By W.A Wijewardena –
A world with free migration
During the discussion time following the presentation of a paper by former diplomat Tamara Kunanayakam on the invasion of Sri Lanka’s economic policymaking by neoliberal economic thinkers two weeks ago, Colombo University’s economics don Lalithasiri Gunaruwan made a very pertinent point regarding the need for a two-way free migration of people across the world.
He argued that the Western world is asking the emerging world to open up their economies for free movement of capital and labour from the former to the latter. But, when the labour is to move from the latter to the former, they impose all kinds of restrictions to such labour. Hence, capital and labour movement is one way; as a result, he opines, it benefits only those in the West and not the peoples of emerging nations.
A critical review of Tamara Kunanayakam’s paper was made in a previous article in this series.
This article is devoted to analysing Gunaruwan’s key point to ascertain its relevance to the emerging world, and in particular to Sri Lanka.
Man is born to migrate to new lands
For about 70,000 years, the modern man who is called Homo sapiens has been migrating freely from land to land and settling down in new territories without any objection or impediment. This system continued till the World War I in 1914 benefiting migrants as well as their hosts, if those lands had been already inhabited by Homo sapiens. Migrants were able to restart a new life, while those who had already been there were able to acquire new knowledge, culture, technology, religious faiths and so on.
Sri Lanka has been one noted beneficiary because its culture, faith, science and technology, etc. were nourished by those migrants for thousands of years. But this was to end abruptly after World War I.
Restrictions on migration are relatively new
The influential British economist of the 20th century, John Maynard Keynes, in his 1919 book on The Economic Consequences of the Peace has vividly explained this change from good to bad.
Referring to a typical Londoner before 1914, Keynes had noted that such a species at that time could “secure forthwith cheap and comfortable mode of transit to any country or climate without passport or other formality”. In this manner, the vast empty lands of Americas were filled by migrants from Europe and Africa. Those from the former did so voluntarily, but those from the latter were transported to Americas against their will.
Keynes had noted that this liberal accommodation of foreigners in new lands helped both the newcomers and their hosts equally. Newcomers had converted the empty barren lands into flourishing agricultural fields thereby producing a surplus of foods and other agricultural produce to be exported to Europe. Around that time, people in Europe had been frightened by the possibility of starvation and death due to a shortage of foods, because its production was expected to lag behind the faster growing world population.
It was a scary expectation and the author of that scary story was the British scholar Thomas Malthus who published it in a book titled ‘An Essay on the Principle of Population’ published in 1798. Keynes had equated Malthus’ prediction to loosening of Devil into society. But that Devil, Keynes had noted happily, was chained by the increased food supplies from Americas to Europe, thanks to free migration policy.
This also helped Europe to release more people to produce industrial products to meet the growing needs of Americas. Thus, liberal migration was a ‘win-win’ for all. But, that was to change after the World War I due to restrictions on migration imposed by almost all the nations in the world acceding to the popular demand coming from their own citizens. In this new world order, migration was also like the motive of the old mercantilist policies: other nations should accept your citizens as migrants but you should impose restrictions on those who are to come from those nations.
Advocating a two-way migration practice
The issue raised by Gunaruwan was that there should be complete parity with respect to movement of people from one country to another as a factor of production. In simple terms, what it means is that if USA wishes to send its experts to Sri Lanka for employment, it should be ready to accept Sri Lankan people too for employment in return. If this parity is maintained, it appears that Gunaruwan does not have objection to free migration.
But, USA, as a nation, has imposed numerous restrictions on the inflow of workers from developing countries. It is not a free flood of migrants as it had allowed from its early days to about the first two decades of the 20th century. Today, it is the skilled categories that are permitted but in those categories too, they are accepted only after the workers are carefully screened with respect to the country of origin, level of qualifications, past criminal records, medical fitness and recommendations from prospective employers.
After Donald Trump became the President a year ago, this has further been restricted. Other developed countries in the world too have followed a similar policy with respect to international migration. Even the countries like Canada or Germany which accommodate refugees liberally have imposed strict screening standards when it comes to accepting applications from general migrant workers. Hence, what is being advocated today is for the establishment of a system that allows free movement of people from one country to another.
Free migration practices are also liberal thinking
Strangely, this view is liberal economic thinking. According to this thinking, the world becomes a happy place for everyone if factors of production – land, labour, capital and enterprise – could move to places where they can be engaged most productively. It helps the factor concerned as well as the user of that factor to produce the highest output possible.
Suppose I use only my hands to prepare my paddy field. It takes me a long period to prepare the land manually and by the time I finish it, my cultivation season may have been over making my efforts totally fruitless. On top of that, the sheer manual work would have completely exhausted me beyond recovery.
Now suppose that someone with a mammoty comes to my paddy field and I engage him to prepare the land. He represents labour, capital and technology. His engagement will help me to prepare the field in double quick time and I manage to cultivate it before the season is over. I now produce an output and it is still profitable for me to share it with the person who brought me labour and capital. Hence, the migration of factors of production is beneficial to me.
This general observation which is relevant to me is relevant to a firm, a nation and the whole globe. Hence, free factor mobility will help the entire globe to reach a higher level of output and it is beneficial to everyone.
