M. Demetrios Papademetriou : IMMIGRATION AND COMPETITIVENESS AT A TIME OF RECESSION




In the past decade, globalization and the constantly deepening interdependence it has nurtured for more than a quarter of a century has been the prism through which most analysts and policymakers have viewed the world economy and increasingly many of its non-purely economic interactions. The freer movement of production factors, including people, has been the dominant paradigm. And as is typically the case when a paradigm is dominant, evidence of a possible paradigmatic shift has been deeply discounted.

Yet challenges to the perceived wisdom have kept mounting. These include the repeated failures of global trade talks and the US Congress’s unwillingness to approve trade agreements negotiated by the US administration; growing concerns about rising inequality both within and across nations; and the concomitant failure of an increasing number of high- and middle-income countries to address the concerns of globalization’s many losers. In the midst of all these challenges, more and more countries have entered the “game” of identifying and attracting foreigners with the human capital they need and the interest in a career and/or life abroad.

The analytics supporting the case for greater openings to and movement of skilled and highly skilled immigrants have been clear. Skill and locational mismatches have been significant and rising. Concerns about worker shortfalls, both actual and impending, have been growing — with actual shortfalls most evident where robust growth outpaces the ability of local populations to fill jobs the economy creates while impending ones reflecting the workforce-shrinking effects of fast-aging populations and a new-worker pipeline made shorter by low and very low long-term fertility. And completing this picture are the persistent failures of educational and workforce-preparation systems in most economically better-off countries to produce the workers competitive economies require. No wonder, then, that the case for looking to immigration of all types for economic growth and competitiveness has been strong and its adherents politically ascendant.

Yet, the economic landscape has been shifting for a while now. The housing and other excesses of the previous few years in the United States and elsewhere precipitated a deep financial crisis whose effects spread into the real economy. This requires that we focus more on the economic downturn’s likely effects on the choices that governments, the people in immigrant-receiving countries, and immigrants themselves would likely face in the near to mid term. The basic question is this: Considering the dramatic shift in economic fortunes since the fall of 2008, how should one understand the analyses and judgments about immigration that have been made in the last few years?

The overall answer is one of caution. The sometimes extraordinary—even irrational— exuberance about international migration of the last few years — reflected in the remarkable, and sometimes indiscriminate, openings to it — have not been always particularly well thought-out. Unsurprisingly, most of the countries that engaged in this exuberance are facing difficult policy and political choices as un- and underemployment fuel the urge for “beggar thy neighbor” labor-market policies that seek to protect the jobs of domestic workers above all else. By the same token, however, the pessimism that now has many countries in its grip — and seems to be arguing for the equally indiscriminate closing down of opportunities for international migration — is not any more warranted than the enthusiasm that preceded it. The increasingly apocalyptic view that the international system that globalization built may be going into an irreversible decline may in fact prove to be no better a policy counselor than the “let the economic good times roll” approach it followed. In fact, international migration is neither the panacea nor the cause of so many of society’s ills as advocates on both sides of the issue argue.

The evidence of globalization’s retreat is certainly sobering. Forms of economic nationalism, a force that is more troubling and by all accounts more difficult to reverse than “ordinary protectionism,” are already in evidence — not least in the “buy American” provisions of the February 2009 US economic stimulus package. Retaliation, rather than waiting for a decision from the World Trade Organization (WTO), might become a preferred course of action as the employment effects of the recession deepen. And Japan, Indonesia, France, the United Kingdom, the European Union and many others are opting for unilateral actions intended to protect their markets and direct economic investments inward while some analysts see rising pressures for competitive currency devaluations.

The economic contraction numbers are dramatic. After a decade of average global growth of between 4 and 5 percent, growth for 2009 is projected to be near zero; world trade is set to decline this year for the first time in 25 years; year-to-year foreign direct investment dropped 10 percent in 2008 while capital flows are projected to be 80 percent lower in 2009 than they were in 2007; and the GDP across key global economies dropped during the last quarter of 2008 and the first quarter of 2009 at annualized rates that are nothing less than dramatic.

