Going against the grain

Philippe Legrain is one of the most attractive independent thinkers at LSE – one might label him a contrarian with at least some good cause – in the populist universe that gave us Brexit. What I find most amusing is that his almost trivial economics lends to leave opponents with next to no plausible logic to contradict him. His recent scholarship precipitated richly on the obvious: why immigration boosts the GDP. It is only in an era of mass stultification through grotesquely emotionalized nationalist arguments pitching to a base blissfully unaware of the lessons of history and without comprehensible basis in economic fact, that this would support a “controversial” intellectual agenda over the years as it has in Legrain’s case while he argued for a “European Spring.”

Now, it is hardly a revolutionary idea that doing the right thing from a humanitarian perspective turns out yielding dividends and is actually good business. What is a welcome change, however, is to voice such substantiated Merkelism at a time of Realpolitik when the pendulum of irrational fears and anger swings in the opposite direction in so many places.

In Refugees Work: A Humanitarian Investment That Yields Economic Dividends, a paper that appears to be the first comprehensive international study of its kind, Legrain shows how refugees contribute to advanced economies, and found that they double the host society’s investment in them over a period of just five years. Would that the same could be said about each dollar invested in aging natives. Refugees contribute economically as workers of all skill levels, entrepreneurs, innovators, taxpayers, consumers and investors. The “diversity dividend” is, in fact, remarkable: more than three in four patents filed in 2011 at the top-ten patent-generating U.S. universities were attributed to at least one foreign-born inventor, while in Britain, migrants were found to be almost twice as likely to start a business as are locals. The most entrepreneurial migrants in Australia are refugees. One-third of recent refugees in Sweden are college graduates while two-thirds of those have skills that match current graduate job vacancies.

While it would certainly appear that Legrain falls victim to his own propaganda and pitches his findings as actual solutions, without applying the same strict scrutiny to the cost side of his cost-benefit analysis, there is no question that many if not all of the most successful synthetic societies in modern history leveraged economic contributions made by refugees: the United States, Australia, New Zealand, Canada, Israel, but also Germany and several South American nations come to mind. In turn, refusal to quickly integrate and invest in refugees has proved disastrous in the case of Arab Nations with regard to Palestinians, and across Africa with its numerous displacements in the wake of seismic political shifts. Although even prolific generators of refugees can end up beneficiaries: remittances from abroad to Liberia, for example, amount to 18.5% of its GDP. Some of Legrain’s findings are fallacious on their face, or, rather, reflect trivialities: so, for example, the “discovery” that recognition of foreign qualifications ought to be streamlined, since it costs only £25,000 to train a refugee doctor to practice in the U.K., while it costs over £250,000 to “mint” a new British physician. If only social engineering were that simple, and could afford to ignore blowback from professions and market segments facing competition from immigrants. Refugees are not, and cannot be, the sole priority and consideration in balancing social interests.

Among the interesting findings of Legrain’s study is that the U.S. is more successful than the EU at getting refugees to work: their greater initial investment results in a higher rate of employment than for people born in the U.S., with earnings rising sharply over time while reliance on social assistance declines rapidly. If, as is plausible, the first priority should be to get refugees to work early, then granting asylum seekers right to work while their claims are being reviewed, as is done in Canada or Sweden, but not in the U.S., is an act of simple pragmatism, not of principle. Legraine is right that policy ought to combine the active assistance of the Swedish model with the job and entrepreneurial opportunities in U.S. practice. Refugees ought to be resettled where there are jobs, not in areas where cheap housing is available but jobs aren’t, and the same is true of rigid labor markets privileging insiders at the expense of outsiders, not to mention stifling entrepreneurship. While government assistance for refugees ought to be generous, prompt and wide-ranging initially, open-ended welfare provisions not only create a moral hazard but also have, on balance, a negative impact. Serious analytic examination of economic benefits of diversity, initiated inter alia by Legrain, has far from ended and has barely begun to demonstrate its predictable wealth of results.

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