29 January 2015

The diversity dividend


Why immigration is a boon, not a bane, for Britain

If you’re among the more than 700 million people who use WhatsApp, the smartphone-messaging service, you have Jan Koum to thank – and the United States, for allowing him to move there from his native Ukraine aged sixteen. Facebook thinks what Koum has created is so valuable that it recently bought WhatsApp for $22 billion (£14.7 billion). Yet if a young Ukrainian arrived in Britain today, how would you view them? Would they be seen as a threat, or as a burden? Would they simply be turned away? How many talented and dynamic people like Jan Koum, with lots to contribute, does Britain turn away or scare off – and at what cost?

Koum’s success is exceptional, but far from unique. Google, Yahoo, eBay, PayPal, LinkedIn, YouTube – indeed nearly half of the recent start-ups in Silicon Valley – were co-founded by migrants, as were a quarter of those across the US. Newcomers’ children have an outsized impact too. The late Steve Jobs of Apple had a Syrian-born father and Amazon’s Jeff Bezos is the son of Cuban immigrants. Fifteen of America’s 25 most valuable tech companies were co-founded by migrants or their children, as were 42% of Fortune 500 companies.

That dynamism dividend can be reaped in Britain too. The UK’s most valuable technology company, ARM Holdings, which designs the chips in most smartphones, was founded with the help of an Austrian immigrant. Europe’s most profitable airline, Easyjet, was established by a Greek entrepreneur in Britain. London’s Tech City is full of foreign entrepreneurs, like the Estonians who established TransferWise, which enables people to avoid the rip-off bank charges on sending money abroad. Overall, newcomers are twice as likely as locals to start a business in Britain, creating jobs, new products and services, and wealth for the rest of society. Like starting a business, migration is a risky venture that requires hard work to make it pay off – and for newcomers who lack contacts or a conventional career, it is a natural way to get ahead.

Regrettably, the contribution of migrant entrepreneurs scarcely features in the political debate about immigration. This tends to focus on – generally unfounded – fears about immigrants’ harmful impact on jobs, wages, welfare, public services, housing, and so on. Yet far from harming Britain’s economy, diverse newcomers spark new ideas and businesses, do jobs – like care for the elderly – that locals spurn and inject youthful dynamism into Britain’s senescent society, raising living standards and helping to pay for retiring baby-boomers’ pensions and the mountain of public debt.

In advanced economies like Britain’s, sustained rises in living standards come from finding new and better ways of doing things and deploying them across the economy. Brilliant new ideas sometimes spring from individual geniuses – and those exceptional people are disproportionately migrants: three in ten Nobel laureates were born abroad, including Andre Geim, a Russian-born scientist who discovered a revolutionary new supermaterial called graphene at the University of Manchester. But they mostly emerge from creative collisions between people – and two heads are only better than one if they think differently.

A growing volume of research shows that groups with a diverse range of perspectives can solve problems – such as develop new medicines, design computer games and provide original management advice – better and faster than like-minded experts. This diversity dividend can be substantial. Europe’s most valuable internet start-up, Skype, sold to Microsoft in 2011 for $8.5 billion, was co-founded by a Swede and a Dane working with Estonian programmers. It’s what makes a big global city like London so creative: as well as being a magnet for talent, Britain’s capital magnifies that talent. As I document in my new book, European Spring, diversity boosts innovation and productivity at every level – within individual businesses, organisations and universities, in specific sectors, within cities and regions, and across the economy as a whole.

The crude models typically used to gauge the economic impact of migration fail to capture this. These are often partial and static, while even dynamic models generally define away migrants’ contribution to innovation and enterprise, because they assume that new technologies fall like manna from heaven and ignore the role of institutions and individual entrepreneurs altogether. In a standard economic model, Andre Geim, Easyjet and Tech City simply don’t exist.

As our world becomes ever more connected through trade, investment and the internet, it is increasingly important for people to be able to move freely too, not just within a country, but also internationally. That’s obvious for a big global company like Google which needs to employ the right person in the right place at the right time. And it’s especially true for smaller companies where every single team member matters.

