Mass Immigration: Cost or Benefit?

1. IS IMMIGRATION A PROBLEM OR AN OPPORTUNITY?

Although the present study frequently refers to Germany, I believe that my conclusions apply more generally to ageing European societies and to the impact of migration from poor to rich countries. Like much of Europe, Germany is an ageing society. The proportion of the working age population is falling, while the proportion of pensioners or the elderly is rising.1 Therefore, it seems like a plausible idea to close this demographic gap with those mostly young people who are clamouring for access to Europe’s welfare states. More and more people want to come to Germany and other rich European countries from Africa and Middle Eastern countries ravaged by civil war and repression, or even from impoverished countries in the Balkans where many people have lost hope of ever finding a job in the formal economy and earning a decent wage. Hence optimists believe that the needs of ageing European economies and the needs of would-be immigrants knocking at our doors complement each other.2  We open our doors for refugees and people trying to escape from civil war, hunger and poverty. They come. Host countries, refugees and other immigrants improve their lives. The world becomes a better place.

Such optimists have some influence on German policies. Germany takes more refugees or people claiming asylum than Britain and France together.3 It is impossible to explain this fact by humanitarian, moral or legal obligations, because these obligations apply equally to all Western democracies. Nor can it be explained by the size of the German economy. The French and the British economy together are significantly bigger than the German one. Since Germany lost its colonies earlier than the British or the French, and German in contrast to English is no longer widely spoken by foreigners, it is also impossible to explain the desire to go to Germany rather than elsewhere by the migrants’ knowledge of the German language. But the generosity of state benefits for refugees makes claiming asylum in Germany much more attractive than claiming it elsewhere. Benefits are more than 50% higher in Germany than in Britain or Sweden, more than four times as high as in Hungary.4 In spite of bigger numbers of immigrants, German voters so far have not protested as much against mass immigration as did British or French voters. Possibly, Germans feel better than other Europeans because we have suffered less than others since the crisis of 2008.

We also need to consider the possibility that mass immigration from poor Balkan countries, the Middle East, and increasingly from Africa to Europe is not a transient crisis, but the beginning of a long-term trend that may be occasionally halted, but is likely to accelerate for demographic reasons. In Germany the number of refugees and people claiming asylum is likely to quadruple from about 200,000 in 2014 to 800,000 in 2015. For decades there will be an abundance of young people in the Muslim world, and even more of them in Africa. Many of them will be attracted by European prosperity, even if European growth rates remain low. The income gap between Europe on the one hand and the Middle East or Africa on the other is likely to persist. Under such circumstances one cannot indefinitely postpone asking the following questions: How much mass immigration can European societies bear? What kind of immigration do we need? How does mass immigration change European societies? What type of reforms could improve our capability to absorb migrants? A lack of readiness to face these problems now does not necessarily imply that the issue of mass immigration into Europe will wither away.

Chain migration is another reason why mass migration to Europe is likely to persist or even accelerate.5 The more people from some poor country have already settled in a rich country, the more their relatives, friends and neighbours are tempted to follow them. Pakistanis find many fellow Pakistanis in Britain, possibly, even friends or neighbours from their home country. A similar situation applies to Algerians in France or Turks in Germany. Chain migration explains why there are pairs of sending and receiving countries in the migration process, why Turks are less likely to go to France or Britain than to Germany, why Algerians prefer France, and Pakistanis Britain. Chain migration therefore implies that an open door today leads to more claims for access by other migrants tomorrow. Simultaneously, chain migration is a brake on integration, as many immigrants tend to live closely together, even in ethnic ghettoes, for economic reasons, like cheap rents, as well as for reasons of preference, in order to live together with ethnic kin where non-working people may not need to learn the official language of the host country.

