Philippe Legrain

A good election to lose?

For anyone of a progressive bent, the prospect of the Tories returning to power is profoundly depressing. However sick of Gordon Brown people might be, David Cameron is hardly an appealing alternative. So at one level it is cheering to see the Conservatives' poll lead melt away with the winter snow. While a narrow Tory victory remains likely, according to political betting markets, it is not in the bag. But while keeping the Tories out would be heartening in the short term, Gordon Brown's re-election would most likely be disastrous for Labour in the longer term.

Some election victories are a poisoned chalice. With hindsight, it was fortunate for Labour and catastrophic for the Conservatives that John Major won in 1992. Sterling's ejection from the ERM shredded the Tories' reputation for economic competence, and five years of in-fighting, blunders and scandal consigned the Conservatives to the political wilderness after 1997. It seemed for a while as if the party might never win office again. The Tories would surely have bounced back more quickly if they had lost in 1992. Conversely, a Labour victory in 1992 could have been fatal. Had the pound plunged within months of Labour taking office, the party's chances of re-election would have been remote. The Labour government would have marked a brief progressive interregnum between long periods of Conservative dominance.

While we do not have the benefit of hindsight, 2010 feels a lot like 1992. Most people are fed up with the government but unconvinced by the opposition. The ruling party has become too comfortable with power and often seems bereft of purpose. The prime minister is at best uninspiring, more often dismal. Most importantly, the economic outlook is unpromising – and there is a growing chance that a run on the pound will wreak havoc with the recovery and the government's plans. Even if catastrophe is avoided, running Britain in an age of austerity will be a thankless task, especially for politicians who believe in active government.

Tax hikes, spending cuts, curbing public-sector pay, cutting public-sector jobs – does Labour really have the stomach for it? Do Labour politicians want to spend the next five years undoing a lot of what they have achieved over the past 13? Do they honestly think voters will look kindly on them next time around if their sales pitch is that their cuts were "kinder" and more reluctant than the hypothetical cuts voters might have suffered under a Tory government? Even if the economy stages a phoenix-like recovery, will voters thank Labour for it? If Labour scrapes through in 2010, there is a good chance it would face a 1997-style electoral oblivion in 2015.

All the more so since five more years of Gordon Brown would test the patience of even the most diehard Labour supporters. Whatever his qualities might be, he is singularly ill-suited to being prime minister. His style rankles. His decision-making (or indecision) is erratic. He is tainted by all the mistakes of the past 13 years – not least cheering on the financial bubble that has now gone spectacularly bust. And since Labour has not had the guts to get rid of him over the past three miserable years, it seems highly unlikely that the party would find the courage to do so after he had won an electoral mandate. Besides, whoever the leader might be, voters would doubtless be gasping for change after four terms – 18 years – of Labour government.

To put it another way, if the choice for Labour is between either an unrewarding extra term in office followed by several terms on the margins or a narrow defeat, a period of renewal and a good chance of returning to government within five years, surely the latter is preferable? Surely only those whose political lifespan is nearing its end, those who depend on Gordon Brown for their advancement, and those who cling to the trappings of office would prefer the former?

The possibility of a hung parliament does not fundamentally alter this calculation. Since the Liberal Democrats have all but ruled out a coalition, a minority government (and most likely a second election) would prolong the uncertainty – increasing the risk of a sterling crisis – but would not change the underlying choice between Tory now or Tory later.

Of course, there are ifs, buts and maybes. One objection is that a Tory victory might result in such severe harm to Britain – for instance, a sequence of events that resulted in Britain leaving the EU – that it must be avoided at all costs. A more immediate danger is that if George Osborne slashed spending, the economy would tank again. That is a big worry. But even a re-elected Labour government might be forced to bring forward budget cuts if markets panic. And in political terms, the likelihood of Tory economic mismanagement strengthens the argument that losing the election would benefit Labour longer term.

Another risk is that Labour might tear itself apart in opposition, rendering itself unelectable, allowing the Tories to win again by default in 2015 unless the Liberal Democrats could capitalise on the situation – a rerun of 1983. That said, Labour might also tear itself apart if it was re-elected, as John Major's Tories did.

Others will argue that Labour could succeed where Margaret Thatcher failed and go on and on and on. A Labour victory might cause the Conservative party to implode (extremely unlikely) or result in electoral reform that entrenched a progressive majority. That possibility is certainly appealing, not least to Lib Dems and Greens. But with or without a change in the voting system, it seems highly unlikely that Labour would stagger on into an unprecedented fifth term after five more years of austerity under Gordon Brown, still less that the Lib Dems would want to prop them up in office.

The prospect of a Europhobic, economically confused, anti-immigrant, privilege-defending Tory government led by a lightweight PR man is soul-destroying. But as disheartening as it now seems, this is an election that Labour might be better off losing.

Don't take globalization for granted

Twenty years ago, nobody foresaw the imminent fall of the Berlin Wall; two years ago, no one was predicting the partial nationalization of the Western banking system. The future is unknowable; caution, skepticism, and, above all, humility are essential in seeking to peer into it.

What, then, do we know? We know that globalization is the combination of distance-shrinking technology and market-opening government policy that is bringing the world closer together. Global connections are—for the most part—cheaper, faster, and more pervasive than ever. Technological progress is almost certain to continue, while powerful economic and political interests support further global integration. Continued globalization would therefore seem inevitable.

But it isn’t. Technology can’t (short of a nuclear winter) be uninvented, but its impact can be impeded. Today, globalization is neither uniform nor universal. It will always be incomplete. Clearly, then, it is also reversible. The cost of connectivity could rise, while governments could make foreign interactions costlier or tougher.

History shows that economic disintegration can happen: witness the devastating 1930s, the economic closure of Russia and China when they became communist, or the widespread pursuit of import-substitution policies in the 1960s and 1970s. Now, the global financial crisis has undermined faith in free markets. A long and deep recession could stoke protectionist pressures. An alliance among the losers from globalization, those who fear they might become losers, ideological opponents to globalization, and opportunistic lobby groups could conceivably throw it into reverse.

The retreat, if it happens, may be patchy rather than wholesale. Globalization is not an all-or-nothing state of the world; it is a process that can progress—or regress—to varying degrees and in different ways country by country. It operates through at least five channels: cross-border trade in goods and services; international capital mobility; the movement of labor across borders; the flow of ideas, information, and technology around the world; and politics: cooperation among national governments, international rules and institutions, and the activities of nongovernmental actors, such as Greenpeace, the Catholic Church, and even online social networks, such as Facebook.

Start with product markets. The Word Trade Organization’s (WTO) Information Technology Agreement prohibits countries from imposing tariffs on many IT products, but its scope is disputed: the United States objects to the EU’s tariffs on flat-screen monitors and multifunction printers, for instance. As new high-tech products emerge, they will be vulnerable to tariff encroachment and trade-limiting regulations. In agriculture, WTO rules have little bite. Most developing countries have plenty of scope to raise their tariffs on manufactured goods, since their current applied rates are well below the maximum allowed. Governments’ commitments to liberalizing trade in services, which account for the bulk of the global economy, are patchy.

A panoply of other measures can also be used to gum up trade, such as antidumping duties, trade-inhibiting regulations, and official tolerance of monopolies, cartels, and other anticompetitive practices. And if governments really want to, they can ignore WTO rules.

This need not involve a trade war. The WTO’s core principle of nondiscrimination is already being eroded almost daily as preferential pacts proliferate. Far from being “free-trade agreements,” these bilateral or regional deals are their antithesis, giving privileged access to some at the expense of others and tying up trade in a web of rules-of-origin requirements and other red tape. Such deals are also more prone to have quasi-protectionist labor and environmental clauses tacked on to them. Worse, they create their own infernal logic, whereby those who are discriminated against seek their own special deal.

After 13 years without a comprehensive WTO agreement, they seem like the only game in town for politicians and businesspeople, sapping efforts to conclude an ambitious Doha round and raising new obstacles to it, as countries and companies fight to preserve the preferences they have acquired.

Even where markets remain reasonably open, other factors can limit globalization. Regulations that are not protectionist in intent can nonetheless act as barriers to trade: think of food safety standards, port security inspections, and different accounting standards. Preferences can also tilt toward the local for all sorts of reasons.

Among them:

    * Green initiatives: People may opt for local holidays and farm produce to shrink their carbon footprint.
    * Culture: Viewers may prefer television programs that relate to their everyday experience.
    * Nationalism: Some may reject cheaper and better imports because they want to consume national products.
    * Politics: Witness the consumer boycott of Danish products in many countries following the Muhammad cartoon row—and the “Buy Danish” backlash.
    * And, of course, economics: Rising prosperity and demographic aging tends to skew demand away from imported goods towards services—such as cleaning and social care, that can only be provided on the spot. With or without government intervention, global connections could weaken.

One big question is whether higher oil prices will render globally scattered supply chains uncompetitive. To a certain extent, high oil prices are eventually self-limiting since they stimulate the development of additional supplies and crimp demand. Greater efficiency and the development of alternative energy sources could permanently depress oil demand. In any case, transport costs are relatively unimportant for higher value-added trade. So oil may not be that significant a drag on globalization.

Consider capital next. The global financial crisis continues to surprise; its long-term consequences are unpredictable. It could foster greater economic policy coordination, closer monetary integration in Asia, and the expansion of the eurozone. Or it could rankle national sensibilities in the Pacific and even split the eurozone.

The crisis would appear likely to curb financial globalization. Countries that maintain capital controls are less likely to lift them; poor countries that struggled to attract external finance in the go-go years will find it even tougher. Tougher international regulation could also hamper capital flows (not a bad thing in itself, admittedly). Yet tougher national rules could drive more finance offshore. Desperation has lowered the barriers to sovereign-wealth funds and other foreign investors taking big stakes in American and European banks. Ambitious reforms to the global financial system could end up prompting more, not less, financial globalization.

How so? Consider that although money flows freely, it does not reliably irrigate everywhere. The promise of financial globalization—that it will spread risk and allocate capital better—remains largely unfulfilled. Even emerging economies with excellent investment prospects cannot count on regular capital inflows; many feel obliged to pile up vast foreign-currency reserves. This is a huge waste of resources—and it perversely results in them becoming net savers. Judicious reforms, starting with the swap arrangements the Fed has started offering to a handful of emerging-economy central banks, could thus support further financial globalization

The economics of the madhouse

The failures of global finance have brought the world economy to its knees, threatening a re-run of the Great Depression of the 1930s. Such a terrible outcome is much more likely if policymakers follow Ha-Joon Chang’s suggestion that the world needs a dose of protectionism to see it through these troubled times.

