Globalisation and Immigration: Long-Term Perspectives for New Zealand

New Zealand Association for Migration and Investment

Annual Conference

Globalisation and Immigration:

Long-Term Perspectives for

New Zealand

Wolfgang Kasper

PROFESSOR OF ECONOMICS AUCKLAND

UNIVERSITY OF NEW SOUTH WALES 28 MAY 1993

GLOBALISATION AND IMMIGRATION:

LONG-TERM PERSPECTIVES FOR NEW ZEALAND

I always appreciate invitations to come back to New Zealand - even more so in recent years when the rewards for bold, comprehensive macro- and micro-economic reform are gradually becoming apparent.

I must admit that, as a longstanding advocate of comprehensive economic reforms, the economic performance of New Zealand had me worried for a while. But then, no other country had ever attempted to deregulate markets all round whilst re-regulating the labour market and retaining a dirigiste, self-centered immigration policy.

Fortunately, we can now conclude from the New Zealand experience what we knew all along, namely that a more dynamic growth potential depends crucially on reforms that spare no sacred cows, including labour markets and rules on international migration.

When thanking you for the invitation to speak, I must add that I am greatly indebted to the New Zealand Business Roundtable for having got me here. In 1990 they commissioned me to do a report on New Zealand immigration policies. So, allow me - in this era of impressive internationalisation of New Zealand - to engage again in some international trade in ideas, bringing an internationalist perspective to your debate.

A final preamble is that this talk is concerned with permanent migration, but I have always admired New Zealand's enlightened policies for short-term immigration, for example of business people and tourists.

Globalisation

Immigration policy is of fundamental importance to society. It affects much more than labour markets and the economy. It may determine who your neighbours will be and what your grandchildren look and think like. It is therefore wise to step back from the petty detail and to keep in view the big picture of global, historic trends as they are emerging in the run-up to the 21st century. The dominant facts that we must not lose sight of, it seems to me, are these:

• The world's population has grown this century by 370 percent from 1.7 billion to 6.3 billion people. By 2025, we can expect 8.3 billion people to live on this planet, well over half of them in Asia.

• Far from signalling an end to human civilisation and a decline into terminal misery, 20th century population growth has been accompanied by an unprecedented improvement in living standards and food supplies for most of our fellow human beings. Living standards have dropped for sizeable periods only because of wars, socialism and anarchy, most recently, for example, in some ex-socialist countries and in Africa. The overall track record bears witness to the triumph of human intelligence. It is the result of working, forming capital, learning and trading - all driven by the human spirit of enterprise.

• Towards the end of the century, nation states and national borders, inventions of the late 18th and the l9th centuries, are becoming less important again. Borders can no longer restrain economic exchange. World commodity trade has grown at more than twice the rate of global production, and services trade much faster still. Capital, highly skilled people and enterprises now move fairly freely throughout the core of the global economy, almost as if there were no borders. Ideas and finance travel unhindered by phone and fax. A tribe of truly global business people has emerged. And we observe a reassertion of the instinct, which is older than humankind itself, to migrate to new locations in search of new life opportunities. Since life on earth began, learning and migrating have probably been the two key mechanisms to overcome, time and again, the entropy of closed, settled systems. No wonder international migration is on the increase.

What is new in our age is the phenomenon of globalisation. Certain production factors are becoming increasingly footloose across old and new industrial countries. Thanks to dramatic drops in transport and communications costs, the owners of capital, ideas, specific technical and managerial knowhow and of entire firms are now shopping around for the location that offers them the best return. This means that the owners of those production factors that are tied down in a location or country - mainly land, unskilled labour and government administrations - have to become internationally competitive in order to attract and retain wealth-producing mobile capital, ideas and skills.

Globalisation - the growing international mobility of certain production factors - has important consequences for government as one of those production factors that cannot move about. Government administration can raise or lower the productivity and rate of return of other factors, like capital. A muddle-headed, arbitrary, corrupt government depresses the rate of return to capital and innovative ideas, just as clear, transparent administrative rules and efficient infrastructure are capable of raising the rate of return for capital and skilled people.

The international mobility of capital and skilled people is now making an increasing impact on the way governments can conduct themselves. It limits arbitrary rule wonderfully. Let us not forget that the great historic discontinuity of this decade, the demise of totalitarian socialism, is a result of globalisation: when skilled young East Europeans with their children migrated to the West, the Berlin Wall came down.