Balassa effect: Young from poor to rich and old from rich to poor
But, how is the flow of migration between different nations determined? It was Hungarian-American economist Bela Balassa who came up with a plausible explanation based on differences of purchasing power among nations.
Purchasing power parity or PPP indicates that free international trade allows prices in two markets to be equal to each other which economists call ‘the law of one price’ and if there is any difference, that could be due to transportation costs. However, Balassa found that even with free trade of goods that are presented to international markets – called ‘tradables’ – there are many goods that are not presented to international markets – called ‘non-tradables’.
An example is the services such as a haircut of which the price is higher in rich countries than in poor countries. For instance, a Sri Lankan can have a quality haircut for $ 5; but an American will have to spend about $ 25 for the same haircut. Thus, a high proportion of tradables make incomes of rich countries higher than those of poor countries. Non-tradables make their prices also higher than those in poor countries. This gives incentives for international migration.
Accordingly, young people in poor countries have incentive to move to rich countries, work for some time and return to their motherlands with an accumulated capital. Similarly, old people in rich countries who get a fixed income in their own currencies have incentives to settle down in poor countries so that they could enjoy a higher living condition. In the case of the former, it happens whether there are prohibitive legislations or not.
Young people of poor countries move to rich countries illegally for illegal employment. There is a significant number of such illegal workers in South Korea, Japan, Malaysia, Singapore, Italy and USA. Since such illegal workers make a valuable economic contribution to their national economies, even the governmental authorities pay a blind eye on their presence.
But the old people cannot come and settle down in a poor country illegally and they have to come via official channels. What this means is that though rich countries may have not opened the door formally for migrant workers, they nevertheless work illegally in large numbers.
Professionals in rich countries have no incentive to flood poor countries
This exposition also explains why the professionals in rich countries have no incentive to flood poor countries unless they are paid the same salary they get in their mother countries. This has been one of the contentious issues raised by professionals in Sri Lanka against the recently signed Singapore-Sri Lanka Free Trade Agreement. Economic theory says that they need not have such a fear.
If any Singapore citizen chooses to work in Sri Lanka, it would be only in the case of occupations that carry the same high salary levels as in Singapore. That can happen only in the case, as the agreement has provided for, of employees of the same company working in a branch of the company setup in Sri Lanka. These are called ‘intra-corporate’ transfers of workers because it is the same company involved in moving people from Singapore to Sri Lanka. It appears that Sri Lankan professionals have mistakenly identified these intra-corporate transfers as ‘inter-corporate’ transfers.
Restrictions are to promote illegal migrations
Thus, international migration of workers takes place both legally and illegally today. In both cases, a migrant worker has to face a significant risk about employment, life, working conditions and regular payment of salaries etc. It is the responsibility of the host governments to help migrant workers to face these risks, but in the absence of a proper governance structure, this does not happen as expected. To fill the gap, the UN body – International Organisation for Migration or IOM – has now stepped in.
A blueprint on migration governance
According to Shantha Kulasekara, Head of Governance at the Sri Lanka Office of IOM, a blueprint and a work plan for establishing a governance structure for migrant workers have now been completed by IOM.
“We’ve already released a short version of our blueprint,” says Kulasekara. “But the longer version of the blueprint is now almost ready for submission to Sri Lanka’s authorities. If it receives their acceptance, IOM can help Sri Lanka Government to establish a proper governance structure in Sri Lanka which will help the country to accommodate foreign workers as well as send its own workers abroad.”
Sri Lanka should promote both inward and outward migrations
Kulasekara in fact foresees a two-way mobility of workers in Sri Lanka in the future. This is the worry which the Colombo University don Gunaruwan has.
Kulasekara further explains his point: “Sri Lanka’s future economic prosperity will depend on whether it could build a critical pool of talented and creative workers. Right now, its educational institutions or professional bodies have not been able to satisfy this demand. Hence, there is a gap in what is needed and what is available. Countries with such gaps have temporarily filled them by attracting foreign workers. Sri Lanka too has to follow this path, if it is desirous of delivering prosperity to its citizens.”
Kulasekara continues: “At the same time, it is high time for Sri Lanka to revisit its practice of sending unskilled and semi-skilled workers abroad. They have created a labour shortage in Sri Lanka. On top of that, those occupations also earn low salaries. Hence, Sri Lanka’s out-migration should be only branded categories. Similar policies have been adopted by India which has branded its out-migrants to IT specialists and the Philippines which has branded it to seafarers.
“These are the occupations for which these two countries have a comparative advantage. Besides, India wants its IT specialists to return to the country with an accumulated wealth of experience and exposure. That will be the future critical talent pool of India to take the country along the development path. Sri Lanka’s brand is hospitality and services such as accounting and finance. Though Sri Lanka’s national average of unemployment is about 4%, the unemployment rate among the young categories is about 20-25%. These young categories should be trained in the new branded occupations and allow out-migration for a temporary period.”
Migration policy should have the blessings from the top
Kulasekara says that it is a task which the Government has to accomplish with blessings from the highest level. Presently, the Government’s responsibility in this area has been diffused among a number of public institutions. It is therefore necessary to create a central body to look after this work. A possible candidate would be the Ministry of Finance which has an interest in delivering prosperity to Sri Lankans through its financial plans.
*W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at email@example.com