Challenges of Globalization: Immigration, Social Welfare, Global Governance

Challenges of Globalization

Vigorous debates swirl around issues of globalization, as global political economic relations in a nation-state system are complex and incompletely understood phenomena. The experiences of the late 1800s and first half of the twentieth century suggest that globalization requires nurturing to ensure that societies garner the advantages offered by globalization and manage the risks and fears unleashed by such dramatic transformation in social affairs. Featuring contributions by experts from a variety of disciplinary backgrounds including economics, political science and law, this edited volume offers a timely examination of the complexities surrounding modern globalization. Through discussion and evaluation of the problems associated with immigration, social welfare and income inequality, and global governance the book offers a significant contribution to the continuing globalization debate. Providing both an overview of the debate and a detailed discussion of specific examples, Challenges of Globalization will be of great interest to scholars of international political economy, international relations and globalization studies. Andrew C. Sobel is a member of the Department of Political Science, a Resident Fellow in the Center in Political Economy, and on the Board of Directors of the Center for the New Institutional Social Sciences at Washington University in St. Louis. He is the author of three books and specializes in the politics of international finance with a focus upon domestic explanations of international behavior.

Challenges of Globalization

Immigration, social welfare, global governance

Edited by Andrew C. Sobel

First published 2009 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2009. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2009 Editorial selection and matter; Andrew C. Sobel; individual chapters the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Challenges of globalization : immigration, social welfare, global governance / edited by Andrew C. Sobel. p. cm. 1. Globalization. 2. Emigration and immigration. 3. Public welfare. 4. Sovereignty. I. Sobel, Andrew Carl, 1953– JZ1318.C475 2009 303.48′2—dc22 2009004075 ISBN 0-203-87346-7 Master e-book ISBN

ISBN10: 0–415–77806–9 (hbk) ISBN10: 0–415–77807–7 (pbk) ISBN10: 0–203–87346–7 (ebk) ISBN13: 978–0–415–77806–0 (hbk) ISBN13: 978–0–415–77807–7 (pbk) ISBN13: 978–0–203–87346–5 (ebk)

Contents

List of figures and tables Notes on contributors 1

Opportunities and challenges

vii ix 1

ANDREW SOBEL

2

Sustainable labor migration policies in a globalizing world

18

PHILIP MARTIN

3

The last bastions of state sovereignty: immigration and nationality go global

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STEPHEN LEGOMSKY

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The era of free migration: lessons for today

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KEVIN O’ROURKE

5

Cultural communities in a global labor market: immigration restrictions as residential segregation

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HOWARD CHANG

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Economics versus identity: mass and elite attitudes toward trade, migration, and outsourcing

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MARIANA MEDINA AND ANDREW SOBEL

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Globalization and inequality in Latin America and the Caribbean EVELYNE HUBER AND JOHN STEPHENS

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Capital mobility and state social welfare provisions in the late 1800s

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ZAHRA EGAL AND ANDREW SOBEL

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Global governance redefined

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MILES KAHLER

Index

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List of figures and tables

Figures 2.1 4.1 4.2

Foreign residents and employed foreigners, Germany, 1968–2000 Wages relative to Britain, 1870–1913 Wages relative to United States, 1870–1913

28 62 63

Tables 2.1 2.2 2.3 2.4 2.5 2.6 4.1 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 7.1 7.2

Global migrants, 1965–2005 World population by continent, 1800, 2000, 2050 (percent shares) Countries grouped by average per capita GNI, 1975–2005 Foreigners and foreign workers in Western Europe, 2005 Immigration required to avoid population decline Remittances to developing countries, 1988–2007 Average sentiment regarding immigrants and refugees Predictions Immigration and trade Outsourcing and immigration Trade and outsourcing Trade and immigration for elites Immigration and outsourcing for elites Trade and outsourcing for elites Statistical summary of variables Expected signs Binary probit regression analysis Inequality by period Variable descriptions, data sources, and hypothesized effects for the analyses of income inequality

18 22 23 26 30 36 71 112 112 114 115 115 116 116 119 120 120 128 137

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7.3 7.4 7.5 8.1

Figures and tables

Means of selected independent variables for the 1990s OLS estimates of determinants of income inequality with robust-cluster standard errors Impact of selected independent variables Global competitiveness, 2006–07

144 145 147 170

Notes on contributors

Howard Chang is the Earle Hepburn Professor of Law at the University of Pennsylvania Law School. He has written on a wide variety of subjects, including immigration policy, international trade, and environmental protection. He has served on the Board of Directors of the American Law and Economics Association, and his interests include a broad range of topics in the economic analysis of law. He received his Ph.D. in economics from the Massachusetts Institute of Technology, his J.D. from Harvard Law School, where he served as the supervising editor of the Harvard Law Review, his Master in Public Affairs from Princeton University, and his A.B. in government from Harvard College. He served as a law clerk for the Honorable Ruth Bader Ginsburg on the U.S. Court of Appeals for the D.C. Circuit. Zahra Egal is an associate in the Global Finance group at Orrick, Herrington & Sutcliffe LLP in New York. She graduated summa cum laude from Washington University in St. Louis, majoring in History and Political Science. She received her J.D. and the Parker School Certificate in International and Comparative Law from Columbia Law School, where she was a Harlan Fiske Stone Scholar. Evelyne Huber is Morehead Alumni Professor of Political Science, and Chair of the Political Science Department at The University of North Carolina at Chapel Hill. Her interests are in comparative politics and political economy, with an area focus mainly on Latin America and the Caribbean, but also on broader comparisons between Latin America and Europe. She received her M.A. and Ph.D. from Yale University. Miles Kahler is professor of political science and the Rohr Professor of Pacific International Relations at the School of International Relations and Pacific Studies at The University of California at San Diego. His research interests include international institutions and global governance, the evolution of the nation-state, multilateral strategies toward failed states, and the political economy of international finance. He served as

