Trade and migration: substitutes or complements?

A friend sent me this interesting but slightly odd (I have to say so at the outset) article by Robert Shiller. Shiller begins by predicting, somewhat against the grain of what we see today, an “anti-nationalist” intellectual revolution that would address injustice of birth, that is of having what I call in my “Global inequality” the “citizenship premium” or “citizenship penalty” depending on whether a person is born in a rich or poor country. 

In the beginning of the article the reader thinks that Shiller, quoting the precedents of the Glorious Revolution, the movement for the abolition of slavery and the suffragette movement, has in mind some kind of cosmopolitan movement that would tend to do away with national borders and allow free migration. While he perhaps might not mind that, his argument is different: he sees that forthcoming intellectual revolution arguing in favor of free trade that would through “factor-price equalization” (that is, equalization of wages and incomes across nations) bring about a world where the injustice of birth—at least as far as location is concerned—will be eliminated. It would be brought about without huge migrations (that may be seen as politically unsustainable) because trade would equalize income levels between the countries.  

Clearly, if the world were to become a EU15, yes, you could have both a borderless world and preservation of national cultures since there would not be structural incentives to migration. (By “structural” I mean that there are significant monetary incentives that let workers from poorer countries increase their incomes by 5 or 10 times by migrating to a richer country. “Non-structural” incentives for migration would remain but they are due to idiosyncratic preferences for say, warm weather, golf courses, espressos or whatever else—such that they do not produce massive flows of people moving in search of higher pay.) But is the world of approximately equal mean country incomes really possible to envisage any time soon?

First, even assuming that such a world is feasible and that free trade will bring it about (the latter by itself is very dubious), we have to allow for the fact that wage equalization would imply a decrease, or a very slow growth,  of wages for many people in the rich world. This is precisely the problem with which one grapples today. While trade was an overall “good”, it has hurt many people in rich countries. The transition to a world of equal country incomes would necessarily involve many bumps along the road and would require finding in rich countries much better ways to compensate losers (a point made by Shiller too). This however does not seem to be happening right now—nor is an intellectual revolution in favor of free trade on the horizon. At least I cannot see it. Moreover trade is today almost certainly freer than at any point in the past one hundred years which makes the objective of such a “revolution” even more vague.

But there is another problem. Income gaps in the world are enormous and it is impossible, under the best of scenarios, that they should be done away with within this century. Consider the most extraordinary, and probably unrepeatable, feat of Chinese convergence. In 1977, the US–China gap in GDP per capita (and probably very similarly in wages) was almost 50 to 1, adjusted for the difference in price levels between the two countries. (This is based on World Bank data; according to Maddison's data, the gap was less than half that size, but still a huge 21 to 1.) It is now 4 to 1. And this is the result of an average growth rate of Chinese GDP per capita of 8.5 percent over four decades. 

The gap between German GDP per capita (proxy for that of Western Europe) and Sub-Saharan Africa’s today is 13 to 1. (German’s GDP per capita is about $45,000 vs. population-weighted Sub-Saharan GDP per capita of $3,500; all in purchasing power parity dollars). With Africa’s population expected to more than double by 2050, do we really see Africa able in the next three or four decades to repeat Chinese growth experience? Note that replicating Chinese per capita growth and given the projected population growth in Sub-Saharan Africa of 2.4 percent per annum, would require African countries to grow on average by almost 11 percent per year for approximately half a century. And how did Sub-Saharan Africa fare during the last, relatively good, decade? Its overall GDP grew by 4.5 percent per annum. 

Thus even under the most favorable and implausible assumptions of convergence, income gaps are unlikely to be eliminated. Which, in turn, shows the importance of migration.  If a borderless cosmopolitan world is to be achieved (an objective with which I agree but see enormous political difficulties in reaching it), migration is absolutely essential. But as economic migration faces increasing obstacles in rich countries (and, it has to be added, not solely because of xenophobia but for economic reasons as well), the ideal of a world “without injustice of birth” recedes.

To make my point clear. I am very sympathetic to the borderless world but to believe that it can be achieved through trade alone, and without significant migration, is unrealistic. And once we say “migration”, we immediately open the Pandora’s box that the most recent elections in Europe and the United States have shown is a reality, not an imagination. Thus, our new “intellectual revolution” should be rather to address the issue of migration and citizenship than free trade. Free trade alone cannot solve world’s problems.

The perverse seductiveness of Fernando Pessoa

It is impossible to spend a few days in Lisbon and to be a compulsive voyeur of bookstores, without noticing almost everywhere the name of Fernando Pessoa. I knew that he was a poet and, vaguely, that his star was on the ascendant because I have seen his name mentioned in a number of publications. But I never read anything written by him. Seeing him now everywhere in Lisbon, in French and English translations, and even in a small bookstore dedicated entirely to his writings, spurred my interest.