Around the world, we are witnessing the devastating impact of globalisation going into reverse. What was once a virtuous circle of rising trade and booming economic growth has become a vicious spiral of collapsing demand and plunging exports. The question is: how to break this spiral? The answer, in my view, is coordinated government action to boost global demand, combining large fiscal stimulus packages, unconventional monetary policy measures, and the nationalisation and restructuring of zombie banks that are dragging the economy down with them. Chang, in contrast, favours limited protectionism—in effect, a tax on imports.

This should ring alarm bells among people who may be tempted by the siren song of protectionism. Most governments are scrambling to boost spending and /cut/ taxes to stimulate demand. David Cameron’s Conservatives oppose such a fiscal stimulus. Chang goes one step further: he is proposing a (selective) tax hike instead. The immediate impact would be to reduce people’s purchasing power in a highly regressive way. And since Chang proposes that all governments agree to raise their import taxes, demand would be dealt a further knock by the fall in demand for our exports. Higher taxes and lower exports as a cure for the global recession? This is the economics of the madhouse.

Chang is surely aware of this. After all, even he concedes that an all-out trade war would be a bad thing. But the difference between limited protectionism and a trade war is a matter of degree: the former would involve fewer casualties, for sure, but it would not lead to economic resurrection. And history shows that limited protectionism is often a precursor to much larger conflicts.

Chang claims that rising protectionism in the 1930s was not as harmful as is often claimed. It is true that trade collapsed for several reasons, including falling demand. But protectionism greatly amplified the damage. According to a study by Jakob Madsen of Monash University (Trade Barriers and the Collapse of World Trade During the Great Depression), world trade declined 14% in inflation-adjusted terms between 1929 and 1932 due to declining incomes, 8% because of policy-induced tariff increases, 5% due to deflation-induced tariff increases (when prices are falling, a tariff of, say, £1 per item rises in real terms), and a further 6% because of the imposition of non-tariff barriers. So, most of the collapse in trade was due to rising protectionism rather than falling demand.

Nor did protectionism save jobs. Research by Doug Irwin of Dartmouth College, the leading US trade historian, concludes that “The Smoot-Hawley tariff of 1930, for example, significantly reduced imports but failed to create jobs overall because exports fell almost one-for-one with imports, resulting in employment losses in those industries.”

Clearly, then, the costs of protectionism are large. Yet Chang claims that “temporary” protectionism would have a big benefit: it would provide breathing space for companies and workers to reinvent themselves. But that too is dubious. Protectionism does not provide the right incentives for businesses and workers to adapt. Companies that have a captive local market tend to milk it, rather than seeking out more competitive markets overseas—especially if they are prevented from doing so by others’ protectionism. And while protectionism may start off as a “temporary” response to the crisis, companies that benefit from it have every incentive to find new reasons to maintain it, and to devote their energies to lobbying politicians to that end. Just look at Europe’s Common Agricultural Policy, which was originally designed to prevent Europeans starving. The last thing we need is a CAP writ-large.

Protectionism would obstruct the world economy from adjusting, rather than encouraging it. There is, for instance, huge overcapacity in the US and European car industries. If each country acts to prop up their carmakers, none will thrive. Only if the least efficient shrink can the carmarkers that produce the cars people actually want to buy thrive. Chang’s prescription is also bizarre considering his main focus is aiding developing countries. If the EU keeps out foreign cars, India’s Tata Motors and his native South Korea’s Hyundai, Daewoo and Kia will suffer.

In Britain’s case, advocating protectionism is particularly perverse. One big reason why the manufacturing sector has shrunk so much in recent years is the pound’s prolonged overvaluation. Now that the pound has collapsed, UK-based exporters, not least its remaining manufacturers, have received a timely boost that will make them more competitive when the global economy recovers. An increase in global protectionism would close off their future export markets.

The real help that companies need to tide them through the crisis is not protectionism but access to finance and broad measures to stimulate demand. These would also boost employment, especially if combined with cuts in payroll taxes and increased help for workers to retrain and find new jobs.

If I was king for a day...

Download P46_YAH2_TBIL_833

Foreigners aren't grabbing "British" jobs

As the recession bites, unemployment soars, and protests against foreign workers proliferate, the publication of Office for National Statistics figures (pdf) showing that the number of foreign-born people in work rose last year would appear to confirm what opponents of immigration have been saying all along: foreigners are taking "British" jobs. But the picture is far more complex than that.

Note, for starters, that critics would single out immigrants whatever the statistics showed. When immigrants are in work, they are taking our jobs; when they are out of work, they are a burden on the welfare state. Immigrants can't win: they are damned if they do and damned if they don't.

Second, opponents of immigration (and others, including myself) have previously pointed out – correctly – that ONS migration figures were deeply flawed. In particular, they did not accurately count the number of migrants from central and eastern Europe, who as EU citizens can come and go freely. If many of the Poles taking up jobs in Britain were not counted in the boom times, they are unlikely to be counted if they have since lost their jobs or left now we are in a bust. Foreign-born workers may thus not be faring as well as the ONS figures suggest.

Third, the category that the ONS has highlighted – foreign-born people – includes British citizens born abroad and immigrants who arrived as children and are only now entering employment after finishing school or university. In fact, 40% of the UK's foreign-born workers are now British citizens. On what grounds would the wildcat strikers and opponents of immigration object to their employment?

The other category that the ONS provides figures for – non-UK nationals – includes people who have been in this country for decades but have never taken up British citizenship. Again, what would be wrong if more of them were now working? What we would really like to know is whether the number of recent migrants in work is rising, but unfortunately those figures are not available. We would also need more research into what is driving the employment trends, which again we don't have.

Digging a little deeper in the ONS statistics that we do have, one finds that the 175,000 rise in the number of non-UK nationals in work (which is subject to a margin of error of plus or minus 111,000) comes from an unexpected source. Employment among east Europeans has not risen, it has increased (subject to big margins of error) among Indians (up 24,000), citizens of the 14 other countries that were EU members before 2004 (up 25,000), South Africans (up 27,000), and Pakistanis and Bangladeshis (up 31,000). At the same time, figures released to parliament last month show that the number of work permits granted to Indians last year rose by 24,000 to 50,000, while those granted to South Africans rose by 2,000 to 4,900 and those to Pakistanis by 1,700 to 3,300 (a mere 725 were granted to Bangladeshis). Together, this suggests that nearly all of the rise in the number of South Africans and Pakistanis in work last year is due to people who were already in Britain finding jobs, not new arrivals. Since the employment rate among Pakistanis, particularly Pakistani women, has historically been low, it is surely a good thing that more of them are now working.

The bigger point, which bears repeating again, is that there is not a fixed number of jobs to go around, so that making divisive statements about one group of people taking jobs off another is not only invidious, it is also inaccurate. Everyone who works creates jobs for others when they spend their wages as well as in complementary lines of work. Women who work are not taking jobs off men; black employees are not depriving white people of work; people from outside London who work in the capital are not nabbing jobs off those who were born there; and foreigners are not grabbing British jobs. The debate we should really be having is how to create more jobs. Investing more in our rickety infrastructure would be a good place to start.

Overturn the barricades

The economy is shrinking, unemployment is soaring, insecurity is rife - no wonder people are angry. As wildcat strikes against foreign workers spread across Britain, people who fear for their own jobs may feel sympathetic. But however understandable the strikers' emotions may be, they have got it all wrong.

Foreign workers are not responsible for the mess we're in; the financial crisis is. Blame bankers (British and foreign), finger blase regulators and blinkered politicians, spread responsibility among everyone who piled on debt and gambled on house prices - but don't scapegoat Italian oil workers.

Nor would kicking out foreign workers create more jobs for British people. The notion that there is a fixed number of jobs to go around is a nonsense. Workers (foreign or otherwise) not only take jobs, they also create them. Gordon Brown should have known better than to legitimise the old National Front canard of "British jobs for British workers" in his 2007 conference speech. He should eat his words.

Fewer foreigners around would mean even less spending in the shops, and so cost British people their jobs. Chucking foreign employees out would cause further dislocation to businesses already struggling with shrivelled credit and collapsing demand. It would play havoc with public services, depriving patients of doctors and nurses, the elderly of carers, and children of teachers. It would plunge the economy into an even bigger hole - and we'd end up with fewer jobs for British people, not more.

Let's be clear: if British workers are being discriminated against in Lindsey or elsewhere, that is unacceptable. It would be a breach of both British and EU law. But there is no evidence of that. What the strikers appear to want is that foreign workers be discriminated against - and that too is unacceptable.

The free movement of labour is not only economically beneficial and morally right, it is a legal requirement of EU membership. If Britain were to discriminate against other European workers, what is to stop other EU countries discriminating against British ones? Some 2 million Brits are thought to work in another EU country - do we want to put their jobs at risk too?

During the boom years when the pound was overvalued, Britain attracted workers from around the EU. But with the UK economy now predicted to be hardest hit by the global recession, Brits may feel tempted to seek work on the continent. That's what happened when unemployment reached 3 million in the 1980s, as workers similar to the brickies who featured in Auf Wiedersehen, Pet sought work in Germany and elsewhere.

Pundits and politicians are forever intoning that we must not fall prey to protectionism. Barricading ourselves off from outsiders leads not to salvation, but to economic depression and political extremism. That's one reason why the EU, with its single market, impartial regulations and common political institutions, is so important. Reverting to a policy of each to his own, beggar-thy-neighbour, and devil take the hindmost, would cause the EU to unravel.

That would delight Europhobic Tories, Ukip, the BNP, MigrationWatch and a host of rancid fellow-travellers. But the trade union and wider Labour movement should have no truck with it. Solidarity does not stop at the water's edge. The EU is a champion of workers' rights. And if the flaws of financial globalisation are to be fixed - and climate change curbed - it will be in partnership with Europe, not against it.

Now of all times Derek Simpson, Jon Cruddas and others on the left should not be making common cause with what Peter Mandelson has rightly called "the politics of xenophobia".

MigrationWatch is twisting the truth

Are immigrants taking our jobs? It is an explosive issue, especially with Britain sinking into recession and unemployment rising. So opponents of immigration will doubtless seize on a new report by the independent thinktank MigrationWatch UK, which claims that those dastardly foreigners who have the cheek to look after your granny or pick English strawberries are stealing jobs from British people. Yet the claims of Sir Andrew Green's thinktank are flatly contradicted by figures from the Office for National Statistics (ONS).

