CHAPTER 14 THE SENDING COUNTRIES, THE IMMIGRANTS THEMSELVES, AND THE WORLD AS A WHOLE This book studies the effect of immigrants upon the country which receives them, the United States in particular. Fierce policy debates focus upon that subject. But in the course of such debates, the effect upon the sending countries sometimes arises; those who oppose immigration argue that the immigrants' countries of origin, and the immigrants themselves, are harmed. The matter also bears upon such U. S. policies as requiring Fulbright scholars to leave the U. S. after their sholarship period. Furthermore, the subject is of intrinsic interest. It is for those reasons that a brief chapter about the effect upon the sending countries, and upon the world in general, is included here. It must be said that much of the apparent concern about the ill effects of emigration upon the sending countries and the immigrants is pious hypocrisy on the part of those persons who are against immigration and are willing to use any plausible- sounding argument to advance their cause. But there certainly also is sincere concern on the part of some persons, and particularly those within the sending countries themselves. The matter therefore deserves to be taken seriously. These are the main mechanisms by which out-migration might affect the sending country: 1) abandonment of social capital by emigrants; 2) reduction in returns to capital; 3) brain drain; 4) reduction in "surplus" labor force which receives more than its marginal product from private and public sources; 5) remittances; and 6) externalities of population density and size. We shall consider them in that order. To a considerable extent, these mechanisms with respect to sending countries are the same mechanisms at work in the receiving countries but in reverse, and therefore the discussion given in the other chapters need not be repeated at any length. ABANDONMENT OF SOCIAL CAPITAL In the grand tradition of classical economics, formal economic theory pertaining to emigration has focused on physical capital. And indeeed, an economic motive throughout history when countries have expelled a minority group -- examples, twentieth century are the expulsion of the Indians from Africa and from Ceylon, and the Jews from Germany -- the natives intended to gain the benefits of property, the expelled emigrants' real and business, either by forced sale below market value or by expropriation. The same logic holds with respect to voluntary emigrants and public capital such as roads and irrigation systems. It is this logic which Usher (1977) formalized, as discussed in Chapter 8. (His calculated example, however, is not sound, for reasons given in Chapter 8.) The gains to remaining natives from the capital abandoned by refugees are not likely to be of great importance, even in the short run. True, some people will wind up with much nicer houses than they could otherwise have acquired, as was the case with some Israelis in Jerusalem after Arabs fled in the 1948 war. Abandoned businesses, however, usually lose most of their value after the owners depart. And the gains to those remaining from diminished congestion in the use of public goods such as roads and harbors are not likely to be of any importance. Those who hope for big capital gains to the society as a whole from emigration are likely to be disappointed. Tobin (1974, p. 18) renders a pungent and surely wise verdict on that activity in the context of East Africa: Sometimes official economic rationales of policies of Africanization, implicit and explicit, seem to be based on an image of the economic process quite different from the models discussed above. The image is an economy whose aggregate wealth and income are naturally and exogenously determined, independently of the effort, skill and saving of the inhabitants. Jobs and shops and businesses are just tickets that allow the holders to claim shares of these exogenously fixed, though it is hoped growing, amounts of wealth and output. The tickets can be reassigned without danger to the total, so obviously the lot of citizens can be improved by giving them tickets formerly held by aliens. Maybe such an economy is approximated by an oil-rich sheikdom or by a country whose land effortlessly yields crops for export or home consumption or displays scenic beauties greatly prized by foreigners. But it is a dangerous model for almost all real countries, and a possibly serious consequence of expulsion policies may be that these rationales will be believed by the governments that espouse them and the people the policies are supposed to benefit. There will be some gain to the sending society from the lessened need to build new demographic capital such as schools and hospitals, especially if the population of the sending country is growing even in the face of emigration. Chapter 8 estimated this factor in reverse for receiving countries to be a cost of about $4172 per migrant family in 1975 dollars. The amount of saving might be somewhat less in a poorer sending country, because of lesser costs of construction, but this might still be the correct order of magnitude, and is not insignificant. There are, however, important but intangible costs that accompany a stationary aging stock of real and physical capital, because for technology and an adequate or deteriorating system (such as electrical systems) are built into that capital. REDUCTION IN RETURNS TO CAPITAL If there are fewer native workers, the owners of capital will make less money from the operation of their plant and equipment, because wages will be higher and therefore the capital will be used less