Yaldaz Sadakova
corporate risk
When borders fall, companies and economies will truly rise | Canadian Insurance

When borders fall, companies and economies will truly rise

As soon as the security guards let me in, several inmates ran to the caged windows and shouted, “Two months here!… Six months here!… One year here!”

The year was 2010, and I was visiting a detention centre for foreigners in Bulgaria. Actually, let’s call it what it is: a prison. It has high walls with barbed wire. Cells with bunk beds. Moldy showers with clumps of hair on the floor and little privacy. A strict daily regimen for inmates. Foreigners can end up here if they’ve entered the country illegally, overstayed their visas, stayed with forged documents or if they’re considered a national security threat.

Thousands of people fleeing war and persecution in Africa and the Middle East are promptly detained once they reach the EU. This is the kind of place where they have to wait to find out if their asylum applications will be approved. But then detaining migrants is the norm across the EU and around the world.

Aside from the humanitarian concerns of imprisoning people who have committed no felony, the practice makes no economic sense; allowing goods and capital to flow while restricting the movement of people distorts labour markets and stifles economies. The solution isn’t to tweak the system and relax restrictions (though in the short term, this would help). The system is so busted that the answer is to eliminate it and create a border-free world.

A radical solution? It might be, but some economists have already examined what would happen if borders were eliminated. The short answer: individuals, companies and economies would benefit.

To understand just how dysfunctional the current system is, consider the EU’s common asylum law. One major problem is a directive called the Dublin Regulation. It requires people to claim asylum in the first EU nation they reach, which usually means countries that serve as a gateway, such as Greece, Italy and my native Bulgaria. The rationale behind Dublin was to create solidarity among member countries and prevent richer nations from being overwhelmed by applications.

The policy is absurd because while some refugees apply for asylum in the first EU countries they reach, they usually don’t stay there. They prematurely terminate their applications, move illegally to Western Europe and reapply for asylum there. The Western European countries then inevitably find out about the migrants’ suspended asylum applications through the EU’s common asylum fingerprint database. Then they contact the first country to arrange for the migrants’ return.

Because of the Syrian war, transit EU nations have seen an increase in terminated asylum procedures in recent years—and an increase in requests to take back those who terminated their applications.

Take Bulgaria. Diana Daskalova, founder and head lawyer of the Center for Legal Aid — Voice in Bulgaria in Sofia, which provides free legal services to refugees, points out that the Stage Agency for Refugees received about 1,330 “Dublin requests” in 2013 for people to be brought back. In 2014, the number was about 8,000. Between January and September of this year, it had reached almost 7,000.

But hardly anyone’s going back to Bulgaria. In 2013, the country saw fewer than 100 returns; in 2014, 174 returns occurred. “These statistics show that the Dublin regulation is not working,” says Daskalova. “It’s not able to bring solidarity.”

EU governments also force asylum seekers to be idle and dependent on state support. They can’t work while their applications are being processed. EU law stipulates a maximum period of nine months until they can join the labour market. This is despite the fact that “employment is the single biggest determinant of migrants’ net fiscal contribution, particularly in countries with generous welfare states,” according to a 2014 OECD study.

Survivors with skills

Preventing refugees from working—and working sooner—also makes it harder for businesses to address skills shortages. “Refugees are generally not the poorest of the poor in their country of origin and tend to have higher skill levels than the general population in their origin countries,” a 2015 OECD report notes. In fact, the report found that recent Syrian refugees are more skilled than the ones who fled the Yugoslav wars in the 1990s.

Toronto nurse Nada Sidani provided voluntary medical services in Syria and says she worked with engineers, pharmacists, doctors and nurses. “Someone who has survived a brutal war, crossed borders on foot, risked their lives on a boat, has a lot of skills.”

And remember a refugee named Sergey Brin? Philippe Legrain does. He’s the author of Immigrants: Your Country Needs Them and a former European Commission economic advisor.