MigrationWatch claims that nearly all the jobs created in the UK since 2001 have gone to immigrants. But figures from the labour force survey (xls), show that employment among British-born people actually rose by 378,000 between the second quarter of 2001 and the second quarter of 2008, the dates arbitrarily chosen by MigrationWatch. If one excludes the recent fall in employment due to the financial crisis and instead compares the last three months of 2000 with the last three months of 2007, the number of UK-born people with jobs has risen by just over half a million (520,000).

MigrationWatch also claims that employment among UK-born people has fallen by 230,000 since the second quarter of 2004, when Britain opened its labour market to the Poles and other eastern Europeans joining the EU. But this too is contradicted by ONS figures. These show that the number of British-born people in jobs actually rose by 43,000 between the second quarter of 2004 and the same period of 2008. Excluding the impact of the financial crisis, employment rose by 175,000 between the second quarter of 2004 and the last three months of 2007.

MigrationWatch says that "there has been no progress at all in getting British-born unemployed workers into work" since 2001, and blames immigrants for this. But ONS figures suggest otherwise. They show that the employment rate among British-born people – the proportion of UK-born people of working age in employment – rose sharply in Labour's first term, from 73.5% in the second quarter of 1997 to 76% in the third quarter of 2000. Since then it has remained roughly steady: it was 75.6% in the second quarter of 2004 when Britain opened up to east European workers and 76% in the last quarter of 2007. In other words, the employment rate stopped improving well before eastern European migrants started arriving in large numbers, and has not worsened since.

The bigger point is this. As even MigrationWatch is forced to concede, there is not a fixed number of jobs in the economy. Immigrants don't just take jobs, they also create them, as they spend their wages and fill roles in complementary lines of work. If Britain threw out its Polish workers there wouldn't suddenly be more jobs for British people – just as throwing women out of work wouldn't provide more jobs for men.

Whichever way you look at it, immigrants are not taking British people's jobs. On the contrary, they are helping to provide vital public services and keep small businesses going. Not for the first time, MigrationWatch's xenophobic prejudice is causing it to twist the truth. Andrew Green should be ashamed of himself.

No left turn

Tony Blair once said that ‘we're at our best when at our boldest'. Gordon Brown is - finally - heeding that advice. His plan to shore up Britain's banking system is our best hope of pacifying the financial panic, getting credit flowing through the economy again and avoiding a 1930s-style depression. No wonder it is being copied across the world.

The need for massive state intervention in the banking system is regrettable. But exceptional times call for exceptional measures. Britain - and the world - is suffering a full-on financial heart attack. Unless the financial arteries of the economy are unclogged soon, huge job losses, bankruptcies, repossessions and a sharp fall in living standards beckon.

The government must do whatever it takes - including, if necessary, fully nationalising Britain's banks for a while - to rescue the economy from financial oblivion. Once the immediate crisis has passed, better and tougher financial regulation should be a priority. But while the glaring failings of global finance clearly need fixing, should the rest of the economic rulebook be torn up too?

Many on the left think so. Ken Livingstone, the Guardian's Seumas Milne and others argue that the government should turn its back on market economics. Since capitalism seems to be collapsing under the weight of its internal contradictions, they believe, the government should finish it off and regulate left, right and centre. More measured voices, such as the TUC's Brendan Barber, favour a ragbag of measures such as curbs on boardroom salaries and a new industrial policy.

But the priority now is tackling the crisis and averting a depression; everything else is a dangerous diversion. If struggling businesses that have just had their overdraft cut fear that they are about to be clobbered with higher taxes and more red tape, investment and jobs will suffer. The last thing a heart attack victim needs is to have a healthy leg amputated.

The government's bank rescue plan needs to be accompanied by measures to support the economy, not shackle it. The Bank of England should continue to cut interest rates, soon. Even though inflation is well above the target rate of two per cent, it is set to fall sharply as oil prices tank. Collapsing demand means that the real threat now is deflation, not inflation.

Some argue that the Bank of England's independence should be compromised. But that would be a mistake. Even the perception of political meddling in setting interest rates would add to financial uncertainty, undermine the credibility of monetary policy and raise the cost of government borrowing. As we learnt to our cost in the 1970s and the late 1980s, letting inflation rip does not lead to a sustained improvement in unemployment and economic growth; quite the reverse.

But once the crisis has passed, the government should reform the setting of monetary policy. The Bank of England's target measure of inflation should be amended to include housing costs. Its mandate should also be broadened so that it takes more account of asset prices. This would allow the Bank to raise interest rates to prevent bubbles getting out of hand - and thus avert future busts.

Faced with the threat of a depression, the government must not be hamstrung by its fiscal rules. Rightly, the government plans to borrow huge sums to finance the rescue of the banking system. It is well placed to do so since government debt as a share of GDP is low. This need not increase the national debt in the long term: Sweden's government turned a profit on its investment when it rescued its banks in the early 1990s. The government must also be ready to boost demand with tax cuts and spending increases if the recession turns really nasty. Fiscal tightening will certainly be needed - but only once the economy is recovering.

The bigger question, though, is whether, once the immediate crisis has passed, economic policy in areas other than finance needs to be revised. Leftwing populists have been quick to bury what they describe as the era of ‘unfettered markets', but an economy where the government takes around 40 per cent of national income in tax, pays for and provides essential services such as healthcare and education, and regulates everything from employment rights to credit-card contracts, can scarcely be described as one where the state has shrivelled and markets have free rein. So the issue is not whether the financial crisis sounds the death-knell for the free market, but whether it tips the balance towards greater state intervention.

That question is in fact two: first, does the crisis in financial markets suggest that competitive markets more generally do not work as well as we previously thought?; and second, will the crisis shift public opinion towards supporting a bigger role for the state? My answer to the first question is no; and while the answer to the second question is still unclear, people do not appear to be hankering to turn the clock back to the 1970s - notwithstanding the success of the TV series Life on Mars.

As I wrote in 2002 in my first book, Open World: The Truth about Globalisation: ‘Financial markets are unlike other markets. They are inherently unstable. They are prone to Manias, Panics, and Crashes ... Why? Because they involve bets on an unknown and unknowable future.' Product markets are very different: the market for cars or baked beans is not prone to destabilising speculation - and even if people did start gambling on the price of baked beans, its impact on jobs and the economy would be limited. The temporary part-nationalisation of Britain's banks does not call for increased intervention elsewhere. Royal Bank of Scotland may have come unstuck, but Tesco continues to deliver the goods.

Faced with a nasty recession partly caused by reckless lending in the US, the temptation to blame outsiders for our woes will grow. But we shouldn't throw the baby out with the bathwater. Britain benefits hugely from its openness to foreign products, ideas and people. The low prices in ASDA and Primark are only possible thanks to free trade, and commerce with China will provide many of the jobs of the future. Recent migrants from eastern Europe have filled vital jobs and revitalised the economy through their dynamism. Beggar-thy-neighbour protectionism made the Great Depression much worse; we would be crazy to repeat the same mistake.

Britain's flexible labour markets will be a key strength in the tough times ahead. They allow the economy to adapt rapidly to change, helping to redeploy workers from shrinking industries to growing ones and keeping unemployment down. Combined with measures to make work pay, help people find jobs, and equip them with the skills they need, New Labour's labour-market policies stand us in good stead. We should not be trying to protect yesterday's jobs at the expense of tomorrow's.

While tax rises will probably be needed in the medium term to pay for the costs of the crisis and an unexpectedly deep recession, support for higher taxes is hardly likely to be an election winner. Taxes must also remain low enough to support opportunity and enterprise. If working hard and starting a business is not rewarding enough, economic growth will suffer - and with it the ability to invest in public services. And unless public services continue to be reformed, with choice driving up standards and giving people what they want, voters are likely to feel their money is being wasted.

With Labour so far behind in the polls, the only chance of recovery depends on rescuing the economy from the worst crisis since the 1930s. Brown has come into his own in the past month, while the Conservatives, who are unconvincing critics of City practices, are flailing. But lurching to the left in the mistaken belief that markets no longer work and that voters are crying out for bigger government would be a huge mistake.

Call this a cure?

Extraordinary times call for extraordinary measures. Alistair Darling's statement was a pre-budget report only in name; in reality, it was an emergency budget crafted by Gordon Brown. It was big and bold, but it should have been bigger and bolder. Worse, the main plank of the government's plan to support the economy – a cut in VAT to stimulate consumption – is misplaced.

On the big picture, Gordon Brown is right and David Cameron is wrong: a fiscal stimulus is urgently needed to prop up the economy as demand slumps. Faced with the sharpest downturn since the 1930s, interest-rate cuts are not enough. While a further increase in government borrowing is risky, doing nothing – and risking an even longer and deeper recession – would be reckless.

The forecasts for government borrowing are huge – £78bn in this tax year, £118bn in the next – but national debt will still peak at only 57% of GDP, comfortably below the level deemed prudent by EU rules. It is not a tragedy if public debt rises even higher in the short term. So the Conservatives' critique is wide of the mark. The real problem with the government's stimulus package is that it is too small and poorly targeted.

A stimulus of £20bn between now and April 2010 is not trifling, but it amounts to only 1% of GDP. It will do little to fill the gap left by the collapse in private consumption and investment, not least since some of the stimulus will be saved. In comparison, president-elect Obama's team are considering a fiscal boost of $500bn, or even $700bn, over two years – which is equivalent to 1.75%-2.5% of GDP in each year. A bigger stimulus would not only provide a bigger boost to the economy directly, it could also help restore confidence, by signalling to consumers and companies that the government is serious about supporting the economy.

The focus of the emergency budget is also misdirected. Encouraging debt-ridden consumers to spend more is wrongheaded. For a start, it may not work: since retailers' hefty discounts are doing little to tempt shoppers to spend, a cut in VAT of 2.5% is unlikely to either. But even if it does work, encouraging consumers to go on yet another spending spree is unwise when they need to start saving more. It would be far better had the government done more to limit job losses, repossessions and bankruptcies and invest in areas, such as infrastructure, that bring long-term benefits to society.

For sure, the measures to help small businesses are welcome. A combination of tax cuts and loan guarantees will help. But a large share of the assistance consists of merely deferring a planned rise in corporation tax. A temporary cut in corporation tax for small businesses would have provided a lifeline for them and their employees.

Likewise, the £1.3bn package to protect jobs is too small. More jobs could be saved if the government introduced a temporary cut in employers' National Insurance contributions. And while the £1.8bn housing package is better than nothing, three months' grace for those struggling with their mortgages will bring little relief. The government should also provide funds for housing associations or local authorities to buy up property that banks wish to repossess, allowing homeowners to remain as tenants if they wish.