While the short- to mid-term economic future hinges on a number of interrelated unknowns — such as how deep, how long, and how widespread (both across economic sectors within national economies and across nations) the recession will be — the evidence indicates it will be the most severe in many decades. The United States lost 2 million jobs between December 2008 and February 2009, with the unemployment rate rising to 8.1 percent — 3.3 percentage points more than in February 2008. Unemployment rates across all countries that make up the Organization for Economic Cooperation and Development (OECD) grew from 5.6 percent in January 2008 to 6.9 percent in January 2009. But this overall number masks stark differences that illustrate as much the uneven effects of the economic crisis as certain governments’ so far successful efforts to work with employers to contain employment losses. Spain's unemployment rate rose from 9 percent to 14.8 percent, and Ireland's grew from 4.7 percent to 8.8 percent between January 2008 and January 2009 — but the rate for Austria and the Netherlands showed no change (both countries have low unemployment rates) and Poland’s rate decreased from 8.0 percent to 6.7 percent during the same period.

What to do about immigration in response to the economic crisis is not immediately obvious. One thing is nonetheless essential: political leaders must exercise deep policy judgment and exhibit leadership skills on this issue that, in the past two decades, if not longer, have been notable mostly for their absence. Whatever the course of action, policymakers must keep in mind that much of the evidence on which openings to immigration were premised will not be made irrelevant by the economic downturn — although both its timing and some of the underlying analytical assumptions will need constant review. For instance, knowledge-intensive jobs will continue to underpin economic growth and competitiveness and not all of these jobs will be able to be produced by any single country’s educational and workforce development system — or filled by domestic workers even with sharply refocused efforts at training and retraining efforts. This reality alone suggests that policies that attract the most talented — those whose human capital will be essential to strengthening already competitive firms and building up an economy’s strategic growth industries, as well as those with scarce skills — will remain as relevant in the current economic climate as they were during the recent period of strong economic growth. In fact, they are likely to become even more relevant. The lesson: this is definitely not the time to fall into the grasp of economic nationalism’s siren song of stopping immigration or discriminating against immigrants already in our midst; fundamental issues of rights and equity, as much as economic logic counsel against such actions.

The better-skilled immigrants who have been at the center of recent openings to immigration — but also so many of the lesser skilled yet no less economically essential ones — have made significant contributions during the good economic times and, for many countries, have been indispensable to growth. When economies stabilize, better-skilled immigrants will again be seen as the valued economic assets they typically are. Most importantly, while the economic contraction will force many of us to rethink our assumptions about retirement and the degree to which we might be able to rely on government for the social supports that once seemed guaranteed, demographic reality will still be there. The problem of aging populations will not have disappeared, and the implications of certain countries’ persistently low and very low fertility for the vitality of labor markets will not be any less striking.

Moreover, the new economic context makes the relevance of the discussion about the nature of economic competitiveness even stronger. Long-term competitiveness rests on the choices and investments public and private sector policymakers and individuals across the board make in a wide array of policy domains. Education and workforce development are at the very center of that nexus. But both must be supported by thoughtful choices about social protections that put work front and center; a social environment that values and rewards lifetime learning; social institutions that adapt to constantly shifting economic environments without losing sight of their principal missions; and relationships between the government and the private sector that encourage and reward the private sector’s socially responsible actions while ensuring that government understands the need for social and economic policies that promote economic growth and competitiveness in all its complexity.

And when growth returns, many of the considerations on which countries have based their immigration decisions in the past will still be at the core of their decision making.

• Values and social responsibility will still define their behavior;

• Adhering to international obligations will not be any less important;

• Economic logic will not have been turned on its head;

• Locational and skill mismatches will continue to exist; and

• The rate at which the developed world is aging will only be increasing while more and more of the developing world’s youth will be coming of age.

In closing, whether countries will be ready to get the most out of skilled (and all) immigration once the current contraction bottoms out will be shaped by the policy choices they have made in the interim. Three sets of issues will be most relevant.

The first is how sophisticated they have become in integrating immigration policy into the society’s and the economy’s other policy priorities without the artificial pressure that the rhetoric of scarcity had created — and how systematically they have learned to use evidence about successful immigrant integration in setting their immigration policies.

The second is how smartly and deeply they have invested in the social, cultural, and economic integration of their foreign-born populations and their offspring — and what the results of these investments have been. The third is how successful they have been in controlling the intolerance and political reaction toward immigrants that the economic downturn is sure to have exacerbated.

Demetrios G. Papademetriou

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