constantly off their
Indian friends in Silicon Valley. China's technology industry is
dominated by `sea turtles' (Chinese who have lived abroad and
returned).
Diasporas spread money, too. Migrants into rich countries not only
send cash to their families; they also help companies in their host
country operate in their home country. A Harvard Business School study
shows that American companies that employ lots of ethnic Chinese
people find it much easier to set up in China without a joint venture
with a local firm.
Such arguments are unlikely to make much headway against hostility
towards immigrants in rich countries. Fury against foreigners is
usually based on two (mutually incompatible) notions: that because so
many migrants claim welfare they are a drain on the public purse; and
that because they are prepared to work harder for less pay they will
depress the wages of those at the bottom of the pile.
The first is usually not true (in Britain, for instance, immigrants
claim benefits less than indigenous people do), and the second is hard
to establish either way. Some studies do indeed suggest that
competition from unskilled immigrants depresses the wages of unskilled
locals. But others find this effect to be small or non-existent.
Nor is it possible to establish the impact of migration on overall
growth. The sums are simply too difficult. Yet there are good reasons
for believing that it is likely to be positive. Migrants tend to be
hard-working and innovative. That spurs productivity and company
formation. A recent study carried out by Duke University showed that,
while immigrants make up an eighth of America's population, they
founded a quarter of the country's technology and engineering firms.
And, by linking the West with emerging markets, diasporas help rich
countries to plug into fast-growing economies.
Rich countries are thus likely to benefit from looser immigration
policy; and fears that poor countries will suffer as a result of a
`brain drain' are overblown. The prospect of working abroad spurs more
people to acquire valuable skills, and not all subsequently emigrate.
Skilled migrants send money home, and they often return to set up new
businesses. One study found that unless they lose more than 20% of
their university graduates, the brain drain makes poor countries
richer.
Indian takeaways
Government as well as business gains from the spread of ideas through
diasporas. Foreign-educated Indians, including the prime minister,
Manmohan Singh (Oxford and Cambridge) and his sidekick Montek
Ahluwalia (Oxford), played a big role in bringing economic reform to
India in the early 1990s. Some 500,000 Chinese people have studied
abroad and returned, mostly in the past decade; they dominate the
think-tanks that advise the government, and are moving up the ranks of
the Communist Party. Cheng Li of the Brookings Institution, an
American think-tank, predicts that they will be 15-17% of its Central
Committee next year, up from 6% in 2002. Few sea turtles call openly
for democracy. But they have seen how it works in practice, and they
know that many countries that practise it are richer, cleaner and more
stable than China.
As for the old world, its desire to close its borders is
understandable but dangerous. Migration brings youth to ageing
countries, and allows ideas to circulate in millions of mobile minds.
That is good both for those who arrive with suitcases and dreams and
for those who should welcome them.
from the print edition | Leaders
http://www.economist.com/node/21538742
The magic of diasporas
Immigrant networks are a rare bright spark in the world economy. Rich
countries should welcome them
Nov 19th 2011 | from the print edition
THIS is not a good time to be foreign. Anti-immigrant parties are
gaining ground in Europe. Britain has been fretting this week over
lapses in its border controls (see article). In America Barack Obama
has failed to deliver the immigration reform he promised (see
article), and Republican presidential candidates would rather
electrify the border fence with Mexico than educate the children of
illegal aliens. America educates foreign scientists in its
universities and then expels them, a policy the mayor of New York
calls `national suicide'.
This illiberal turn in attitudes to migration is no surprise. It is
the result of cyclical economic gloom combined with a secular rise in
pressure on rich countries' borders. But governments now weighing up
whether or not to try to slam the door should consider another factor:
the growing economic importance of diasporas, and the contribution
they can make to a country's economic growth.
Old networks, new communications
Diaspora networks - of Huguenots, Scots, Jews and many others - have
always been a potent economic force, but the cheapness and ease of
modern travel has made them larger and more numerous than ever before.
