A new angle on the migrant crisis: Is it time for the EU to fund a new Hong Kong?

11 Sep

If over 10 million migrants started off to Europe we would probably need new and bold solutions. This is one such idea.

The ongoing migrant crisis is dividing Europe and generates great passion and debate. There are many moral and practical questions, but this post will not deal with those. Rather, it will deal with the potential issue of what could be done if there would be a large number of migrants, 10s of millions, and solidarity would wane even in rich countries. Is there only the binary choice of “let them in” or “keep them out”?

pic1Free trading city-states are not new in Europe… Picture source: Britannica.com

The preferences of target country populations would surely change with the number of migrants. However unjust it may seem, people are more accepting in the case of one million migrants than in the case of 10 million. And 10 million is not a completely impossible number: in Syria, Iraq, Yemen, Afghanistan and Libya there are altogether about 120 million people. All these countries are suffering from some combination of war/civil war/dictatorship. Additionally, Egypt has another 90 million people, and there is no guarantee (to put it mildly) that the current military dictatorship will be able to improve living standards and prospects. And then we have not mentioned other countries in Africa, where living standards are reaching the stage when the middle class can afford the cost of migration, yet their relative income is still very low compared to rich country standards – a perfect combination for migration (see this paper for more detailed arguments).

Aging continent nervous about its privileges

The assumed 10 million immigrants of course would only be about 2% of the EU’s 508 million total population. And the working age population of the EU would shrink by 17 million in the next 10 years without immigration. But even then, it is easy to imagine a situation when the EU as a whole does not want to allow in more immigrants. In this hypothetical case, would there be a solution that is morally acceptable, practical and politically feasible?

This future potential problem could be summarized from the point of view of many of the well-off EU citizens as follows: “Dear immigrants! We have a relatively good standard of living here in Europe. What is more, we do not even like if someone living here does not have at least a minimum living standard. For that reason we have welfare systems as well. This is not India, where the rich can step over the starving poor, and this is not even the USA. But we also have a problem with our labor markets, they don’t function especially well in many places (we told you this is not the USA!). Even people already living here fear for their jobs and standards of living, and many of them are unemployed or on social support. Our guess is that you would end up in the same situation: marginalized, living on welfare and not integrating. So that is why we think you should not come here, believe us, it would be better for both of us. If you are miserable some other place that does not bother us to the same extent than if you are marginalized in Europe. Out of sight, out of mind.” Call this the solidarity paradox.

It is another question if these fears are justified in this form. There are many successful examples of integration, and even in cases when the number of immigrants were way above a few percent of the original population, there was no sign that they hurt the “locals” in the labor market. These examples include the flood of Cubans to Miami and Russian Jews (and non-Jews) to Israel. But on the other hand the integration of France’s population of Arab descent is not an irrefutable success story so far, to a large extent because of labor market problems.

pic2Some countries are better at integration than others… Picture: Vancouversun

Labor markets in Europe should be reformed anyway…

Individual countries (and individuals within countries) of course differ a great deal in their attitudes toward immigration. Also, EU labor markets are not uniform in their structural and cyclical characteristics (Germany for example is in a relatively good cyclical position right now, with low unemployment). But overall Europe is not very good at integrating immigrants into its labor markets and societies. It could learn from places like Canada. And reforming labor markets would worth it even for the sake of native born citizens in many countries where they are not functioning well. Despite the usual misconceptions, there is no fixed number of jobs going around that we need to “share”, and immigrants do consume too. But it is likely that integrating a large number of people would not be a fast process, especially culturally.

Is there a solution that would work even in a shorter run with a large number of immigrants? Maybe the EU should try to establish its very own Hong Kong…

Hong Kong under British rule had a minimal, but strong and relatively well functioning state that guaranteed public safety and property rights and there was a liberal market economy. Hong Kong also had a liberal immigration policy – its population more than tripled in 5 years, from 0.6 million in 1945 to 2.2 million in 1950 as the Communists took over mainland China. It did not have democracy – but there was a British legal system, independent judiciary and a fairly free press. And there was also organized crime and poverty, things are not black and white in real life – but by now Hong Kong is one of the richest countries in the world.

pic3From rickshaws to cars – Hong Kong made the transition…Picture source: quentinlau.blogspot.hu

The idea of establishing new Hong Kongs (or Singapores) is not new. US economist Paul Romer has been campaigning for years for charter cities (the obligatory TED talk is here). The idea is that investors (and/or their government backers) would lease sovereignty over a track of undeveloped land and they would build a new city there, with free immigration and market-friendly policies. So far only poorer countries came up as potential lessors. Right now Honduras is the most likely location for the first experiments, but the project is not without problems and doubts.

EU’s potential economic laboratory

The EU is not prone to conduct libertarian-tinted experiments, but if immigrants arrive in ever larger numbers, this may change. The EU could lease or buy a remote Moroccan seaside area, one of the islands of Cape Verde, or if it prefers something even more remote, St. Helena. The territory would have free immigration, and immigrants would pledge to adhere to local laws, but could not change them. Anyone violating this pledge could be punished/expelled, after due process and a decision by the independent judiciary. Let’s say the laws and the police would be British, the army Danish and business regulation New Zealander (to have some input out of the EU as well). The EU would build basic infrastructure, and cheap labor and a stable legal environment would attract investors.

Any immigrant who is refused a permanent stay in the EU would have the option of being transported to this new city, instead of being repatriated to their own country. But it is likely that most of the immigrants would not be from this group, but people simply looking for a better life from China, Pakistan and elsewhere and coming directly. The EU could decide what kind of basic services it would provide and to whom. Basic health care for anyone under 18? Or everyone? 2000 calories daily in the form of Soylent? Primary school vouchers with competing providers? Private charities could also participate in providing education and health care. With a fair chance, the experiment could eventually be self-financing even with very low taxes. And the appreciation of the land value could reduce costs as well. Think of it as a giant property development project. The EU provides the infrastructure (including legal and institutional), users would come and the EU would profit from the land appreciation.

The whole thing would only be an experiment of course (and there is fairly little chance of the EU actually making it happen), but it would be worth a try. And if it worked, it would not be about welfare payments, but people finding work on the free labor market, and the economy would grow very fast, as it did in Hong Kong. A lot of details would be needed to be ironed out, but this would potentially be a better solution than sending back refugees to their own countries or having them idling in refugee camps, sometimes in miserable conditions. Badly run countries would be forced to face their problems if their citizens could go elsewhere. And who knows, the experiment could be so successful that eventually it could attract migrants from the EU itself – or lead to pro-market reforms there…

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