We can now observe that good governments, which are prepared to compete internationally and which put good administrative packages together, are attracting growth-enhancing mobile resources and are, in the longer term, increasing their tax base even if they ask for low tax rates. They are able to offer excellent physical infrastructures, as well as excellent law and order, defence, and macro-management. The Singaporean, Taiwanese, Malaysian and more recently some Latin American governments have taken the challenge of globalisation head-on and, as we know, they are succeeding splendidly. On the other hand, inward-looking, self-serving bureaucracies, and democracies where the electorate has not yet woken up to the challenges of globalisation (such as Russia and Australia), are losing mobile production factors, and with them economic growth and job creation opportunities.

Accepting the challenges of globalisation is particularly hard for countries with longstanding inward-oriented policies and located on the periphery of the global economic system, like New Zealand. It means that such countries have to work so much harder to benefit from globalisation. But the signs are that New Zealand is on the path to success. Fortunately, the centre of gravity in the global economy has shifted to the Asia-Pacific region and closer to home, which helps. Nevertheless, the challenge to adjust is still considerable, and there is a great need for institutional and attitudinal innovation. Government administrations have to switch from being prescriptive rulers to becoming support organisations for internationally competing companies and workers, and labour organisations have to adjust to competing on wage, productivity and quality with the best in the world. In those circumstances, petty confrontation with the bosses is extremely costly. It has to give way to a partnership to beat the world.

Originally immigration was attracted 'Downunder' by high wages and comfortable work and living conditions. Now, under conditions of 21st century globalisation, immigration is about attracting human capital, physical capital and enterprise by offering productivity growth, high returns and a good quality of life. This epochal switch requires considerable mental adjustments, both in the population and amongst those who shape policies, including immigration policy.

Migration

On the whole, unskilled people cannot be considered mobile on a global scale. Cultural and family ties, the costs of relocating and border controls inhibit easy international migration. Nevertheless, the new migrations of the 1980s and 1990s are making headline news and are shifting national political attitudes. This is not only true of a prosperous Europe that sees itself inundated by Africans, Bosnians and Russians, but also newly-prosperous Malaysia which is attracting poor, illegal migrants from Indonesia, and Japan which finds it increasingly hard to maintain its cultural homogeneity. In societies with a long tradition of varied immigration, like Australia or the United States, immigration and the adjustments to new arrivals seem less of an issue, even when migrant numbers are relatively high. In the 1980s, the United States, for example, admitted some 570,000 people annually; another 100-300,000 were coming in illegally. Faced with growing migrant numbers, I expect most nations to tighten border controls, probably often without much success.

Despite the growing obstacles, the number of potential migrants around the world must be increasing dramatically. Globalisation, the communications revolution and an increasingly good education have enabled many people to think about the life opportunities beckoning elsewhere. An increasing share of the rapidly growing population in the Third World now has the knowledge, financial means and motivation to move. If only one-quarter of one percent of all Asians and Latin Americans were to migrate to more affluent countries each year, annual migration would amount to some 10 million people.

Put this together with growing immigration restrictions in many well-to-do countries, and the few countries that are still open to mass immigration face a very large potential for attracting immigrants. You may have seen the television pictures from the Argentinian embassy in Bucharest after Argentina announced a demand for agricultural workers. The embassy was overwhelmed by tens of thousands of applicants.

New Zealand is one of the very few countries that are opening up to more immigration. The community of about one twentieth of 1 percent of the world's population who currently happen to be New Zealanders have signalled that they want to co-opt more people from elsewhere. Since they live on far distant islands, illegal migration is difficult. With a stable democratic government and a reformed, outward-oriented economic policy now offering an increasingly attractive location for enterprising people, they are able to be selective.

Benefits and Costs of Immigration

The question is what criteria New Zealanders should apply in the selection of future migrants. It is my view that any sovereign society has a right to put the enlightened, long-term interests of its members first. This does not preclude some immigration on genuine humanitarian grounds, for example admitting refugees. But humanitarian immigration will always remain a gift which costs the country considerable resources for a while. Therefore, the bulk of the immigration programme will only have popular support if the resident population sees the advantages of increased immigration.

It is only natural for sizeable and broad-based immigration to meet with some popular scepticism:

• New migrants will not integrate completely. They will challenge traditional ways of life and doing business. This can be a source of great cultural enrichment, as we have observed in Australia, but may sometimes be unsettling to traditional residents.

• Nations own many assets collectively. I am thinking not only of tangible property, such as schools and roads, but also of free goods, such as access to nature and empty spaces. If new people arrive from elsewhere to join in, these collectively owned assets have to be shared around amongst more people. Indeed, some free goods may all of a sudden be rationed by price, going the way of free parking in central Auckland. The suspicion is that the new arrivals may not help sufficiently to finance the additional man-made assets that are required.