Above all, the focus of the stimulus package should have been a big increase in investment in infrastructure and other public works, along the lines proposed by president-elect Obama. Instead, the government merely brought forward £3bn in capital spending, a drop in the ocean. It should be doing much more: bringing forward and increasing spending on social housing, upping and accelerating investment in Britain's crumbling infrastructure, especially transport, and offering bigger subsidies for energy-efficiency measures, such as loft insulation.

Longer term, the government's growth and deficit forecasts look optimistic. It seems unlikely that the economy will start growing again as early as the second half of next year. The recovery is also likely to be slower than the government predicts, since consumers will be struggling with the burden of their excessive debts for many years. So looking forward, the tax rises in the next parliament are likely to be bigger than the 0.5% increase in National Insurance contributions and the introduction of a new 45% tax band on incomes above £150,000 announced.

The measures announced in the pre-budget report are unlikely to be the last word. As the crisis continues to take violent and unpredictable new turns every other week, with the US banking giant Citigroup forced to seek a bail-out over the weekend, further action will no doubt be needed soon. The government may need to inject further capital into Britain's banks – and outright nationalisation may even be necessary. A further fiscal stimulus is also likely to be needed in next year's budget. It's a pity Darling didn't announce it yesterday.

What it takes to be British

Read it here

This is not money for nothing

Tony Blair once said that the government was best when it was boldest. Gordon Brown is – finally – heeding that advice. The government's three-pronged plan to shore up Britain's banking system is bold and right. It is our best hope of pacifying the financial panic, getting credit flowing through the economy again and thus avoiding a 1930s-style depression.

The Bank of England's half-point cut in interest rates is also welcome, particularly since it was coordinated with other central banks. It signals that the US and Europe are finally acting together to tackle the global financial crisis. But a larger cut is needed soon: at 4.5%, UK interest rates are still far too high.

The bigger challenge is to get banks lending again – to each other, to companies and to individuals. They need enough cash to conduct their day-to-day operations; secure access to medium-term funding; and extra long-term capital to provide a cushion against bad debts and allow them to lend to creditworthy borrowers.

The government's plan addresses all three of these needs. The Bank of England will supply £200bn in short-term funding; the government will underwrite £250bn of medium-term finance; and it will also inject £25bn in long-term capital initially – and perhaps up to £50bn in total – in the form of preference shares that pay a fixed return and protect taxpayers' investment.

Headline writers may describe the government plan as a £500bn bail-out, but that is completely misleading. The £200bn consists of short-term secured loans; the £250bn is a form of insurance, for which the government will be paid a fee; and the £50bn is an investment that pays a return. This is not money for nothing.

And while it is certainly true that taxpayers' money is at risk, we will also share in the upside when the banks recover – as they are much more likely to do thanks to the government's intervention. Most importantly, the risk of doing nothing – or of continuing to do too little, too late – is far greater. If the banks went under, so would businesses and jobs. By keeping the UK banking system afloat, the government – acting on behalf of all of us – is giving the economy a life raft.

Many of the details of the government's plan are still unclear. Ideally, the preference shares should pay a hefty interest rate to properly compensate taxpayers and give banks an incentive to seek private financing if and when they can. Taxpayers' money should also come with strings attached, such as guarantees that banks will use the extra capital to lend to small businesses and individuals rather than pay extravagant dividends and unjustified bonuses. And, of course, the plan must be implemented speedily and efficiently.

We are by no means out of the woods yet. Global financial markets are in turmoil; other governments need to follow Britain's bold lead soon. The UK economy has many other weaknesses: consumers are overladen with debt, often secured against housing that remains overpriced; unemployment is rising; food and energy prices remain painfully high; and the global gloom is hardly auspicious for exporters, despite the fillip of a weaker currency. What's more, the banking rescue package will swell the government's already-large deficit – although borrowing to invest in banks need not increase the national debt in the long term. But while 2009 will no doubt be unpleasant, the government's actions should stave off economic collapse. Amid all the gloom, that is certainly good news.

Taking stock

The time for half-measures is over. Britain is no longer in the grips of a credit crunch or even a financial crisis; it is suffering a full-on financial heart attack. Markets have seized up. Banks will no longer lend to each other. Credit to companies and individuals is drying up. Unless credit starts flowing again soon, a nasty recession – conceivably even a depression – looms and with it, massive job losses, bankruptcies, repossessions and a sharp fall in living standards. The government needs to act – now.

But what to do? Ken Livingstone, Seumas Milne and others argue that the government should turn its back on market economics. Since capitalism seems to be collapsing under the weight of its internal contradictions, the government should finish it off. More measured voices such as the TUC's Brendan Barbour favour a ragbag of measures, such as a new industrial policy. But all of them are missing the point. Righting the huge problems in financial markets certainly requires decisive government intervention, but lashing out at generally well-functioning product and labour markets is perilously misplaced. The last thing a heart-attack victim needs is to have a healthy leg amputated. The priority now is tackling the financial crisis; everything else is a dangerous diversion.

But while the government should not try to turn the clock back to the 1970s, it does need to change course. Its ad hoc approach will no longer do. The nationalisations of Northern Rock and Bradford & Bingley, and the government-orchestrated rescue of HBOS, were justified at the time. But damage limitation is no longer enough – not least since Lloyds' rescue of HBOS seems to be dragging it down, too. Now Royal Bank of Scotland seems under threat; Barclays may be next in line. Waiting for the next bank to collapse and then picking up the pieces will not restore confidence or get credit flowing around the economy again.

Across Europe, governments are rushing to following Ireland's lead and guarantee (nearly) all deposits in the banking system. Here, the Treasury has just raised the guarantee on savers' deposits to £50,000. But while it may soon be forced to extend a broader guarantee, this will not tackle the root causes of the crisis: a lack of capital in the financial system and sheer panic.

A cut in interest rates would do some good. Although inflation is well above the target rate of 2%, the Bank of England should slash rates when it meets on Thursday. As the global economy tanks, oil prices are sinking, so inflation is set to fall. Collapsing demand means that the real threat now is deflation, not inflation. But a big cut in interest rates will not be enough. If banks are unwilling to lend, monetary policy alone is virtually useless – in Keynes' words, it is like "pushing on a string". Bolder measures are needed.

The US has opted for a $700bn bailout. In theory, taking bad debts off banks' books should reassure markets that that they are not about to go bust. Banks may be willing to lend to each other again, their share prices may recover somewhat, and investors – not least Asian governments and those of oil-rich states – may be willing to pump some of their huge cash reserves into them. But the bailout route is deeply flawed. It provides the most help to the banks that made the biggest mistakes. It exposes taxpayers to huge potential losses. And it does little to recapitalise the banking sector and thus encourage it to start lending again.

There is a better way. As now seems likely to happen in some form, with the chancellor's statement on Wednesday morning, the government should buy stakes in – and in some cases, take over – stricken banks, an approach that worked well in Sweden in the early 1990s. With the government standing behind banks, the fear that they are about to go bust would vanish. An injection of taxpayers' money would strengthen banks' balance sheets, allowing them to start lending again. But it would not be money for nothing: the government could acquire preference shares, which pay a hefty interest rate and put taxpayers first in line to be repaid if a bank fails. These could be combined with warrants (basically, options to buy shares at a future date at a specified price), so as to give us all a share in the profits when banks – and the economy – recover.

John Hussman, a US analyst and investor, has suggested a novel variant of this idea. He proposes that the government provide capital in the form of a "super-bond". This would be subordinate to deposits, and so could be counted as capital. But if a bank went bust, taxpayers would be repaid before shareholders and senior bondholders, thus protecting the financial system, customers and taxpayers. The super-bond could pay a relatively high interest rate to give banks an incentive to shift to private financing when conditions improve, but interest payments could be deferred until banks were profitable so as not to drain their cash reserves now.

A government recapitalisation of the banking sector – combined with much tougher financial regulation to limit future excesses – would be good politics, as well as sound economics. With Labour so far behind in the polls, its only chance of recovery depends on rescuing the economy from the worst crisis since the 1930s. Decisive action would marginalise the Conservatives, who are unconvincing advocates for state intervention in the financial system and are, in any case, powerless to act. And since even David Cameron has been forced to concede that government injections of capital may be needed, the government has political cover to act.

Gordon Brown has shown that he can be bold when circumstances demand it. Now is such a time.

       

Statistical Powellism

With a stagnant economy and Led Zeppelin performing, Britons could be forgiven for thinking they had travelled back to the 70s. This week saw yet more throwbacks, with the proposal of Labour MP Frank Field for non-EU migrants to be thrown out after four years - sorry, for "balanced migration", and the return of manpower planning. Oh dear.

Field should know better than to team up with the Tory MP Nicholas Soames and MigrationWatch to put forward a "one in/one out" temporary-worker scheme. The plan is unfair, unworkable and harmful to the economy. Throwing out people who have been working here for four years would deprive us of people who have demonstrated their contribution to society and adapted to British life; it would also deter many talented people from coming. And since only a select few would be allowed to settle, with priority given to the rich and well-paid, Russian oligarchs and American investment bankers could doubtless stay while Asian acupuncturists and African nurses would be turfed out. This is Powellism dressed up in statistics.

The Field-Soames plan is in tune with the Conservatives' sketchy plans for an immigration quota. Fortunately, the government has rejected it. Unfortunately, its own policies are not much better. It is pressing ahead with a new points-based system, modelled on Australian lines, for vetting workers from outside the EU.

This system will allow a top tier of highly educated people to enter, while slamming the door on those with fewer skills. Among a middle tier, only those with a job offer in areas where a shortage is deemed to exist will be admitted. On Tuesday, a government-appointed committee of wise men and women delivered a provisional shortlist of shortage occupations, which the government is due to finalise in October. Doctors, secondary-school teachers and social workers are no longer welcome, nor are midwives, most nurses and, crucially, care workers.

Neil Kinnock once warned Britons not to be young, not to fall ill, and not to grow old; and the government will now be turning away people from Kenya or the Philippines who could help meet the desperate need for carers for the young, the old and the sick. With suitable British applicants vanishingly few and Polish workers increasingly going home as the plunging pound devalues their wages, pensioners will not just be struggling with fuel bills this winter, they will be shamefully short of care. The immigration minister, Liam Byrne, trumpets how "tough" the new system is, but it is toughest on the weakest and poorest.

While there are lots of things that Britain might want to import from Australia - such as its wine and cricketing success - its devilishly complicated system of micromanaging immigration is not one. Governments are no good at second-guessing the ever-changing labour needs of complex modern economies. Even if the government could somehow ascertain whether Britain needs more IT staff or welders right now - its advisory committee says not - it certainly can't predict what the economy will need a year from now. Only a year ago estate agents were in hot demand; now bailiffs are.