intensively. This is the Borts-Stein-Berry- Soligo line of thinking which was discussed in Chapter 8 with respect to the effect of immigration upon receiving countries, and therefore it needs no further explication here. Except in the case of massive emigration, this mechanism is not likely to be important in the contemporary world, however. EXTERNALITIES OF POPULATION SIZE AND DENSITY Fewer people may mean less congestion in public facilities for a while. But in the longer run, when there is time for new construction, congestion need not be a function of the population density per square mile, as Hong Kong and Singapore demonstrate sharply. And in the longer run, greater density is likely to be advantageous because of shorter distances over which goods and messages must travel; such shortness of distances is the key to Japan's "just in time" factory supply and inventory system, as discussed in Chapter 10. And therefore diminution of population density due to emigration is likely to have unfavorable results. Greater population size also implies faster growth in productivity due to larger industry volume as well as a larger supply of inventive minds, as discussed in Chapter 9. Emigration is likely to have negative effects for this reason, also. REMITTANCES Remittance of funds from emigrant workers to family members remaining in the sending countries is one of the few aspects of international migration that is not symmetrical in sending and receiving countries. Remittances sent out of the immigrant- receiving country do not harm the rest of society, for reasons explained in Chapter 7. But remittances are a distinct social benefit in sending countries. The effects are asymmetrical because the person sending the remittance is the only person whose consumption is affected in the immigrant-receiving country, and that person is (by definition) made better off in an overall way by sending the remittance, or else he/she would not send it. Remittances are an important part of the economy of many sending countries, as is immediately obvious when traveling through such places as towns in the West Bank of Jordan where there clearly is no industry and the agriculture is marginal, yet there are many new homes that are financed with funds from abroad. The remittances are large in magnitude relative to public and private budgets in many countries, though their aggregate size is not great relative to world trade. Moreover, the payments go directly to the final recipient, in contrast to government-to-government foreign aid which often is so diluted by bureaucratic costs and plain corruption that much of it fails to do much good. And the sender of the remittances has personal knowledge of the capacity of the recipient to make use of the funds for consumption or investment, which must lessen the likelihood that the funds will be squandered. Taylor (1987), in a study distinguished from other work on this topic by the care taken in the method used, estimated not only the amount of remittances per illegal Mexican working in the United States, but the amount of earnings in Mexico foregone by being in the U. S., and the difference between the two quantities. He found that... He also found that the migrants from rural areas are not the best-qualified earners, which diminishes concern about the effects of a "brain drain". As long as remittances do not imply savings rates for immigrants lower than for natives (or lower than some other standard), then they have the same macro implications for the country of immigration as do any other pattern of consumption expenditure. Remittances will be put into a wider perspective below when they are considered together with the brain drain in the simulation model of Goldfarb et. al. REDUCTION IN "SURPLUS" LABOR FORCE To avoid misunderstanding, let us be clear that "surplus" labor, as the concept was first used concerning Eastern Europe at the end of World War II by Rosenstein-Rodan (1943), and as it was discussed by Lewis (1954), simply does not exist. Marginal productivity never reaches the zero point, T. Schultz taught us (1964). But it may well be the case, especially in poor-country agriculture, that marginal productivity falls relatively fast with additional labor. If so, and if workers receive their average product, then reduction in the labor force will substantially increase average income. On the other hand, chances are that people in the sending country will overestimate the benefit to those who remain, because they may assume that the total product will remain fixed rather than decline when the emigration takes place. A related benefit is that the reduction in the labor force may induce the adoption of more advanced labor-saving methods, thereby speeding up economic development. BRAIN DRAIN The flow of highly trained persons from poor countries to rich countries has aroused more interest and concern than has any other aspect of international migration with respect to the sending countries. For example, The World Population Plan of Action adopted by the United Nations Fund for Population Activity and its supporting nations says, "[T]here is an urgent need to formulate national and international policies to avoid the `brain drain' and to obviate its adverse effects...Developing countries suffering from heavy emigration of skilled workers and professionals should undertake extensive educational programmes, manpower planning, and investment in scientific and technical programmes" (1979, p. 47). Some time ago the brain drain was the subject of two symposia which convened the most thoughtful and prestigious groups of economists who have written