I was struck by an eerie similarly between Pessoa and Cavafy: one generation apart (Pessoa 1888-1936, Cavafy 1863-1933), both poets of their own civilizations and cultures, ignored during their lifetimes, homosexuals who almost never left their cities (Alexandria and Lisbon), anglophiles whose poetic fame keeps on rising the further we are from their physical lives (as indeed the glory of all great people does). I have to confess that I am a huge fan of Cavafy’s poetry (in beautiful English translation by Avi Sharon here), but have not, as I mentioned, read any of Pessoa’s. Still luckily for me, the only work in prose that Pessoa published is a short 1922 novella called “The anarchist banker”. And as  soon as I opened the book (in French translation, “Le banquier anarchiste”) I knew it was something that I would be interested in; and indeed I read it in an hour or so.

It is a Dostoyevsky-like monologue of a rich banker who was born poor, in a working class family, and used to be an anarchist. To the question asked by the narrator in the beginning of the novella, why he betrayed his ideals, the cigar-smoking banker bristles: no, he never stopped being anarchist; moreover it was him, unlike other “conventional anarchists” who combined the theory and practice of anarchism, and is helping human society along toward the ultimate goal of “natural freedom”.

How come, you wonder (together with the narrator)? Here is the answer. Every society is composed of inequalities that are “natural” and others that are a “social fiction”. The latter are what John Roemer calls “circumstances”. They are inequalities due to one’s birth, wealth of his/her parents, connections, or money they inherit. These are the inequalities that, our banker-anarchist tells us, have to be eliminated in order for a society to be just and for people to live freely and “naturally”.  Other inequalities (of innate intelligence, effort, stature and strength) cannot be remedied  because they are not produced by society. (So our banker-anarchist is a luck egalitarian.)

Having realized this early in his life, the banker (then anarchist) enrolled in attempts to change society, both through anarchist propaganda and “direct action”. But he realized that the attempts to eradicate money-driven “social fictions” quickly led to a rule of a minority that imposed another set of “social fictions”—a military dictatorship (a clear referee to Bolshevism) that, not differently from capitalism, constrained human freedom. Moreover, he discovered that even within small anarchist circles that were struggling for “freedom”, hierarchical rules soon emerged: some made decisions, others followed.

He was then faced with a choice: either man is born vicious, in need to impose hierarchy and, for the other part of mankind, desirous of submission (“born slave”) in which case all attempts to change capitalist society are vain; or man is made vicious by “social fictions” which ought to be made irrelevant by individual effort; that is, not through social organizations that inevitably re-impose hierarchies. If man is vicious because of society, and not innately, then the way to extricate ourselves from “social fictions” and to reach Marx’s “empire of freedom” where money does not matter is to become wealthy enough so that money becomes irrelevant.  This is why our anarchist decides to become a banker, and to use the most sordid means to become rich. But didn’t he thus exert tyranny over the lives of many other people, didn’t he reinforce the “social fictions” against which he was fighting? No, the banker says, because “social fictions” can be destroyed only by wholesale  revolutions and to bring such revolutions about we need to free ourselves from “social fictions” individually, one by one, by growing rich and extracting ourselves from the vulgar rule of scarcity (“[by getting rich] and overcoming the force of money, by liberating myself from its rule, I become free”).  

The story is to some extent (but only to some extent) absurd. It has a kind of perverse dialectical logic which we also find in some Marxist literature (as here) where the achievement of a society without scarcity requites the utmost development of the productive forces—using the most capitalistic, selfish and destructive means possible. For the achievement of happiness (says Pessoa) can be realized in only two ways: either we reduce our needs and live like animals, or we create an abundance of material goods to such an extent that they do not matter anymore.

To reach the state of freedom we need to go through the “valley of tears”, the Industrial Revolution, Stalinist industrialization, “trickle-down economics” or Maoist Great Leap Forward. All of them are attempts to increase production, reduce or eliminate scarcity and do away with “social fictions”.

Does it make sense? Perhaps only to the extent that scarcity is scarcity of material goods. Many of such scarcities for many people in the world today have been eliminated (food, water, electricity, housing). But other scarcities, of positional goods, will by definition, be always with us: they cannot be eliminated no matter how many television sets, iPhones, water melons and potatoes we produce. So, post-scarcity Utopia seems to be indeed a “no place” that may ever exist, and the rationale that unscrupulous exploitation of others is a short-cut to the world free from want is indeed perverse.