 2. COSTS OR BENEFITS? A BALANCE SHEET

It is easy to imagine how immigration might solve the problems of ageing societies, like Germany. Our immigrants would be mostly highly qualified good Samaritans who earn a lot and happily pay their taxes and social insurance contributions.6 But are there enough highly qualified good Samaritans? If there are many of them, why should they come to rescue rich welfare states instead of fighting against hunger, disease and poverty in Africa, as Albert Schweitzer did or Bill Gates does? So far, the balance sheet of migration to Germany indeed looks quite different. According to an official government report7, only 5.4% of German students, but 11.6% of foreign students do not finish secondary school (Hauptschule), 13.5% of young people (20–29 years old) in Germany have insufficient vocational training, but among foreigners the percentage rises to 30.5%8  Vocational training is one obvious determinant of job prospects, future income and tax contributions. Whereas among non-migrants the risk of poverty in Germany has been 12.3%, among migrants the risk is 26.8%. From 2008 to 2013, unemployment ratios among foreigners have been at least twice as high as among Germans.9

Tax and welfare states generate incentives for migration. Many people in poor European countries, in the Middle East or in Africa know that transfer payments in Germany or other European welfare states are higher than what low or even average income earners might ever make at home.10  Many German high earners know that the tax burden would be somewhat lower in the US or in Switzerland than in Germany. Emigration by high earners and taxpayers, and immigration into transfer systems is not what ageing societies with pay-as-you-go systems need. Welfare states affect migration in a way which leads to the deterioration of the human capital basis of societies and therefore the capability to sustain the welfare state. Since welfare states provide generous benefits to immigrants, the latter will increase the tax burden on high income earners. After all, somebody has to pay for all those benefits. Benefits for migrants necessarily imply some reduction of economic freedom for the indigenous population, particularly for high income earners. In Germany, the migration regime is not governed by the economic interest of the German people, but by humanitarian considerations. According to an official government report,11 there have been about 200,000 claims for asylum in 2014. In addition, family unification has been another major source of immigration. None of these is related to the needs of the German economy. In 2013 only 437,000 more people migrated into Germany than emigrated.12

There have been empirical studies which argued that migration has been beneficial to Germany, but following Sinn13 it has to be pointed out that these findings depend on attributing general government cost (including administration, justice, the police, or defence) only to the native population, but excluding recent immigrants. If these burdens are attributed to the entire population, then migrants impose a burden of somewhere in between 700 and 2,400 euro per year on the German taxpayer, or about 79,000 during their lifetime. It is inconceivable to rescue government finances or social security systems in ageing Germany by the type of immigration which we are seeing now.14

It is deplorable that the migrants who actually come to Germany do not bring along the cognitive capabilities or knowledge capital to contribute significantly to prosperity and growth in their adopted country. According to econometric research, cognitive or human capital is a major determinant of economic growth rates.15 If migrants bring little human capital along, they must be a burden on host societies. It is hardly conceivable that home countries which suffer from poverty, political instability, civil war or repression educate their emigrants in such a way that they become easily employable in highly developed countries. A much more plausible proposition is that the poorer a source country of migration is, the less qualified its migrants are for a job in a more developed economy. This suspicion is reinforced if technological change is likely to jeopardise their chances at the lower end of the labour market, but is also likely to affect more and more middle level jobs too, if “average is over” as has been predicted by an eminent economist.16  Worse still, migration itself always implies some devaluation of the human capital of migrants, if they do not sufficiently command the language of the host country. This applies more frequently to migrants to Germany than to migrants to Britain or even France.17

Migration into the social safety net necessarily raises tax burdens for the host society and brings about some reduction of economic freedom. Economic freedom is another determinant of economic growth rates.18 It merits repetition: high government revenues and expenditures decrease economic freedom, in particular of high income earners and taxpayers and thereby economic growth rates.19

A Christian Democrat mayor of a German city illustrated another way in which immigration might affect economic freedom. He suggested a forced takeover of empty flats in order to house refugees.20  Property rights might become less safe in the future. If one looks at the actual effects of recent migration into Germany, one has to admit that it has not contributed to solving the problems of our ageing society. At best one might hope that humanitarian immigration policy does not overburden our society.

Inspired by a British researcher on Africa, poverty and migration, Paul Collier,21 one should also ask whether mass immigration affects the institutional basis of Western societies and their prosperity.22 There is no reason or need to regard Western civilisation as superior to other civilisations in general, but one has to admit that Western civilisation has been superior in generating higher incomes than elsewhere – with the possible exception of Confucian civilisation from where few migrants come to Germany or Europe. If there are differences in social expectations, habits and informal norms of indigenous people and migrants, then one has to face the question of how much diversity a society can stand. A characteristic of foreigners is that they simply cannot know the social norms of their host society as well as the natives. Sometimes the norms they bring along even contradict the norms of the host society. Norms concerning the relationship between men and women which Muslims bring along may be similar to social norms in Europe in the 19th century, but they certainly differ from current European norms. Or, if one has learnt at home that officials do their duty (if at all) only after being bribed, then it takes some time before one believes that the host society actually is different.