in connection with international migration. And there have been other capable studies (e. g. Grubel and Scott, 1977; various articles in Adams, 1968), and thorough investigation of a proposal by Bhagwati for compensation to the poor countries for brain drain. Yet there still is almost no solid evidence on the economic importance of the phenomenon, which is not surprising in view of its elusive nature. And of course there is great controversy about what ought to be done if the facts eventually show that the emigration of skilled professionals does indeed cause remaining natives of the sending countries to be worse off than if the emigration does not take place. The influence of highly-skilled persons upon the productivity of other persons in the society because of complementarity of skills is the focus of most discussion. That is, a topnotch engineer, through the high quality of her/his designs, is thought to increase the value of the product of construction workers. And it is implicitly assumed that the engineer is not able to capture in earnings all the value of his/her skill; if indeed the worker is paid all of his/her marginal product, as the neo-classical assumption has it, then there is no externality to be discussed as brain drain. It would seem very difficult to determine the extent to which this assumption fits the facts. And for purposes of an assessment of brain drain, the validity of the assumptions clearly is important, even if assumptions have a different status in the kind of positive- economics situation that Friedman addressed (1953). The influence of highly-trained persons in increasing the productivity of fellow workers by their learning on the job is another phenomenon that may be important. Examples are a skilled physician who imparts some of his/her knowhow to younger physicians while on the job, and a world-famous physicist who passes on knowledge in a university classroom. It is not likely that the highly skilled person will be able to obtain the full benefit of this effect in his or her own earnings, for reasons given in the discussion of the comparable effect in the context of the richer country in Chapter 2. And, therefore, within any grade class within an occupation--that is, among those earning the same salary--it is the best of them who will choose to emigrate, because they stand to benefit most in increased income. This necessarily implies a loss to the sending society. Discussion of the likely importance of the brain drain, in conjunction with the remittance effect, is found below in the context of Goldfarb, Havrylyshyn, and Mangum's model (forthcoming). A discussion of policies for compensating poor countries may be found in Chapter 16. Goldfarb et al. assume reasonably that the brain drain and remittances are the two most important aspects of emigration. They work with the case of physicians from the Philippines, and they evaluate the matter with respect to several criteria, the most relevant being the welfare of all persons in the sending society other than the persons who emigrate. These are the parameters of their model: lifetime physician's incomes in the Philippines and in the U. S., and they treat the social externality of a physician in the Philippines as a multiplier of physician income, the proportion of physican income in the U. S. that will be remitted to the Philippines, and the marginal propensity to consume. They find that on most reasonable sets of assumptions about these parameters, those who remain behind will benefit from having physicians emigrate (as compared to the case of those physicians not migrating). Or to put it differently, it pays the Philippines to train physicians for export. The issue of unemployment among the educated persons in LDC's complicates the issue. If the number of persons that will be educated and the number that would otherwise be unemployed are taken to be fixed independent of migation opportunities, then outmigration of representative members of that group has no opportunity cost. If the migrants are the most productive persons in the group, however, the conclusion is less clear-cut. And Blomqvist (1985; 1986) points out the additional complication that the possibility of outmigration might increase the number of persons who would choose to become educated, and on some assumptions might impose a loss on the sending society. To the extent that education is paid for privately, however, the possibility of such a loss is reduced. A numerically specified model with realistic parameters, including allowance for remittances would be necessary to establish the likelihood of damage to the sending society. Whatever the facts about brain drain, however, the implications for national and international policies are by no means obvious, because there are important disagreements about relevant values. For example, if a nation has subsidized an individual's education, does that nation have the ethical right to demand repayment of the subsidy before the individual may leave, as the Soviet Union did with respect to Jews and others for some years? And how is this ethical judgment influenced by the fact that the potential migrant's parents, on average, paid for that subsidy through taxes? Would the individual's parents' consent be relevant? And if one believes that a nation has this right, is it implied that nations should move to a system where an individual's cohort on average pays for its own education later on, as in the Yale University system for financing loans to students? Another example: Bhagwati (e. g. 1976) advocates a tax on emigrants to be paid by their earnings in their new country because