• Nations have developed certain institutions which cut down on transactions costs. Thus, shared customs and habits, widely accepted ethical standards and law and order are valuable institutional assets. Newcomers may not respect the 'traffic rules' or may simply not know them. The resulting challenges to this 'soft infrastructure of society' may create new costs, although some such challenges may be useful to rejuvenate the 'soft infrastructure' and to create new social competition.

People who argue for stepped-up and wider immigration, like the NZAMI, should recognise these potential difficulties and help to minimise them (a point to which I will return). And they should advertise the benefits of more immigration.

The old argument in favour of immigration - embodied for example in Australia's slogan 'populate or perish' - was that more migrants offered bigger markets to industry and existing employees and added to the labour force, keeping wages down. In the era of internationalisation, these arguments carry little weight. The relevant market for New Zealand producers now is the world market, and New Zealanders can obtain labour-intensive inputs by importing. Keeping wages down only means stagnant incomes - and nowadays that would seem to have little attraction for New Zealanders.

In an open, enterprising and achievement-oriented New Zealand, the potential benefits of immigration are nevertheless considerable.

Firstly, in the era of globalisation, no country - not even remote islands - can stem immigration pressures in the very long run. It is infinitely better to encourage population growth by controlled, gradual immigration, with a chance for integration and cross-fertilisation, than to be faced one day by the prospect of conquest or illegal gate-crashing.

Secondly, as long as New Zealand was pursuing a policy of welfarism and statism, massive immigration was a threat to the established way of doing things. But the economic and social changes have now created an atmosphere in which 'imported human assets' can stimulate the process of competition, innovation and openness. This has been at the root of the unprecedented growth of the global economy throughout this century, and it is now beginning to take hold in New Zealand. There is no better way of adding new ideas, new knowhow and new productive approaches than importing them embodied in new fellow citizens. Resident New Zealanders get a great new chance to learn from migrant success stories, often by association and informally. This leads to cultural enrichment and a better economy from which all are able to benefit.

Let us not forget that immigration is not only about adding hands and arms, but also about adding brains and ideas. After some adaptation and integration, the new assets tend to become useful to residents of long standing. In a fairly static, agrarian economy, more people may have meant lower living standards (the Malthusian vision), but in the modern, knowledge- and skill-driven world, the social instincts of the trading cities apply: the more competitors, the more trade will flourish.

Thirdly, considerable economic research has shown that immigration raises the rate of return for resident owners of land, capital and skills. Established supermarkets and other investments benefit as much as established school teachers, engineers and other skilled people from the influx of new demand and from the presence of new colleagues and competitors.

Fourthly, young immigrants help to slow the aging process. This not only raises the living standards of future pensioners, who want a good return in their old age from the assets which their generation created here, but also helps the government's budget. As long as new immigrants find work and are not seduced into drawing heavily on public welfare, immigration tends to add more tax revenue than it absorbs in public expenditures. I am not aware of New Zealand data, but United States estimates suggest that the average immigrant family pays more taxes and draws fewer government services than resident families, to the tune of US$2,500-3,000 per annum.

Finally, it is my feeling that a culturally and ethnically more diverse and open New Zealand would be more stable than one with only two distinct groups facing each other. Where has government-endorsed biculturalism ever worked?

Migration Policies to Enhance the Net Benefits

These arguments need selling to the general public if a substantial immigration programme is to enjoy sustained support, as Australian experience has shown. The most valid argument, of course, is when ordinary citizens reach the conclusion from their own experience that good people have been coming in. From what I hear this seems to be generally the case here. In the New Zealand of the l990s, which has switched from the failing dream of a pleasant, safe haven to a vision of enterprise and competition on the global scene, the growth arguments for immigration can be sold more easily. This is particularly so as the enhanced economic make-up of New Zealand is found increasingly attractive by intelligent, mobile and enterprising people from the Asia-Pacific region and elsewhere, as reflected in the rising cut-off on the point score to qualify for immigration. I would interpret this as an indicator that New Zealand is on the right track in its overall reform strategy, and that you are attracting an increasingly impressive calibre of migrant.

But, in addition, immigration policy should be shaped and designed to ensure that popular reasons for scepticism are addressed and the benefits to resident New Zealanders are maximised. In my opinion, the new immigration policy goes in the right direction. It would probably be sensible to let things settle down in order to learn from the experience, though the new system could do with some administrative streamlining, and more people might well be admitted.