Whether and how much immigrants endanger the cohesion of host societies, depends on the similarity of social norms between source and target countries of the migration process. The religious heritage of nations influences social norms – possibly even after many people have become agnostic. Therefore it is legitimate to suppose that immigration by Christians imposes less of a burden on European host societies than Muslim immigration. Nevertheless, few Christians in Germany dare to suggest that we should give preference to Syrian Christians over Syrian Muslims.23

In general, cultural heterogeneity is a burden. But one could make a difference between various groups of immigrants. When I attended the European Public Choice Conference 2003 in Denmark, I learned about Danish experiences with different types of immigrants who were numerous enough for statistical analysis. Poles enjoyed the highest degree of labour market integration, Vietnamese somewhat worse, and Somalis much worse.24 These findings fit with two general hypotheses which I want to propose: the more different the culture of the source country is from that of the host country, the worse are the integration prospects. The difference between Protestant Danes and Catholic Poles seems to matter little. Moreover, the poorer and less developed a source country is, and the more difficulty it has in growing rapidly, the bigger the labour market integration problems are in the host country. That is why the Vietnamese did better in Denmark than the Somalis.

According to German press reports, Vietnamese children sometimes do even better than native German children at school, because Vietnamese parents put a very high value on the education of their children. Therefore many of these children later succeed professionally. Thus, immigration may be good for the host country. Indian and Chinese immigrants to the US tend to be better educated than other Americans and enjoy better incomes than white Americans. It is possible to benefit from immigration, if the door is wide open for talent, but firmly closed for poor risks. In order to benefit from immigration, one needs the courage to choose. In Germany, immigrants only choose the host country. Nobody dares to ask how immigrants are likely to affect Germany: its institutions and individual freedom,25 its prosperity and growth prospects.

Besides, one has also to consider the impact of cultural heterogeneity on political stability. Cultural heterogeneity is increased by mass immigration.

Consider the fate of the former Yugoslavia with its Catholic Croats, Orthodox Serbs, and Muslims in Kosovo or Bosnia. Or think of Syria or Iraq with Sunni Muslims, Shias, Alawites, Yazidis and Christians, their Arabs and Kurds. Or think of Nigeria with its Haussas, Ibos, Yorubas and many smaller ethnicities, Muslims in the north and Christians in the south. Or consider Pakistan with its politically dominant Punjabis, but before 1971 Bengalis in the East, or currently rebellious Balochs in the West. Even in the United States it is hard to overlook persistent tensions between black and white. In Northern Ireland, there are tensions between Protestants and Catholics. Is it responsible politics to generate potentially explosive cultural heterogeneity by permitting mass immigration?26

Many refugees come from such ethnically or religiously mixed places. In order to evaluate the coming degree of cultural heterogeneity one should not look at the proportion of immigrants or foreigners in the population, but rather the mix of children. Among children below the age of ten in Germany, already about a third have some migratory background.27 Even without the currently accelerating mass immigration it has been obvious for some time that Germany will radically change in the next decades. The Economist characterised the German prospect with these words: “The newcomers are not as well educated as the native Germans, but they have more babies. … In some towns in the Ruhr region the share of the under-fives with migrant backgrounds tops 60%. Overall, they account for a third of the youngest children. By mid-century half of the population will have non-German origins… By then Germany will be a different sort of place.”28

3. EXPANDING GOVERNMENT FOR HUMANITARIAN REASONS?

Exclusive property rights are the basis of civilisation, certainly of Western civilisation. Without property rights there are few incentives to work hard, no scarcity prices on markets, no mobilisation of decentralised knowledge.29 Property rights are something more than claims or possessions. They are respected by others, by rulers and by authorities. Property rights and the law are more likely to enjoy general respect if they fit with the habits, traditions and informal norms of a society.30  Mass immigration risks endangering traditions – the more culturally distant the immigrants are, the more the danger. Any society which welcomes masses of people who need protection and claim access endangers itself.