of the loss of the individual's externalities to the individual's country of origin, even if there has been no national subsidy in raising the individual. (This suggestion is also implicit in the cost-benefit calculations concerning emigration of professions from Colombia by Berry and Mendez; 1976, p. 259). But what justifies the nation's claim to obtain any of the benefits of an individual's productive life? Bhagwati apparently believes that a loss in "welfare" to the inhabitants of the country of origin is a self-evident justification, but the justification is not self-evident to me. The issue here must be at least as deep philosophically as the issue of whether a nation is entitled not to keep its border open to immigrants, discussed in Appendix 1. The following is offered as an appropriate intellectual framework for thinking about the brain drain: 1) Does the emigration of professionals cause injury to the particular LDC, and if yes, what kinds of injury occur? (e. g. externalities, export of subsidized education, etc..) 2) If there is injury, what options are there to prevent an injury with market mechanisms that would not restrict movement or impose taxes? (e. g., require payment for education when rendered). 3) If market mechanisms do not suffice, does the LDC have a "right" to prevent some kinds of injury? (e. g. loss of externalities arising from private investment?) The fundamental question here is the extent to which the state "owns" a person's output. POPULATION DENSITY AND SIZE The effects of emigration through changes in population density and size are the opposite side of the coin from the effects of immigration through the same mechanisms. Aside from the shortest-run impacts, the effects are likely to be negative. The arguments need not be reviewed here. EFFECTS THROUGH THE PUBLIC COFFERS Emigrants are generally young, just at the beginning of their period of maximum net contribution to the public coffers by paying taxes but not using welfare services. Therefore, emigrants constitute a major loss to the sending country to the extent that the sending country collects taxes, just as they are a major gain to the United States through the same mechanism. The persons who would otherwise support aged and child dependents withdraw their support when they leave. In the short and intermediate run, this is likely to be the greatest negative effect upon the sending country. EFFECTS UPON IMMIGRANTS Immigrants mainly come to the U.S. because they expect to improve their economic situations, and most of them do better themselves; among those who do not succeed, many emigrate. There is little more to say on the topic without proceeding to the issues of how fast the immigrants succeed, or which groups do better than which, which I leave to the extensive literature on the subject that has developed since Chiswick (1978); for a recent list of references, see the bibliography in Borjas ( ). Occasionally one hears the argument (though mostly with respect to illegals) that we ought not to let immigrants in because we exploit them economically when they get here, by paying them low wages. At the base of this argument is the notion that the speaker knows better than the potential immigrants what is good for the potential immigrant, that even if the potential immigrant prefers to work in the U.S. for whatever he or she will earn, it would be better to stay home and earn even less. This strikes me as nothing but arrogance and selfishness parading as ideology and idealism -- and the selfishness is even without foundation! The anti-immigration groups have recently taken this line of thought one step further by comparing the entry of low-skill immigrants to the institution of pre-Civil-War slavery. (See discussion on page 000.) It would seem that the key element of slavery is legally-sanctioned compulsion and involuntary servitude, which is clearly not present in the case of immigrants, even (or especially) illegals. MIGRATION AND THE WORLD STANDARD OF LIVING The General Level of Living If we consider both the sending and the receiving countries as part of the same world, then -- and on this every economist agrees -- the overall effect of the migration on the average standard of living of the world's people is positive. The reason for this is that the migrant goes from a place where he or she is less productive to a place where he or she is more productive. This increased production benefits the standard of living of the community as a whole, as well as that of the migrating individual. In addition to the private benefits, it would seem that the positive external results of the "brain gain" must be at least as great as the loss from the brain drain. Migration and Economic Development The paragraph above suggests that migration can improve the overall standard of living by putting a given individual in a context where the cooperating elements--capital and infra- structure--enable the person's skills to be more productive. But there is also a mechanism which leads a person to be more productive by _c_h_a_n_g_i_n_g_ _t_h_e_ _p_e_r_s_o_n--by "educating" him in the broadest sense. This may well be a more powerful force affecting the standard of living in the poorer countries and in the world as a whole than the change in circumstances alone. Economic development requires learning new ways of working and living. And migrants are likely to learn these new ways faster if they did migrate than if they stay at home. The learning referred to here is neither schooling nor on-the-job training. It is, rather, the learning acquired outside of school and outside the family, if the family