There are now 215m first-generation migrants around the world: that's
3% of the world's population. If they were a nation, it would be a
little larger than Brazil. There are more Chinese people living
outside China than there are French people in France. Some 22m Indians
are scattered all over the globe. Small concentrations of ethnic and
linguistic groups have always been found in surprising places - Lebanese
in west Africa, Japanese in Brazil and Welsh in Patagonia, for
instance - but they have been joined by newer ones, such as west
Africans in southern China.
These networks of kinship and language make it easier to do business
across borders (see article). They speed the flow of information: a
Chinese trader in Indonesia who spots a gap in the market for cheap
umbrellas will alert his cousin in Shenzhen who knows someone who runs
an umbrella factory. Kinship ties foster trust, so they can seal the
deal and get the umbrellas to Jakarta before the rainy season ends.
Trust matters, especially in emerging markets where the rule of law is
weak. So does a knowledge of the local culture. That is why so much
foreign direct investment in China still passes through the Chinese
diaspora. And modern communications make these networks an even more
powerful tool of business.
Diasporas also help spread ideas. Many of the emerging world's
brightest minds are educated at Western universities. An increasing
number go home, taking with them both knowledge and contacts. Indian
computer scientists in Bangalore bounce ideas constantly off their
Indian friends in Silicon Valley. China's technology industry is
dominated by `sea turtles' (Chinese who have lived abroad and
returned).
Diasporas spread money, too. Migrants into rich countries not only
send cash to their families; they also help companies in their host
country operate in their home country. A Harvard Business School study
shows that American companies that employ lots of ethnic Chinese
people find it much easier to set up in China without a joint venture
with a local firm.
Such arguments are unlikely to make much headway against hostility
towards immigrants in rich countries. Fury against foreigners is
usually based on two (mutually incompatible) notions: that because so
many migrants claim welfare they are a drain on the public purse; and
that because they are prepared to work harder for less pay they will
depress the wages of those at the bottom of the pile.
The first is usually not true (in Britain, for instance, immigrants
claim benefits less than indigenous people do), and the second is hard
to establish either way. Some studies do indeed suggest that
competition from unskilled immigrants depresses the wages of unskilled
locals. But others find this effect to be small or non-existent.
Nor is it possible to establish the impact of migration on overall
growth. The sums are simply too difficult. Yet there are good reasons
for believing that it is likely to be positive. Migrants tend to be
hard-working and innovative. That spurs productivity and company
formation. A recent study carried out by Duke University showed that,
while immigrants make up an eighth of America's population, they
founded a quarter of the country's technology and engineering firms.
And, by linking the West with emerging markets, diasporas help rich
countries to plug into fast-growing economies.
Rich countries are thus likely to benefit from looser immigration
policy; and fears that poor countries will suffer as a result of a
`brain drain' are overblown. The prospect of working abroad spurs more
people to acquire valuable skills, and not all subsequently emigrate.
Skilled migrants send money home, and they often return to set up new
businesses. One study found that unless they lose more than 20% of
their university graduates, the brain drain makes poor countries
richer.
Indian takeaways
Government as well as business gains from the spread of ideas through
diasporas. Foreign-educated Indians, including the prime minister,
Manmohan Singh (Oxford and Cambridge) and his sidekick Montek
Ahluwalia (Oxford), played a big role in bringing economic reform to
India in the early 1990s. Some 500,000 Chinese people have studied
abroad and returned, mostly in the past decade; they dominate the
think-tanks that advise the government, and are moving up the ranks of
the Communist Party. Cheng Li of the Brookings Institution, an
American think-tank, predicts that they will be 15-17% of its Central
Committee next year, up from 6% in 2002. Few sea turtles call openly
for democracy. But they have seen how it works in practice, and they
know that many countries that practise it are richer, cleaner and more
stable than China.
As for the old world, its desire to close its borders is
understandable but dangerous. Migration brings youth to ageing
countries, and allows ideas to circulate in millions of mobile minds.
That is good both for those who arrive with suitcases and dreams and
for those who should welcome them.
from the print edition | Leaders
http://www.economist.com/node/21538742