The new points system is like an 11-plus for foreigners. It prejudges how people will contribute to society and denies opportunity to those who don't make the grade. It would have turned away most of the people on the Windrush, the father of Olympic hero Kelly Holmes, and - had he been born abroad - a young Richard Branson. A Labour government should know better.

Think again, Frank

Labour MP Frank Field's new proposal for "balanced migration" is many things, but it certainly isn't balanced. A "one-in/one-out" immigration policy is unfair, unnecessary and unworkable – and would deal yet another blow to Britain's faltering economy.

Field frets that Britain's "open door" policy will lead to a large increase in the settled UK population, which he believes is not unsustainable. He proposes instead what amounts to a temporary-worker scheme, policed by employers. Foreigners could work here for up to four years, but would then be sent packing. Businesses that failed to produce evidence that their foreign workers had left the country would be denied future work visas. There would be a strict quota – perhaps 20,000, including dependants – on the number of non-EU workers able to gain permanent residency, selected on the basis of their skills as reflected in their salary.

Field's proposal, cobbled together with Tory MP Nicholas Soames and the swivel-eyed xenophobes at MigrationWatch, is utterly misconceived. For a start, Britain does not have an "open-door" immigration policy: while people from within the EU can come and work here freely, those from outside the EU, which the Field-Soames proposal would target, cannot. The door is already slammed shut for all but the most highly skilled non-Europeans.

Second, as I have written previously, it is a fallacy that Britain's population is destined to rise inexorably. The recent increase in immigration is largely temporary, and is already reversing itself: as the pound plummets and the economy teeters on the brink of recession, Britain is far less attractive to foreign workers. But, in any case, since when are other people such a bad thing? If having more people around is so terrible, why isn't Frank Field suggesting that densely populated cities such as London, Birmingham and Glasgow prevent people from the rest of the country from settling there?

Even if one accepts that stabilising the population is desirable, Field's proposal would not necessarily do so. Preventing most temporary non-EU workers from settling permanently would not limit entry from the EU, or keep out asylum-seekers, clandestine migrants, visa overstayers, and those entering on family reunification visas; nor, indeed, would it prevent Britons from having more babies and living longer. Indeed, if large numbers of Britons stopped emigrating, stabilising the population would require expelling existing migrants.

While the suggestion that employers should be able to hire the foreign employees they need has some merit, forcing most of those still here after four years to leave does not. After all, if their employers would rather they remained, these migrants are clearly contributing to the economy and society as a whole. Throwing them out would deprive Britain not only of the skills with which they arrived, but also of those they have acquired while living and working here. As an Arsenal fan, I don't want Kolo Touré chucked out, and I'm sure Portsmouth fans would be loath to see Kanu go, too.

What's more, making it much harder for skilled workers to stay on is Britain is hardly conducive to attracting them in the first place. Talented people increasingly have a choice about where to work; and with Australia, Canada and other countries wooing them assiduously, making them feel unwelcome here is tantamount to shooting our hobbling economy in the foot.

Common sense also suggests, and international experience in the US and elsewhere confirms, that businesses are hardly equipped to enforce immigration policy. At the same time, if workers would only allowed to stay in the country on their employers' say so, they would be far more vulnerable to exploitation.

But perhaps the worst thing about the proposal is that the select few who would be allowed to settle in Britain would be the rich and the highly educated. Most likely, they would be American investment bankers and Russian billionaires rather than Asian acupuncturists or African nurses. That is hardly fair or progressive. Frank Field should think again.

Tear down the walls

Europe prides itself on being a continent of human rights, freedom and international solidarity. Yet it is fighting an increasingly dirty war against immigration, with casualties mounting every day. The biggest victims are the poor and the vulnerable, who are demonised as "illegal" or "bogus". But EU governments are also doing huge harm to the societies they purportedly want to protect.

Britain continues to hunt down unauthorised migrants and is planning to introduce ID cards for foreigners. In Italy, Gypsy camps have been burned down, and the Berlusconi government, far from protecting the targets of such racist attacks, is whipping up animosity against them and fingerprinting them. Spain is increasing its efforts to stop desperate Africans from reaching European soil, causing thousands to die each year as they take longer and more dangerous routes to avoid detection. Last month 15 people died of dehydration and exposure when their boat engine failed as they tried to reach Almería, on the Costa del Sol. The previous week 14 people drowned when their boat sank off nearby Motril.

Those lucky enough to escape death en route to Europe now face being locked up when they arrive. The EU's new "return directive", which was recently approved by European interior ministers and MEPs, allows governments to imprison - sorry, detain - unauthorised migrants for up to 18 months. Why? For daring to cross a border in search of a better life.

As the EU begins to adopt a common approach to immigration, the British government is helping to draft Europe-wide measures that attract little coverage in the UK. Frontex, the EU's border force, is helping southern European governments to patrol the Mediterranean and around the Canaries. And while the return directive was front-page news in Spain, it was a footnote in Britain.

There is plenty more to come. Nicolas Sarkozy, the son of a Hungarian migrant, has made cracking down on migration a priority for France's EU presidency, which lasts until the end of this year. His proposed migration pact aims to make it easier for the EU to attract highly qualified migrants, establish common European refugee and asylum policies by 2010, beef up policing of the EU's borders, and expel more illegal migrants. EU leaders are due to decide on the plans in October.

They should reject them. Europe's clampdown on immigration is neither fair nor sensible. Undocumented migrants are not criminals, nor are they an invading army. They are human beings less fortunate than ourselves. Most come to do jobs that comfortable Europeans no longer want to do, but as Europe's front doors are closed, they have to creep in through the back. Far from threatening Europe's ageing societies, they are reinvigorating them. What's more, the billions of pounds they send home dwarfs the sums that European governments give in aid.

The cruel irony is that, despite all the suffering they cause, Europe's increasingly costly border controls fail to keep foreigners out. Instead, they foster people-smuggling and an ever-expanding shadow economy in which illegal migrants are vulnerable to exploitation, labour laws are broken and taxes go unpaid. They also encourage people who would rather work temporarily to remain permanently, because migrants fear that if they go home they will not be able to return to Europe. Surveys of Senegalese migrants in Italy show that most would prefer to spend part of their time working in Europe and part back home, just as the Poles who commute back and forth to Britain do. A sensible immigration policy would facilitate this.

Open Borders Work (Part 2)

Opponents of immigration marshal a battery of objections to opening up borders. They claim that it would cost jobs, pose a huge welfare burden, and threaten Americans’ way of life — even their security. Yet these fears are mostly nonsense.

Critics argue that low-skilled immigration is harmful because the newcomers are poorer and less-educated than Americans. But that is precisely why they are willing to do low-paid, low-skilled jobs that Americans shun. In 1960, more than half of American workers older than 25 were high-school dropouts; now, only one in ten is. Understandably, high-school graduates aspire to better things, while even those with no qualifications don’t want to do certain dirty, difficult, and dangerous jobs. Many low-skilled jobs cannot readily be mechanized or imported: old people cannot be cared for by a robot or from abroad.

And as people get richer, they increasingly pay others to perform arduous tasks, such as home improvements, that they once did themselves, freeing up time for more productive work or more enjoyable leisure. Thus, as advanced economies create high-skilled jobs, they inevitably create low-skilled ones too. The way to reconcile aspirations to opportunity for all with the reality of drudgery for some is through immigration.

Fears that immigrants threaten American workers are based on two fallacies: that there is a fixed number of jobs to go around, and that foreign workers are direct substitutes for American ones. But just as women did not deprive men of jobs when they entered the labor force too, foreigners don’t cost Americans their jobs. They don’t just take jobs; they create them too. When they spend their wages, they boost demand for people who produce the goods and services that they consume; and as they work, they stimulate demand for Americans in complementary lines of work. An influx of Mexican construction workers, for instance, creates new jobs for people selling building materials, as well as for interior designers. Thus while the number of immigrants has risen sharply over the past 20 years, America’s unemployment rate has fallen.

But do some American workers lose out? Hardly any; most actually gain. Why? Because, as critics of immigration are the first to admit, immigrants are different from Americans, so that they rarely compete directly with them in the labor market; often, they complement their efforts — a foreign child-minder may enable an American nurse to go back to work, where her productivity may be enhanced by hard-working foreign doctors and cleaners.

Study after study fails to find evidence that immigrants harm American workers. Harvard’s George Borjas claims otherwise, but his partial approach is flawed because it neglects the broader complementarities among immigrant labor, native labor, and capital. A recent National Bureau of Economic Research study by Gianmarco Ottaviano and Giovanni Peri finds that the influx of foreign workers between 1990 and 2004 raised the average wage of U.S.-born workers by 2 percent. Nine in ten American workers gained; only one in ten, high-school dropouts, lost slightly, by 1 percent. Moreover, the new arrivals boost the returns to capital and benefit consumers through cheaper goods and services. Overall, then, America clearly gains. Ethically, it is hard to object to a policy that makes poor immigrants and the vast majority of Americans better off at the expense of a small number of people whose lot could be improved through such things as better education and training.

But might things be different if America’s borders were open to all and sundry? Israel’s experience is instructive. When the Soviet Union collapsed, the mass exodus of Russian Jews swelled Israel’s working-age population by 8 percent in two years and by more than 15 percent between 1989 and 1997 — the equivalent of 15 million foreigners unexpectedly arriving in the United States over the next two years, and 29 million by 2016. Jews everywhere have an automatic right to settle in Israel, which leaves the country open to mass inflows of immigrants, irrespective of the country’s economic needs and circumstances.

The influx of Russian Jews in the 1990s posed a severe test of the economic viability of Israel’s “right of return” policy. After all, the newcomers didn’t speak Hebrew and didn’t have jobs to go to. Yet as I explain in detail in my book Immigrants: Your Country Needs Them, Israel was able to absorb this huge and unexpected inflow of immigrants without a rise in unemployment, and with only a temporary fall in wages. The upshot is clear: even when migration is motivated by political crisis rather than economic demand, flexible advanced economies can absorb large numbers of immigrants with scarcely any cost to native workers.

Innovation and dynamism

Yet narrow calculations of immigrants’ impact on native wages or their net contribution to public finances neglect the much broader benefits of creating a more open and dynamic society. The exceptional people who come up with brilliant new ideas and set up new enterprises often happen to be immigrants. Instead of following the conventional wisdom, they tend to see things differently, and as outsiders they are more determined to succeed. Around a third of the Americans who won Nobel prizes in physics in the past seven years were born abroad. Nearly half of America’s venture-capital-funded start-ups have immigrant cofounders.