is poor. Examples are knowledge of sanitation, understanding the importance of punctuality, belief that ambition can result in benefits, knowledge of educational opportunities, ability to ride a bicycle, and styles of behavior such as driving a car unrecklessly. This sort of learning includes a change in much of what is called "culture" by the anthropologists. It is the process of "modernization," and constitutes the difference between less-developed and more-developed economies. This learning takes place by association with others on the street and in community life. Consider Patinkin's observation about the first decade of Israel, a country which has had a proportionately large number of poor immigrants: "Interestingly enough, formal education does not seem to have played too great a role in the development of Israel's efficiency over the period of [mass immigration, l950-l958] ...On the other hand the role of informal education has possibly been more significant. This may have expressed itself at the simplest level in the acquisition by the new immigrants of both the language of the country and its ways of life and work..." (Patinkin, 1959). Urbanization is a crucial part of the migration process. Hawley (1969) states: "The city is a school. It inculcates habits of mind and behavior that can be learned nowhere else. There the person learns adaptability to the challenge and flux of new experience. He gains a cosmopolitan outlook..." Migration tends to equalize incomes among different geographic areas. This is shown by the lesser dispersion among per-person incomes in different parts of the same country as compared to the dispersion among per-person incomes in different countries. For example, the range of the highest and lowest state incomes in the U.S., Mississippi and Alaska, was from $6,580 to $12,790 for 1980, whereas the spread in incomes in l982 between Chad and Switzerland was from $80 to $17,010 (Statistical Abstract of the United States).1 The smaller areas and the greater homogeneity in underlying conditions within countries, as compared to the differences between countries, do not account for this phenomenon; the difference in per-person income between Coahuila and Texas across the river from each other, for instance, is probably not very different than the difference between the per-person incomes of Mexico and the U.S., $1,612 and $10,742 respectively, in l979 (1982 Statistical Abstract, p. 865). Nor is the relatively small intra-country dispersion of incomes explained by the mobility of capital flowing from place to place within a country, population remaining fixed; capital also moves relatively freely across international borders. The equalization due to migration likely is accompanied by a raising of the general level of income. And much of the increase in level likely is due to the changes in the individuals and their work habits, as well as changes in circumstances. CONCLUSIONS In the short run, the major loss to the sending country is from the drain of young people who otherwise would be paying taxes to help support the aged and children, while consuming only small amounts of such services. In the longer run, the productivity effect of reduced population density and size is likely to be most important. The brain drain's effect is mixed, and may well be positive on balance because remittances may outweigh the positive externalities of the skilled emigrants. Capital effects are not likely to be important in the short or long run. In general, the effects of emigration are the opposite of the effects of immigration described elsewhere in this book. This book is mainly about the effects of immigration upon the incomes of natives of the United States. But virtually all of the recommendations that will benefit the natives of the United States can also be seen as benefitting the average standard of living in the world as a whole. Where there are losses -- as there are losses to owners of capital in the countries of origin -- the losses tend to be less than the corresponding gains in the country of destination, simply because the output per person is greater in the richer country of destination. Therefore, there is no disjunction between the point of view argued here, and a more universalistic point of view. Those who argue that the U.S. has a moral obligation to prevent migrants from leaving their country of origin cannot justify their arguments in terms of the overall welfare. 86-86 Sender13 1/21/87 FOOTNOTES 1In my judgment, based on prices in the various countries as well as on the quantities of household durables owned, U.S. per- person income is considerably above that in any other country, including Switzerland and Sweden. And U.S. productivity is even higher, relatively, once labor-force participation and hours worked per year are allowed for. 86-86 Sender13 1/21/87 REFERENCES Albert Berry and Maria Mendez, "Emigration of Highly Educated Manpower: A Problem for Colombian Educational Policy?" in Bhagwati, 1976, pp247-276. Jagdish Bhagwati (ed.), The Brain Drain and Taxation, II: Theory and Empirical Analysis (New York: North-Holland, 1976). Robert Goldfarb, Oli Havrylyshyn, and Stephen Mangum, "Can Remittances Compensate for Manpower Inflows: The Case of Philippine Physicians", Journal of Development Studies, forthcoming. United Nations Fund for Population Activity, Review and Appraisal of the World Population Plan of Action (New York: UN Department of International Economic and Social Affairs, Population Studies, 1979? No. 71) Arthur Lewis, unlimited labor article. Rosenstein-Rodan. M. Friedman, Positive Economics. 86-86 Sender13 10/10/86