The centre of gravity of this new global economy is shifting east and south as the rest of the world catches up with the West. People are increasingly moving in all directions, mostly temporarily. Even successful economies like Britain increasingly need to compete to attract the people with the skills and attributes they need – as Canada and Australia do. Asia too is increasingly a magnet for talent, and a source of it: China generates more graduates than all of Europe put together, and India is close behind. Britain cannot take for granted that people will always want to move here.

Take education, a booming export industry for Britain over the past 20 years. Foreign students’ fees subsidise British ones, their spending supports local jobs, their critical mass makes courses viable for local students and their different perspectives enrich Britons’ university experience. Those willing and able to stay working in Britain contribute further, while those who leave may create new trade and investment opportunities and enhance Britain’s influence in the world. Yet even though David Cameron insists that Britain welcomes Indian students, numbers have slumped recently because anti-immigration rhetoric and bureaucratic impediments deter them from coming. Britain is shooting itself in the foot.

Surely, though, the government should select only the right immigrants that Britain needs – more talented, highly skilled ones – and turn away less talented, less skilled ones? It sounds sensible. But in practice, it’s impossible to identify in advance how much anyone will contribute to society, let alone how their children will. That’s true for people born in a country: Richard Branson dropped out of school and Bill Gates never finished university. And it’s even more so for migrants, who may only flourish once opportunities open up for them in Britain. Would you have let in Mo Farah? Or Karan Bilmoria (who went on to found Cobra Beer)? Governments aren’t any good at picking winners: they don’t have the necessary information or the right incentives to do so. They are also incapable of second-guessing the labour-market needs of a complex, modern economy: manpower planning failed in the Soviet Union and it doesn’t work well in migration policy either. So it’s nonsense to allocate work visas using a pseudo-scientific points test and bureaucratic judgements of labour-market needs. Instead of trying to micro-manage who can come into the country and making big macro mistakes, Britain should take a leaf out of Sweden’s book. Under reforms introduced by its liberal conservative government in 2008, businesses that can’t find suitable local workers can hire the people they need of all skill levels from anywhere in the world on two-year renewable visas. Or people could be allowed to move freely, as they can within the EU.

In any case, the presumption that while highly skilled migrants might be beneficial, less-skilled ones aren’t is economically illiterate. It is equivalent to arguing that Britain benefits from importing American software, but not Chinese clothes. In fact, the gains from migration depend largely on the extent to which newcomers’ differences complement locals’ skills and needs. Newcomers may have skills that locals lack, such as medical training or fluency in Mandarin. And they may also be more willing to do jobs that most locals with higher living standards, education levels and aspirations no longer want to do, like pick fruit or care for the elderly, the fastest area of employment growth in Britain. Or they may simply be young and hard-working, a huge bonus to ageing societies with shrinking local workforces and increasing numbers of pensioners to pay for.

Elderly UKIP voters should be grateful that African doctors, Filipino nurses and Romanian carers want to come here to look after them. Thanks to hard-working immigrants, Britain is one of the only countries in Europe with a rising workforce that can afford to pay their pensions and other benefits. As for Clacton, which recently elected a UKIP MP, its real problem is not immigration, it’s deprivation: it can’t offer local people opportunities, let alone attract migrants.

The charge-sheet against immigrants doesn’t stand up to scrutiny. It’s a myth that migrants harm local workers. There isn’t a fixed number of jobs to go around: immigrants don’t just take jobs, they also create them – when they spend their wages and in complementary lines of work (not to mention as creative sparks and entrepreneurs). Polish builders in Britain create jobs for British architects, supervisors and suppliers of building materials. Overall, migrants tend to have a positive impact on local wages, precisely because of those complementarities, as many studies – including by the OECD, by researchers at University College London, by Giovanni Peri and colleagues – have shown. Fears that immigrants are going to take local people’s jobs are akin to earlier ones that women working would take men’s jobs. Yet most women now work and so do most men.