“Nobody could have guessed, when he arrived in the U.S., aged six as a refugee from the Soviet Union, that [he] would go on to co-found Google,” Legrain writes in his book.

The short-term solution to this mess is for Europe to create safe legal channels for refugees. Legrain argues this could be easily done by allowing people to apply for asylum at consulates abroad. And refugees should be allowed to live wherever they want in the EU. But right now Europe struggles with resettling 160,000 of them across the union through a mandatory quota system that’s already been rejected by Hungary, Romania, Slovakia and the Czech Republic.

The premise behind this plan is that refugees are a burden that needs to be shared. But Legrain says forcing people to settle in countries that are hostile to refugees or more specifically, Muslim refugees (as in the case of Slovakia) won’t work. Refugees won’t feel welcome there, so they’ll likely move, he adds. “Let Slovakia suffer the stigma, loss of EU and German goodwill, and the missed opportunity of not letting in refugees.”

The long-term solution is to eliminate borders altogether.

In his book, Legrain argues it makes no sense to restrict migration in a globalized world when trade and investment need it. “Although most governments wouldn’t dream of trying to ban cross-border trades of goods and services—only North Korea aspires to autarky these days—outlawing the movement across borders of people who make goods and provide services is considered perfectly normal and reasonable. Why is the door open for American managers to run factories in Honduras, but the door slammed shut for Hondurans who want to work in American factories? Why… is free trade and the free movement of Western elites a wonderful thing but the free movement of everybody else unthinkable?”

One reason may be the fear that poor people would flood rich countries. “Most people don’t want to leave home,” says Legrain. “Those who do move tend to move temporarily when they can move freely.”

The precedent is already there. EU citizens can live and work in any country in the union without a visa; the richer countries haven’t been overrun with citizens from poorer ones, despite the large income disparities.

While this shows “we should not be afraid of free mobility,” income gaps in the EU are smaller than those worldwide, notes Jean-Christophe Dumont of the Directorate for Employment, Labour and Social Affairs at the OECD. Plus EU countries have at least some level of economic and political harmonization.

But Legrain argues that free movement would mean greater talent diversity for companies. “In many cases,” Legrain writes, “a diverse group of people with limited abilities can outperform a like-minded group of high-ability problem-solvers, because an individual’s likelihood of improving decisions depends more on their having a different perspective from other group members than on their own high expected score.”

Free movement would also allow the global labour market to better match workers and companies. “When labour markets are segmented along national lines with quotas for some workers and enticements for others to migrate, governments are in effect trying to second-guess the market—and inevitably they do not have enough information to get it right.”

Unclaimed trillion-dollar gains

Michael Clemens, senior fellow at the Center for Global Development in Washington, D.C., reached a similar conclusion in a 2011 study. “When it comes to policies that restrict emigration, there appear to be trillion-dollar bills on the sidewalk.” He estimates that removing global labour mobility barriers would produce gains of 50 to 150 percent of world GDP. As well: “The emigration of less than five percent of the population of poor regions would bring global gains exceeding the gains from total elimination of all policy barriers to merchandise trade and all barriers to capital flows.”

Now consider that only about three percent of the global population currently lives abroad.

Legrain and Clemens aren’t the only economists who see a border-free world as viable. The website, Open Borders: The Case, published an Open Borders Manifesto earlier this year. It has about 200 signatories, many of them economists.

The manifesto calls for relaxing and eventually eliminating global migration restrictions. “To end this, we do not need a philosopher’s Utopia or a world government… Border controls should be minimized to only the extent required to protect public health and security. International borders should be open for all to cross, in both directions.”

Although unthinkable now, Legrain predicts this change could happen within a few decades. “If you had said in the 1980s there would be freedom of movement between Lithuania and Lisbon, people would have said you’re crazy.”

Copyright 2015 Rogers Publishing Ltd. This article first appeared in the Winter 2015 edition of Corporate Risk Canada magazine