One aspect of immigration that appears to have worked out well is the relationship between the profession of immigration consultants and the Immigration Service. As I would have expected, greater openness to the world leads to cooperation in the shared interest of promoting the country on the global scene. The challenge now for migration consultants will be to ensure high professional standards. Failing this, the usual consequence is the external imposition of regulations (as in Australia). But I have yet to see an instance where a profession has benefited from bureaucratic surveillance.

It may be useful for immigration professionals to reassert explicitly some basic principles underlying immigration policy.

• One explicit aim of immigration policy should be eventual integration, not to turn everyone into clones of current residents. New Zealanders will have to ensure that old and new residents alike share a basic commitment to time-tested customs, laws and order. I would certainly retain English language skills as an important test of eligibility to immigrate. Taking a scatter-shot approach to seeking new migrants everywhere in the world would increase the transactions costs of a programme of immigration and integration. There is a fine line between diversity and socio-ethnic polarisation which New Zealanders should keep in mind. It is not a matter of forcing people from different backgrounds together, but policies of subsidising ethnic differences (as observed in Australia) are potentially costly.

• People with more education and those from backgrounds with an integration-friendly, open social tradition, like the European or Chinese civilisations, tend to adjust better and contribute sooner after their arrival to overall growth and competition. The same holds true for relatively young people. These categories are most likely to assist with building a competitive, growth-oriented New Zealand and easing budget and pensioner burdens. There is nothing wrong with biasing selection in this general direction.

• When one comes to more precise selection criteria, selectors of immigrants face a dilemma. They cannot evaluate different applicants for immigration like different products in a shop before making a rational purchase decision. The value of immigrants to New Zealand will only be known (including to themselves) after they have settled and tried to make a success of their lives in the country. Going by proxies or engaging scrutineers to 'pick immigration winners' rarely works.

In my opinion, the best way of biasing the outcome in New Zealand's favour would be to test the immigrants' self-confidence and to enhance their commitment to success in New Zealand by charging them an 'entrance fee', for example by advertising worldwide that a given annual number of settlement rights will be auctioned off to the highest bidders. Intending settlers would have to submit information to prove that they met certain criteria (e.g. on education, language and health), together with a sealed bid indicating what they were prepared to pay for the settlement visa. I made a case for such a system in my report for the New Zealand Business Roundtable and will not repeat it here, except to add that the emerging New Zealand economy of the early 1990s makes such an innovation much more feasible.

Conclusion: How Many Settlers?

Let me conclude with a word on the target number for new settlers in New Zealand, because the size of the influx will greatly affect the acceptability of the immigration programme, and the acceptability of new migrants will be greatly affected by the size of the influx.

Over the next generation (say, 1990 to 2025), the world's population will rise by some 1.3 percent per annum. Most projections of New Zealand's population growth that I have seen seem to imply growth rates of only half that global rate. This would mean that New Zealand, a fairly empty land (with a current population density of 12 inhabitants/km2), would in future be home to an even smaller proportion of the world's population.

The New Zealand Association for Migration and Investment has, of course, been much bolder, speaking of a target population of 5 million by 2010, which implies an annual population growth rate of 2 percent. I consider this a realistic target, but one that requires a sizeable lift in immigrant numbers.

Assuming that the cultural interest and the economic opportunities in New Zealand over the next 20 years are such that out-migration comes to a standstill (a realistic assumption in my view), and that the natural population growth rate over the 20 years from 1990 to 2010 settles down to about 0.6 percent p.a., the population in 2010 would reach only 3.8 million. To meet the NZAMI target, New Zealand will have to acquire well over 1 million people from immigration, either directly or indirectly as additional children of migrants add to the population size. This probably means an annual average intake of new settlers of around 40-50,000. In other words, with the current annual target for new arrivals of 25,000, the NZAMI population figure cannot be reached. The higher target could be needed, particularly as some recipients of settlement visas can be expected to continue residing overseas, building bridges of trade with New Zealand. With the right migrant selection policies, a target of 40-50,000 people seems quite feasible. The potential supply of qualified settlers is certainly not a problem.

If, however, New Zealanders choose not to raise the gross migration target, then I know of only one other way of arriving at a population of 5 million people in 2010. This is that we in Australia keep fouling up our economic opportunities, and you move along the path of greater attractiveness to mobile resources. The open, integrated trans-Tasman labour market will then ensure that you achieve 5 million New Zealand residents automatically.

But that prospect may, of course, be the most convincing reason for New Zealanders to raise forthwith the official annual migrant targets so as to attract people from elsewhere!