Wednesday, 18 August 2010

An Immigration Cap? Bad for the UK; Good for everywhere else

There is a lot of debate at the moment over whether the UK should put a cap on the number of migrant workers allowed into the country. Even the two coalition party leaders are at odds over this issue. With visa restrictions already tightening, it looks as though the conservatives are bowing to populist demand for an immigration cap, to the detriment of British business.

There are convincing theoretical arguments for why limiting immigration of skilled workers is a bad thing for the country. Workers coming to the UK from overseas are benefitting the economy by expanding the supply of goods and services while also increasing consumption. Working adults generally pay more in tax than they receive in public services, thus helping the public finances. And by working in the UK they are increasing the country’s capacity to export goods, which improves the long term sustainability of the economy.

To back up the theory, there is empirical and anecdotal evidence that demonstrates the benefits immigrants bring to an economy. In his book “Outliers”, Malcolm Gladwell describes the entrepreneurial success of Jewish immigrants in New York in the early 20th century. He argues that migrants are at an advantage when it comes to starting new businesses, as they can apply knowledge from their home country to a new environment (more of my own views on this at a later time!) Looking at the 21st century, Thomas Friedman writes in “The World is Flat” about the large number of Indian entrepreneurs who studied for degrees in the USA, but started their businesses in India as the visa restrictions made it so difficult to settle in The States.

These should serve as a lesson to UK politicians as they consider the UK’s immigration policy. It seems the main argument in favour of capping immigration is so that more jobs are available for British workers. While this may be true on a timescale of 3 to 12 months, in the longer term businesses will simply choose to expand in other countries.

This would be bad for the UK. However I did not start this blog just to write about the UK. Taking a “World View” instead of a country-centric one, I actually believe that transferring the economic benefit that skilled workers produce from developed countries to developing ones is a good thing for the world as a whole. All those Indian entrepreneurs who left the US to start outsourcing companies in Bombay, Bangalore and Hyderabad have helped rebalance the wealth and power in the world; if more of the same happens because of the UK government’s short-sightedness, I won’t hold it against David Cameron.

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