Like other rights freedom requires exclusion. Even the right to self-ownership becomes a useless aspiration, if it is not respected by other members of a society. I cannot imagine a free society without self-ownership. Without general respect for rights and laws, there can be no self-ownership. Democracy and the election of government by the people presuppose that the people are somehow defined. One needs to know who belongs and who does not belong to the country. What is the value of self-government if the government enjoys the right to focus on the interests or needs of outsiders who urgently need help at the expense of their own people and electors? In order to avoid misunderstandings: my point is not criticism of humanitarian action or assistance to fellow humans. Private generosity and help is admirable. I agree with those who use their private funds to assist people in greater need in foreign lands rather than support people with less urgent needs at home. A Christian Democrat from Brandenburg who took two refugees from Eritrea into his private home provides an admirable example. Inspired by Hayek, my point concerns the limits of government. Since Western welfare states appropriated the task of guaranteeing the material welfare of their people, government size as well as government debt has grown rapidly.31  If Western welfare states, like Germany, now take over the task of assisting hungry and homeless refugees from almost everywhere, then government must expand further and economic freedom must wither away. This process of expanding the duties of government from one’s own people to foreigners has begun with development aid. Following Hayek, one should raise the question whether government knowledge ever can be sufficient to take over responsibility for the global mitigation of human suffering.32

It is frequently overlooked that globalisation or the export of economic freedom from the West to the rest of the world has dramatically reduced global poverty and even inequality among human beings.33 The catch-up process of poor countries depends on the exploitation of the advantages of backwardness. The less economically developed a country is, the faster its economy may grow. This is one of the few truly robust results of econometric research.34 Poor countries may imitate technology or models of business organisation from more advanced countries. There they find markets for their exports. Because of the advantages of backwardness even those poor people who are denied access to Western societies benefit from economic freedom in Western societies. Moreover, they also benefit from medical research in the West. That is why people in reasonably well governed autocracies (like China or Vietnam, but not North Korea) enjoy a much better life expectancy than Westerners had at a similar level of economic development. In the last decades life expectancies have converged across the globe.

If Western countries had not first established safe property rights and economic freedom – alternatively, one might say, if we had not invented capitalism – then advantages of backwardness could not exist. These advantages benefiting developing countries are an external effect of economic freedom in the West. Admittedly, economic freedom improves opportunities only. Without effort and hard work it does not guarantee success. In the past, East Asians have been more successful than others in exploiting these advantages. If Western countries preserve their economic freedom and dynamism, then they automatically contribute to the development of poorer societies. By contrast, the effects of development aid remain questionable. It is hard to demonstrate aid effectiveness by econometric studies. Admission of migrants and refugees is beneficial for those people who enter Western societies. But it is not clear whether mass migration from poor countries to the West is the most effective way to overcome global poverty, if one takes the feedback of mass migration on political stability, institutions and Western growth rates into account. Possibly, Western societies might become overburdened and cease to be the engine of global development.

Doubts about the beneficial impact of a solely humanitarian migration policy, as in Germany, do not imply a closing of German or European borders to all immigrants. But immigration should not be like a political struggle where some people win, like migrants who benefit from social transfers, and others lose, like native taxpayers. In well-working markets buyers as well as sellers improve their lot. Otherwise free exchange would be impossible. Migration should be governed by similar principles. Migrants hope to improve their standard of living by moving to where their work and services are paid better, for example because they work at times where the locals do not want to work, or they do jobs which the locals dislike to do. Consumers in the host country benefit, too. The less powerful the attraction of welfare states becomes, the more migration can become a win-win game for migrants and natives alike. In order to generate such a result, Germany might need to become more similar to the US. The population would become more heterogeneous, but the welfare state needs to become less generous. This might work. Except for Afro-Americans who did not enter the US voluntarily but were brought there as slaves, the American “‘melting pot”‘ seems to work. Whoever has seen the American–Mexican border, however, knows that the US still claims the right to return undesired immigrants.35

Unfortunately, trimming the increasingly unsupportable welfare state in ageing Germany is politically no easier than fundamental reforms in over-indebted Greece. Therefore the combination of an attractive welfare state and an open door for migrants is likely to dim the prospects of Germany and Europe.36