Sunday, August 31, 2014

Melting Pot or Economic Meltdown

Worried about an invasion of migrant workers from the new member states of Central and Eastern Europe, the old EU members have erected high barriers in order to prevent the flow. Despite the open market rhetoric of the EU, for most citizens of the new member states free labor mobility will not be a reality for the next seven years at least.

This is a politically understandable but flawed policy. One of the key achievements of the European Union is mobility of goods and inputs. Without this, what kind of a union would the EU be? Otherwise, what, precisely, do the new countries get out of membership other than the nagging intrusions of the Brussels bureaucracy?

Given the high hopes that preceded ascension to the EU, and the stingy attitude of the Union to its new members, it should not surprise anyone if an anti-European reaction soon starts to brew in these countries. So the cure is as bad as the disease: discrimination against the new members creates political problems of its own for the Union.

The real question is whether there is a disease at all. Should Western Europe really be worried about an enormous flow of new immigrants? In fact, estimates of potential migration flows from East to West are relatively small. According to An agenda for a growing Europe , a report published by Oxford University Press in 2004 for the European Commission, 250,000 to 450,000 workers will go West during the first one to two years, followed by around 100,000 to 200,000 annually thereafter.

Over the first decade, the cumulative number of migrants might amount to between 1.5 and four million, that is, 2.4% to 5% of the total population in the new member states - and a tiny fraction of the total population in the current Union. Aging populations and lower fertility rates in the new member states might result in even smaller flows.

There is another, less obvious, reason why the EU's policy on migration is flawed. As Mircea Geoana, Romania's bright young Minister of Foreign Affairs, recently put it: "If the EU waits another seven or ten years before it opens up, the workers it will receive from my country will be the least qualified, peasants and individuals with low human capital: by then, the doctors, the architects and the engineers will all have migrated to the United States."

Indeed, this is precisely what happened with the Russians: the most qualified have already gone to the US. Europe has been unable to attract much more than a few disreputable oligarchs, who migrated to the French Riviera, and a handful of lively street singers.

Western Europe is increasingly inhabited by aging populations that have lost the incentive and enthusiasm to work hard, take risks, and be ambitious. Without an inflow of new blood and new ideas, the old Continent's economic future looks bleak.

Just look at the US: where would America be if it had introduced barriers to entry to various waves of new immigrants and remained confined to Anglo Saxon settlers? To be sure, managing a melting pot is not easy, and many of America's social problems are related to difficult race relations. But New York and Los Angeles, the two most ethnically diverse cities in the US, are also America's leaders in business and in the arts. Nothing comes easy in this world: if the Union cannot manage a multicultural society in Europe, then it ought to prepare itself for permanent stagnation.

So long as the Union's borders remain closed, there is also a risk that foreign investment will fly over Western Europe and land in Central and Eastern Europe, where people are willing to work longer hours, market regulations are less intrusive, and human capital is relatively high, because Communist schools were good at technical training. These countries have opened their markets to foreign investors - and foreign investors are responding eagerly.

Given Western Europe's growing need for labor in the years ahead, the question is not whether to have immigration, but only where that immigration is going to come from. Will it be the legal immigration of easily assimilated people from Central and Eastern Europe, or illegal immigration from the Maghreb?

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