Most innovation comes from groups of talented people sparking off each other — and foreigners with different ideas, perspectives, and experiences add something extra to the mix. If there are ten people sitting around a table trying to come up with a solution to a problem and they all think alike, then those ten heads are no better than one. But if they all think differently, then by bouncing ideas off each other they can solve problems better and faster, as a growing volume of research shows. Just look at Silicon Valley: Google, Yahoo!, and eBay were all cofounded by immigrants who arrived not as graduates, but as children. And an ever-increasing share of a society’s prosperity comes from solving problems — developing new medicines, computer games, and environmentally friendly technologies, designing innovative products and policies, providing original management advice. Since diversity boosts innovation and enterprise, which are the source of most economic growth, critics who claim that immigration has few or no economic benefits are profoundly mistaken.

Immigration and welfare

Milton Friedman once claimed that you can’t have free immigration and a welfare state. He was right on many things, but in this case he was mistaken. Admittedly, if people from poor countries are better off on welfare in rich countries than they are working in their country of origin, they could conceivably be motivated to move, and if enough poor people did that, welfare provision could become economically and politically unsustainable. But even in such cases, immigrants would still be even better off working than being on welfare. So immigrants would have to be both enterprising enough to move in the first place but then suddenly be sapped of enterprise once they arrive. This is highly improbable — and there is no evidence, as even immigration critic George Borjas concedes, that the United States actually does act as a “welfare magnet” for people in poor countries.

In countries where we observe high unemployment among immigrants, the reason is not that foreigners are lazy and don’t want to work. The blame generally lies with labor-market restrictions that privilege insiders at the expense of outsiders. Throwing immigrants out wouldn’t reduce unemployment; it would more likely raise unemployment among native-born people. In any case, if rich countries opened their borders, they could at the same time restrict the availability of welfare to foreigners initially, just as the 1996 welfare-reform act cut off immigrants’ access to federal public benefits.

It is perverse to use the welfare state as an excuse to keep immigrants out. If the price of gaining the right to work in a country was not being able to claim welfare benefits when they arrive, most immigrants would take it. But unfortunately, they are not offered that option.

The costs of intervention

Many people say that they have no objection to legal immigrants, but that illegal immigrants are a problem. Of course, if the U.S. borders were open, the distinction would disappear. But in any case, illegal immigrants are not the problem; they are a symptom of the real problem: nonsensical immigration restrictions.

That immigrants are in the United States illegally is a sign not of moral turpitude but of misguided government intervention in the labor market: since employers cannot obtain visas for low-skilled foreigners to come work legally, foreigners who want to take up jobs in the United States have no choice but to come illegally instead. These generally hard-working and enterprising people’s only crime is wanting to work hard to earn a better life for themselves and their children — the epitome of the American dream. Without them, America would grind to a halt.

In any case, governments cannot stop people from moving across borders. Despite efforts to build a Fortress America, half a million foreigners bypass U.S. border defenses each year. Some enter covertly; most overstay their visas and then work illicitly. Far from preventing immigration, increasing draconian policies mostly drives it underground.

That creates huge costs: a humanitarian crisis; the soaring expense of border controls and bureaucracy; a criminalized people-smuggling industry; an expanding shadow economy, where illegal migrants are vulnerable to exploitation, labor laws are broken, and taxes go unpaid; a loss of faith in politicians who cannot keep their promises about immigration; a corrosion of attitudes towards immigrants, who are perceived as lawbreakers rather than hard-working and enterprising people; and the mistreatment of refugees in an attempt to deter people who want to come work from applying for asylum, besmirching the American commitment to help those fleeing tyranny.

These problems are generally blamed on immigrants, but they are actually due to immigration controls. It should be obvious, even to those who view immigrants as a threat, that the U.S. border controls are not just costly and cruel, but ineffective and counterproductive. Far from protecting society, they undermine law and order, just as Prohibition did more damage to America than drinking ever has.

Those who claim that tougher measures could stop immigration are peddling a false prospectus. Even if, at huge cost, the United States built a wall along its long border with Mexico, deployed an armada to patrol its shores, searched every arriving vehicle and vessel, denied people from developing countries visas altogether, and enforced stringent internal checks on people’s right to be in the United States, migrants would get through: documents can be forged or stolen, people smuggled, officials bribed. Even with a shoot-to-kill policy, people got across the Berlin Wall. And by trying to protect the land of the free from the phantom menace of immigration, anti-immigrationists would end up turning the United States into a police state. Politicians should instead have the courage to stop fighting a costly, unjust, and unwinnable war against immigration.

Open borders and terrorism

Having open borders does not imply opening the United States up to terrorism. If terrorists are home-grown, such as the Oklahoma bombers, or are foreigners already in the United States, then even the most stringent immigration controls could not feasibly keep them out. If foreigners are suspected terrorists trying to get in, then the government should use the standard legal means to apprehend them and have them extradited.

Tighter border security is perfectly compatible with free immigration: if most people were allowed to cross borders legally, government officials could focus their efforts on apprehending the tiny minority of terrorists, rather than diverting their efforts trying to keep out Mexicans who want to come work. Conversely, even if the United States granted no immigrant visas at all, terrorists could still enter the country on tourist, student, or short-term business visas, or under the visa-waiver program. And whatever you think about the merits of building a wall along the border with Mexico, it certainly won’t keep out terrorists. When I visited the Border Patrol in El Paso, Texas, they said their top priority was catching would-be terrorists. I asked them precisely how many terror suspects they had apprehended. The answer was “zero.” Does that mean al-Qaeda operatives are flooding into the United States across the New Mexico desert unnoticed? Of course not: they would most likely enter the country through a normal entry point using a false passport, or a genuine ID, if they are not yet suspects. There are more effective means of combating terrorism. Building a border wall is a hugely costly diversion.

Many people fear that if the United States opened its borders, everyone in poor countries would move in and American societies would collapse. It is a deep-rooted fear, as if immigrants were the barbarians at the gates. But it is misplaced.

After all, America didn’t do too badly when millions of poor European immigrants arrived in the late 19th and early 20th century. Nor has Britain collapsed since it opened its borders to Poland and the seven other ex-Communist countries that joined the European Union in 2004. If you consider that Poland is almost as poor as Argentina, Europe’s partial experiment with open borders is not a million miles away from the United States’s opening its labor markets to Latin America.

When Britain opened its borders to the Poles and other East Europeans, all 75 million people in those much poorer countries could conceivably have moved, but in fact only a fraction have, and most have already left again. Many are, in effect, international commuters, splitting their time between Britain and Poland. Of course, some will end up settling, but most won’t. Most people don’t want to leave home at all, let alone leave it forever: they want to go work abroad for a while to learn English and earn enough to buy a house or set up a business back home.

Studies show that most Mexican migrants have similar aspirations. If they could come and go freely, most would move only temporarily. But perversely, U.S. border controls end up making many stay for good, because crossing the border is so risky and costly that once a person has got across he tends to stay. A Mexican who overstays his visa knows that if he returns home, he will never be able to reenter the United States legally.

The case for open borders is compelling. Yet persuading skeptics won’t be easy. That’s why the argument for setting people free has to be made at several levels. There is a principled case: it increases freedom and reduces injustice; a humanitarian case: it helps people in developing countries; an economic case: it makes Americans richer; and a pragmatic case: migration is inevitable, so it is in everyone’s interests to make the best of it.

Allowing people to move freely may seem unrealistic. But so too, once, did abolishing slavery or giving women the vote. Campaigning for open borders is a noble cause for our time.

Open Borders Work (Part 1)

Imagine you were born in a part of the country where farming was no longer productive, or in a rust-belt town where the local factories had closed. You hear of good jobs in California and Colorado, so you decide to move. How would you feel if, when you arrived at the state line, you were denied the opportunity of a better life because you happened to have been born in a different state? Welcome to what it is like to be Mexican.

Freedom of movement is one of the most basic human rights, as anyone denied it can confirm. Yet governments obstruct people’s movement across borders in all manner of arbitrary and iniquitous ways. They require that people prove — how? — that their lives are in danger before admitting them. They determine which family members are permitted to join their relatives and which are not; Danes’ non-European spouses cannot come to live with them in Denmark unless both are age 24 or more. Americans’ foreign girlfriends and boyfriends also struggle to gain admission; the rules for foreign pets are laxer. Those seeking to come to work are vetted through a byzantine set of rules and quotas that delight bureaucrats, lawyers, and lobbyists, but deny most people the opportunity to better themselves and do untold damage to the U.S. and global economy.

Immigration controls are generally seen as normal, reasonable, and necessary, but in fact they are economically stupid, politically unsustainable, and morally wrong. For a start, the freedom to leave a country and enter another is the ultimate safeguard against tyranny. Throughout history, emigrating has often meant the difference between life and death: remember the Pilgrims who set sail on the Mayflower, the Huguenots who fled France to take refuge in England, and the Jews who escaped Nazi Germany. In the aftermath of the Second World War, the shameful recognition that governments had conspired to send countless Jews to their deaths by denying them refuge led to their signing on to Article 14 of the Universal Declaration of Human Rights, which states, “Everyone has the right to seek and to enjoy in other countries asylum from persecution.” In practice, though, this right is often honored in the breach.

While it is vitally important that asylum-seekers are able to seek refuge abroad, fear of persecution is not the only legitimate reason that people might want to cross national borders. They might be seeking a better job. They might want to be with the ones they love. They might simply want to experience something different. And why shouldn’t they be able to?

Those fortunate enough to be rich and highly educated take it for granted that they can move around the world more or less as they please. They vacation in Mexico, safari in Africa, even go on trips around the world; they increasingly work abroad for periods of time; and some end up settling elsewhere — like the many Americans who now live in London, and the many Londoners who now live in the United States. Why, then, do we seek to deny this right to others?

Opponents of open borders often respond that Americans aren’t actually free to go where they choose. They point out, correctly, that one needs a visa to go to many countries and that the Chinese government, for instance, may very well deny you one. But why should America be basing its policies on what the Chinese government does? Should the United States deny people freedom of speech because the Chinese government does so? The point about universal human rights is not that they are necessarily universally applied, but that they ought to be. That others fail to apply them is not a reason for the United States to fail to do so too.

Article 13 of the Universal Declaration of Human Rights states, “Everyone has the right to leave any country, including his own.” But what is the right to leave a country if one cannot enter another? Since even international human-rights law does not give people the right to cross borders freely, the United States should lead by example, by passing a constitutional amendment guaranteeing open borders.