Nor are migrants generally a burden on the welfare state. There is no evidence that people move in order to claim benefits: people who are enterprising enough to move to another country don’t suddenly want to claim welfare when they would be better off working. Overall, studies – most recently by Christian Dustmann and colleagues at University College London – show that migrants pay more in taxes than they take in benefits and services. Educated abroad, migrants are typically young and healthy and more likely to be employed than locals. They also often leave again, and so never claim a pension. While one can always quibble with the precise figures and assumptions underlying them, migrants are undoubtedly net contributors to public finances – which is remarkable, considering the government is spending much more than it raises in taxes and borrowing the difference.

That’s one reason why we should celebrate that 260,000 extra people moved here in the twelve months to June 2014, making a mockery of the government’s absurd attempt to reduce net migration to the tens of thousands. Huge public debts have been run up to provide benefits for the existing population and newcomers’ taxes help service and repay those debts. Britain’s net public debt is around £20,000 per person. So if official projections are right and the UK population rises by 10% to 70 million in 2027, that would reduce the debt burden per person by £2,000.

It’s often said that migrants put pressure on public services. But if their taxes more than pay for the services they receive, the real issue is that public services aren’t flexible enough to cope with change. After all, if a British person moved from Liverpool to London and local services couldn’t cope, who would be blamed? Nor do hotels or Tesco complain that they can’t cope with increased demand for their services.

It’s also nonsense that Britain is “full up”. Three-quarters of the country is agricultural land; even in England the urban reservations that we live in account for only 11% of the surface area. There is plenty of space left: even in London there is still lots of derelict land. The problem is planning restrictions that excessively restrict development, driving up residential land prices to the benefit of large landowners and at the expense of everyone else, as studies by Policy Exchange have shown. Having more people around doesn’t have to be a problem: most people choose to live in cities, not the countryside. The most densely populated place in Britain is Kensington and Chelsea, which is hardly a hellhole.

Unfortunately, opposition to immigration is often impervious to rational argument, because it stems from an emotional fear of foreigners dressed up in seemingly reasonable complaints. Thus when immigrants are working, they are stealing our jobs. When they are out of work, they are scrounging on the welfare state. When they are poor, they are driving standards down. When they are rich, they are driving prices up. Immigrants can’t win: they’re damned if they do and damned if they don’t. Next time you read an article or listen to a speech by supposedly respectable critics, substitute the words “black people” for “immigrants” in the sentence and ask yourself whether it sounds acceptable.

The debate about immigration in Britain has got to a very worrying point. UKIP gets away with saying increasingly outrageous things – just recently its newest MP was talking about deporting Europeans if Britain leaves the EU – and both the Conservatives and Labour increasingly echo them. This is not just unprincipled, because vile views aren’t any less vile when expressed by a mainstream politician. It’s also dangerous, because it legitimises those vile views and bolsters support for extremism. As one columnist put it, Cameron’s and Ed Miliband’s message boils down to “Nigel Farage is right, don’t vote UKIP”. Unsurprisingly, it isn’t working, not least because many people vote UKIP because of their distrust of establishment politicians, rather than for any particular prospectus.

Sensible politicians should instead be celebrating the diversity of modern Britain – a huge asset in our globalised world – and the fact that its growing economy is attracting talented and hard-working people from less successful ones. They should be looking to seize the opportunities of the future – and winning over people in Clacton by ensuring that they too can benefit from them, not pandering to the delusion that people in deprived parts would be better off if immigrants were deported. Britain has a long tradition of being open, outward-looking and tolerant; far from being patriotic, UKIP represents a betrayal of those values.

The debate about immigration is about Britain’s future. It’s vital that it should be based on facts, not prejudice, and on a positive vision of a Britain that is open to the world, open to everyone in society and open to the future and all its possibilities for progress.

Philippe Legrain, who was economic adviser to the President of the European Commission from 2011 to 2014, is a visiting senior fellow at the London School of Economics’ European Institute and the author of European Spring: Why Our Economies and Politics Are in a Mess — and How to Put Them Right.