Costs and benefits

Many people argue that opening the borders would have devastating consequences. But are the potential costs really so great that they warrant the huge injustice of denying people the possibility of moving freely? Might there not be big benefits to opening up the borders too? And even if one thinks immigration is a threat, are the costs of immigration controls not even greater?

This is not a point of abstract principle. Each year thousands drown trying to reach Europe. More people have died trying to cross from Mexico to the United State in the past decade than were killed on 9/11. By denying desperate people the opportunity to cross borders legally, the United States is driving them to risk death. Of course, voters and government officials would rather migrants didn’t die. But implicitly, they consider it a price worth paying for protecting the borders. That sounds shocking — and it is. But how else can we explain the general indifference to the deaths that U.S. immigration controls cause? Why is the official response always that “we” must remain tough in enforcing “our” border controls, rather than questioning whether the system makes sense? Immigrants are not an invading army; they are mostly people seeking a better life.

Freeing up migration is not just morally right, it is economically beneficial. When workers from poor countries move to rich ones, they too can make use of advanced economies’ superior capital, technology, and institutions, making them much more productive, and the world much better off. The departure of one in six Swedes for North America between 1870 and 1910, relieved pressure on the land, drove up the productivity and wages of those who remained, and helped catapult Sweden from grinding rural poverty to prosperity within fewer than 50 years.

Migrants from poor countries can earn wages many times higher in rich ones, and the money they send home — some $300 billion a year officially, perhaps the same again informally — dwarfs the $100 billion that Western governments give in aid. These remittances are not wasted on weapons or siphoned off into Swiss bank accounts; they go straight into the pockets of local people. They pay for food, clean water, and medicines. They enable children to stay in school, they fund small businesses, and they benefit the local economy more broadly. Where remittances account for a large share of the economy, they slash the poverty rate by a third. Even in countries that receive relatively little, they can cut the poverty rate by nearly a fifth. And by keeping children in school, paying for them to see a doctor, and funding new businesses, remittances can also boost economic growth. What’s more, when migrants return home, they take with them new skills, new ideas, and the money to start new businesses. Africa’s first Internet cafés were started by migrants returning from Europe.

Economists estimate that abolishing immigration controls could more than double the size of the world economy. This dwarfs the benefits of any other public-policy change. Just as the freeing up of international trade and capital flows since the Second World War has helped power a huge rise in living standards across the world, the freeing up of international labor mobility could deliver vast economic gains over the next 50 years. Indeed, the economic gains from migration are akin to those from trade.

Consider an American who requires medical care. He could be treated locally by an American doctor; he could go abroad to be treated by a foreign doctor; the foreign doctor could treat him remotely — over the Internet, for instance; or the foreign doctor could come to the United States to treat him. In the last three cases, the United States is importing medical care from the foreign doctor; the final case, which we classify as migration instead of trade, is simply a form of international services trade where a foreign provider comes to America to offer his services to consumers on the spot. But where services have to be delivered locally — the elderly cannot be cared for from afar; taxi drivers have to operate locally; dishes have to be washed on the spot — international migration is the only form of international trade that is possible.

Migration and trade

Now if one accepts that international trade is generally mutually beneficial — because, in a nutshell, it permits greater specialization, reaps economies of scale, reduces prices, increases choice, boosts competition, stimulates innovation, and raises economic growth — then so too, surely, is the particular form of it that involves foreign service-providers crossing borders to ply their trade. And just as governments have no place denying us the opportunity of watching foreign films, eating foreign food, or driving foreign cars, they should not be denying us the opportunity of engaging in mutually advantageous economic transactions with foreigners that entail their moving to our vicinity.

Where governments permit it, a global labor market is emerging: international financiers cluster in New York and London, IT specialists in Silicon Valley, and actors in Hollywood, while multinational companies scatter skilled professionals around the world.

Yet rich-country governments endeavor to keep out Mexican construction workers, Filipino care workers, and Congolese cooks, even though they are simply service providers who ply their trade abroad, just as American investment bankers do. And just as it is often cheaper and mutually beneficial to import computers from China and IT services from India, it often makes sense to import menial services that have to be delivered on the spot, such as cleaning.

Economic theory suggests that the gains from trade are greatest when countries are different. The United States has an aging, well-educated population, while the developing world has a much younger and generally less well-educated population. In effect, the work forces complement each other. It’s unfortunate that many free-traders who rejoice that Vietnamese people are bettering themselves by working in Nike factories to produce shoes for Americans are opposed to their coming to better themselves in America. People who truly believe in open societies and individual freedom are a rare breed.

18 meses de cárcel por buscar una vida mejor

Europa se dice civilizada, un continente de derechos humanos, de libertad y solidaridad. ¿Cómo, entonces, se justifica la nueva directiva de retorno de los inmigrantes sin papeles, aprobada por los ministros del Interior de la UE, que permite detener a los inmigrantes indocumentados hasta 18 meses? Un año y medio en, seamos honestos, ¡la cárcel! ¿Y por qué? Por atreverse a cruzar una frontera en busca de una vida mejor.

Eso no puede ser justo. Los inmigrantes indocumentados no son criminales ni un ejército invasor, son seres humanos menos afortunados que nosotros. Vienen a satisfacer la enorme demanda de mano de obra necesaria para hacer los trabajos que nosotros no queremos hacer; pero no les permitimos hacerlo de manera legal.

Esa directiva, y los controles más estrictos, no sólo son crueles y costosos, sino también inefectivos y contraproducentes. Los muros de Ceuta y Melilla no impiden pasar a la gente, como tampoco lo hizo el muro de Berlín. Cada año miles de personas mueren tratando de llegar hasta Europa, así que encerrar durante 18 meses a algunos de los que lo consiguen no va a impedir la inmigración ilegal. Ya hay millones de indocumentados en Europa, y detenerlos y expulsarlos es imposible. ¿No sería mejor que legalizásemos y regulásemos la inmigración?

El Parlamento Europeo debería rechazar hoy la directiva de retorno. El control cada vez más estricto de las fronteras crea más problemas de los que soluciona. En vez de proteger a la sociedad, multiplican los controles que fracturan y corroen el respeto por la ley y el orden. Si seguimos así, con el tiempo llegaremos a un Estado policiaco. ¿Es ésa la Europa del futuro que queremos?

5 Myths about NAFTA

Sen. Hillary Rodham Clinton often likes to take credit for her husband's achievements as president. But then there's NAFTA. Clinton may have been present at the creation of the North American Free Trade Agreement in 1994, but she wants everybody to know that it's not her baby. She now proposes to "fix" the agreement to make trade "work for working families." Sen. Barack Obama, meanwhile, makes the fallout from NAFTA sound downright nuclear, lamenting that "entire cities . . . have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers had a fair deal." Despite the heightened rhetoric, he, too, wishes to "fix" the treaty, not nix it. Only the presumptive Republican nominee, Sen. John McCain, would leave NAFTA untouched; his priority is freeing up global trade.

The Democratic rivals have bought into most of the myths that have been peddled about the agreement and have placed their opposition to NAFTA at the center of their campaigns. Here's some information that could help them update their stump speeches.

1 NAFTA has transformed the U.S. economy.

Hardly. Critics rightly point out that NAFTA's economic benefits were oversold, but they're wrong to heap the blame for all America's woes on it. NAFTA, which expanded the existing Canadian-U.S. free-trade area to Mexico, has had only a marginal effect on the U.S. economy. Yes, exports to Mexico have more than tripled since 1993 -- but at $161 billion last year, they still account for only 1.1 percent of the economy. Considering that total U.S. exports have more than doubled over the same period, to more than $1.6 trillion a year, the boost from NAFTA is just a trifle.

Though imports from Mexico have risen nearly five-fold since 1993 -- potentially threatening some U.S. businesses -- they only amounted to $230 billion in 2007, or less than 1.7 percent of the $14 trillion U.S. economy. That's peanuts. And for all the fears of factories being shipped south on the back of an 18-wheeler, the total U.S. investment in Mexican factories and offices adds up to a mere $75 billion. Mexico received just $19 billion in foreign direct investment in 2006, while the United States attracted $175 billion. Thus, the "giant sucking sound" that Texas businessman and independent presidential candidate H. Ross Perot heard back in the 1990s doesn't sound so giant after all. But the benefits of NAFTA don't seem so remarkable, either.

2 NAFTA has put countless Americans out of work.

Not really. Obama claims that NAFTA has destroyed a million American jobs. Suppose he's right. Total employment still rose by 27 million jobs between 1993 and 2007, to 137.6 million, and the unemployment rate has fallen. At worst, then, NAFTA has cost only a tiny minority of American workers their jobs. And even that is a one-sided view. As Mexico opened its economy to U.S. trade and investment, NAFTA created new American jobs, too.

NAFTA critics also decry the trade deficit with Mexico, but at $70 billion a year, it accounts for only 0.5 percent of the U.S. economy. These figures should quiet NAFTA foes, who point to lost jobs and stagnant manufacturing wages, as well as boosters, who trumpet claims of rising output and record-high exports. The fact is, NAFTA has had only a fractional impact on these trends. Mexico's biggest impact on the U.S. labor market is not through trade, but through immigration. And the money that Mexican migrants send home contributes more to the Mexican economy than foreign direct investment does.

3 "Fixing" NAFTA would be easy and cost-free.

Not so. Any changes would require a lengthy and complex renegotiation with Canada and Mexico. As Canada's prime minister, Stephen Harper, has pointed out, "Of course, if any American government ever chose to make the mistake of opening [NAFTA], we would have some things we would want to talk about as well." Just the threat of pulling out of NAFTA would do some damage, too. Far from boosting America's international reputation -- something all presidential candidates agree is important -- it would fan fears that the United States is an unreliable ally and discourage foreign governments from committing to future agreements with Washington. The slim chance of concluding the World Trade Organization's Doha round of global trade talks would vanish. And if the next president wants, for instance, Mexico's help in dealing with immigration reform and Canada's hand in combating terrorism, then blaming America's friendly neighbors for its perceived woes is hardly the way to start.

4 Making NAFTA's labor and environmental regulations stricter would benefit U.S. workers.

Probably not. Clinton wants to make the treaty's labor and environmental provisions "far tougher and absolutely binding" and to require that all future trade agreements include similar language. The stated purpose is to raise labor and environmental standards around the world and to make it harder for companies to ship jobs to countries where workers have fewer protections than in the United States. But America's trading partners would probably see the move as covert protectionism -- since when have the Teamsters cared about Mexican wildlife? -- and may retaliate. Meanwhile, consumers would probably resent the increased cost of their imports.

In any case, tough social clauses could backfire on the United States. Canada's labor and environmental standards are generally higher than the United States', and Canadians could claim that lax American standards amount to unfair competition. Given that Canada and Mexico have joined global efforts to curb climate change, they might wish to restrict American imports if the United States continues to hold back. And Mexican workers arguably have stronger labor rights than Americans: Unlike the United States, Mexico has ratified most of the International Labor Organization's conventions on core labor standards, including those on freedom of association, collective bargaining and employment discrimination. If the United States bashes Mexican labor practices, what's to stop Mexico from objecting to American imports produced in non-unionized factories?

5 Renegotiating NAFTA should be a priority for the new president.

Absolutely not. With the housing market plunging, the financial system seizing up and the economy apparently shrinking, tinkering with a treaty that governs trade with two of Washington's trading partners is a costly distraction -- whatever your view of NAFTA. The next president will have much bigger things to worry about, such as stopping the economy from going into a tailspin; cushioning the blow for vulnerable Americans who lose their homes, their jobs and their health care in the downturn; and helping frame new regulations that protect the economy against future financial excesses without stifling the market. Compared to all that, changing NAFTA looks like small change.

Opportunity knocks

The government is in a mess over immigration. Its statistics are a shambles, policy is confused and its pronouncements are all over the place. Instead of putting a positive case for immigration, it appears in turn weak, defensive and outright hostile. No wonder it is on the back foot.

Border wars

To read it, click here

The case for immigration

There is a contradiction at the heart of our globalizing world: while goods, services and capital move across borders ever more freely, most people cannot. No government except perhaps North Korea’s would dream of banning cross-border trade in goods and services, yet it is seen as perfectly normal and reasonable for governments to outlaw the movement across borders of most people who produce goods and services. No wonder illegal immigration is on the rise: most would-be migrants have no other option.

The case for opening Europe's borders wide to migrant workers

Read my article for Europe's World here

Better than nothing

The new U.S. immigration bill drafted by leading Democratic and Republican senators is a deeply political bargain that has been hammered out over months, and it shows: The result is a 380-page Frankenstein.

Migrant tax would slash illegal entry into Europe

It is time that Europe’s politicians admitted to voters that governments cannot stop people moving across borders. Despite efforts to build a Fortress Europe, more than a million foreigners bypass its defences each year: some enter covertly; most overstay their visas and work illicitly. While draconian policies do curb migration somewhat, they mostly drive it underground.

Första steget mot fri invandring

Click to read an article I wrote for the Swedish magazine, Neo.

Migrant nation

View the pdf here

Open up to migrants

View the pdf here

Migrants at work

View pdf of article

View Management Today's website here.

Don't believe this claptrap. Migrants are no threat to us

Fear of foreigners is nothing new, yet rarely has panic about immigration been so feverish. It tops voters' list of concerns, jangling raw nerves about jobs, public services, race and terrorism. The new bogeyman is a Muslim asylum seeker. Yet, contrary to tabloid hysteria, we are not being swamped with immigrants - nor are they a threat. Fewer than 10% of people in Britain were born abroad. Asylum applications were a mere 25,710 in 2005, while 15,685 failed asylum seekers were deported; the refusal rate exceeds 80%. Britain, a soft touch? Hardly.

Mr Reid's continental dog's breakfast

When John Reid became Home Secretary, he promised to get a grip on Britain’s shambolic immigration system. But less than six months later, he is already making an even bigger mess of it.

Inefficient markets

Peas in a Pod™
Fears that Apple aims to become the Microsoft of the music download business by using proprietary technology to lock in the dominance of iTunes have already attracted the scrutiny of Nordic competition watchdogs. So it is a worrying indication of Apple's monopolistic intentions that it is laying legal claim to the word "Pod," threatening to sue companies that use the word as part of their product names for infringing its iPod trademark. It is already taking action against the small start-up that makes the Profit Pod, an infrared scanner used to record activity on video-arcade machines.

But lest Steve Jobs forget, Apple did not invent the word "pod." By trying to appropriate it, he risks alienating millions of people who were once attracted to Apple's apparently upstart brand, as well as fanning the fears of European trustbusters. After all, even Microsoft has not dared to lay claim to the word "Word."

Inefficient markets

Doha derailed — who to blame?
So much for the lofty rhetoric about freeing trade and aiding development; when it came to the crunch, governments instead bowed to corporate protectionism. Thus the Doha round — launched after 9/11 as WTO members rallied around America in a show of unity — has collapsed in acrimony, with most blaming the US for its demise. This is not fair. America was guilty mainly of being too ambitious: it offered to prune its agricultural subsidies if others sheared their farm tariffs, but India and the EU refused.

Inefficient markets

Globalisation is working

Inefficient markets

Inefficient markets

Inefficient markets

It’s up to Lamy

Prospects for the Doha round look grim. Over five years in, and the World Trade Organisation’s 149 members still seem as far apart as they were during the 2003 Cancún debacle. Only the massaging down of expectations by WTO boss Pascal Lamy ahead of the Hong Kong summit last December rescued it from disaster. Now another deadline looms: 30th April, by when an outline deal must be reached if a final agreement is to be struck by the end of the year, ahead of the expiry of Bush’s fast-track authority in 2007. 

Do corporations rule?

The socialist who can breathe life into free trade

From September 1st, the shaky prospects for freer world trade will rest on the shoulders of a French socialist. With the World Trade Organisation's Doha round deadlocked and little time left to reach agreement, the new man in charge of the WTO, Pascal Lamy, faces a daunting challenge. Unless the former European Union trade commissioner can help break the deadlock and hammer out the outlines of a deal before trade ministers meet in Hong Kong in December, hopes for a successful outcome to the Doha round will fade. That would be a disaster for the world economy and for export-reliant developing countries in particular.

No-voters score own goal against Europe

Tony Blair must be thanking his lucky stars. The British prime minister never wanted to fight a referendum campaign on the European Union constitutional treaty that he stood a good chance of losing. Now, thanks to the No votes in France and the Netherlands, it looks like he will be spared the ordeal. When, in April 2004, he caved in to demands for a referendum, it looked like a gamble that would take Europe off the agenda in this year's election but potentially destroy his premiership shortly thereafter. Now it looks like a stroke of genius. But even so, Mr Blair, and more importantly Britain, will not escape unscathed from the aftermath of the No votes.

French myth-making

Many French people rejected the constitution because they regard Brussels as the handmaiden of "ultra-liberal" Anglo-Saxon capitalism, intent on deregulating markets and opening up the French economy to competition. Just look, they say, at the EU's proposed services directive, which would tear down barriers to trade in services, or at the eastward enlargement of the EU, which has exposed French workers to competition from low-wage, low-tax economies such as Poland. The upshot, they claim, is that the EU is driving social standards down and pushing unemployment up.

Europe's no basket case

“Shock! Horror! Cato Institute declares American capitalism superior to European social democracy.” That was my cynical initial reaction to Cowboy Capitalism: European Myths, American Reality, a new book published by the free-market Washington, DC-based think-tank that comes recommended by the usual right-wing suspects: Milton Friedman, James Buchanan and Henry Paulson, the boss of Goldman Sachs.

Disaster relief

It goes without saying that George W. Bush is not loved in Europe. Even before the Iraq war raised animosity toward him to fever pitch, the perceived stupidity, ignorance, and arrogance of the "Texan cowboy" had gone down badly across the Atlantic. His evangelical Christian beliefs do not sit well with mostly secular Europeans. His assertion of U.S. exceptionalism sticks in the craw. His contemptuous dismissal of the United Nations has angered even those Europeans who normally favor a strong alliance with the United States. So two days after the presidential election, when the Daily Mirror ran a front page picture of Bush next to the headline, "How can 59,054,087 people be so dumb?," it was widely assumed that the paper was reflecting popular sentiment in this part of the world.

Sorry, but we just don't need the global compact

Globalisation is not perfect, but it is overwhelmingly a force for good. The rapid growth of trade and investment across national borders is spreading greater prosperity and opening up new opportunities to billions of people around the globe. China has recorded the fastest fall in poverty the world has ever seen. Global inequality is now declining for the first time since the Industrial Revolution, as China, India and others begin to catch up with the West. Those countries that are still floundering  notably in Africa  are largely victims not of globalisation, but of a lack of it.

After Cancún: What future for multilateralism?

Optimists claim that the debacle in Cancún is just a temporary setback. As old trade hands were quick to point out, world trade summits have an unfortunate habit of failing: just cast your mind back to Seattle in 1999, Brussels in 1990 and Montreal in 1988. Eventually, though, negotiators haul the show back onto the road and a deal is clinched. It may happen again this time. But what if the acrimonious breakdown of the World Trade Organisation’s Doha round last September is actually much more serious? We cannot afford to be complacent. If the WTO is in serious trouble, the consequences could be devastating  not just for international trade, development and the world economy, but also for multilateralism and global progressive politics.

Trade at your own risk

Markets do not exist in a vacuum; they operate in a social, political, and legal context. That insight - obvious to thinkers such as Adam Smith and Karl Marx, but forgotten in the zeal to fashion economics into a science more like physics than sociology - lies behind the revival in recent decades of the academic discipline known as “international political economy” (IPE). But although IPE scholars are right to reject a vulgar economism, they often assert the primacy of politics so vigorously that they neglect economics.

The coming collapse of free trade

Last month, when World Trade Organization (WTO) talks in Cancún collapsed in acrimony, the United States responded with a brave face. Though the meeting was seen as the best chance to push forward the Doha round of trade negotiations, which aims to slash trade barriers and boost the global economy, America's negotiators insisted the United States would continue to fight for freer trade. "For over two years, the U.S. has pushed to open markets globally, in our hemisphere, and with sub-regions or individual countries," said Robert Zoellick, the U.S. trade representative. "As WTO members ponder the future, the U.S. will not wait: We will move toward free trade with can-do countries." Zoellick's message is clear: If pesky "won't-do" countries block the multilateral, WTO route to liberalization, they will be left by the wayside. The United States will instead spearhead a push for free trade through bilateral and regional agreements.

For richer, for poorer

The world gets poorer when all we trade are insults

As Churchill might have said, the World Trade Organisation is the worst way of governing the world economy, except for all the others. That is what the seething globaphobic masses and padded ministerial suits who conspired to wreck the WTO’s recent meeting in Cancún may soon find out. With prospects for freeing world trade — the engine of global economic growth over the past 50 years — in tatters for now, the consequences could be devastating. Indeed, finance ministers who are in Dubai for the World Bank/IMF meeting have already been expressing regret for the Cancún debacle.