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Notes on contributors

interim director and founding director of the Institute for International, Comparative, and Area Studies (IICAS) at UC San Diego. He was a Senior Fellow in International Political Economy at the Council on Foreign Relations. He directs the research project on Rebuilding Political Authority in States at Risk at UC San Diego, supported by a grant from the Carnegie Corporation of New York. Stephen Legomsky is the John S. Lehmann University Professor at Washington University School of Law. He is an expert on immigration and refugee law and policy. He was the founding Director of the Whitney R. Harris Institute for Global Legal Studies, at the Washington University School of Law in St. Louis. He has chaired the immigration law section of the Association of American Law Schools, the Law Professors Committee of the American Immigration Lawyers Association, and the Refugee Committee of the American Branch of the International Law Association. He earned his law degree at the University of San Diego School of Law and received a D.Phil. degree from the University of Oxford. Philip Martin is a professor of the Department of Agricultural and Resource Economics at the University of California at Davis. His research interests include immigration, farm labor, and economic development. He is Chair of the University of California Comparative Immigration & Integration Program. He is also editor of the monthly Migration News and the Quarterly Rural Migration News. He received his Ph.D. from the University of Wisconsin-Madison. Mariana Medina is a Ph.D. candidate in Political Science at Washington University in S. Louis. She specializes in International Political Economy, with particular reference to immigration and trade policy in industrialized countries. Kevin O’Rourke is Professor of Economics at Trinity College Dublin. His research interests are in economic history and international economics. His current projects include: the longer-term history of globalization; the interactions between culture, politics, and economics in late nineteenth century Denmark and Ireland; and the determinants of individual attitudes toward globalization. He is a coordinator of the CEPR’s Economic History Initiative, an editor of the European Review of Economic History, and a Research Associate of the National Bureau of Economic Research. He has served as a trustee of the Cliometric Society and an editorial board member of the Journal of Economic History. He received his Ph.D. from Harvard University. Andrew Sobel is a member of the Department of Political Science and a Fellow in the Center in Political Economy at Washington University in St. Louis. He specializes in the politics of international finance with a

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focus upon domestic explanations of international behavior. He is currently working on a historical project that examines the role of domestic financial arrangements in underpinning hegemonic leadership in the global economy. He is also on the Board of Directors of the Center for the New Institutional Social Sciences at Washington University in St. Louis. He had been the editor for the Series on Public Policy in a Global Economy at Georgetown University Press. He received his Ph.D. from The University of Michigan at Ann Arbor. John Stephens is the Gerhard E. Lenski, Jr., Distinguished Professor of Political Science and Sociology and Director of the Center for European Studies at The University of North Carolina at Chapel Hill. He received his Ph.D. from Yale University. His main interests are comparative politics and political economy, with area foci on Europe and the Caribbean. He teaches European politics and the political economy of advanced industrial societies.

Chapter 1

Opportunities and challenges Andrew Sobel

Trade, terrorism, clash of cultures, migration, off-shoring banking, international portfolio and foreign direct investment, multinational corporations, outsourcing, Avian flu and SARS, global warming, the importation of foreign invasive species that gain ecological advantages over native species, ordering Vietnamese or Ethiopian food in rural America restaurants, choosing between a Big Mac or KFC in Beijing, and study abroad are just the tip of an iceberg labeled globalization. Globalization consists of multiple processes by which people in one society become culturally, economically, politically, socially, informationally, strategically, epidemiologically, and ecologically closer to peoples in geographically distant societies. These processes include the expansion of cross-border trade, production of goods and services via the multinational corporation, outsourcing of work across borders, movement of peoples, exchange of ideas and popular culture, flow of environmental effects and disease from one state to another, and routine transfer of billions of dollars across borders in an nanosecond. They connect communities, cultures, national markets for goods and services, and national markets for labor and capital. The food we consume, clothes we wear, jobs we perform, air we breathe, water we drink, cars we drive, transport that delivers our goods, information we access, capital that powers our economies, services we use, computers we use, places we travel, education we seek, diseases we contract, drugs and therapies we employ to combat illness, and just about every aspect of day-to-day life have some global component. The world is figuratively shrinking as activities in one nation increasingly spill over to influence activities in other nations. The extent of global influences on our lives, and our interpretation of globalization, varies depending upon where we live, our nationality, our income, our professions, the openness and strength of our national political economies, and how the processes of globalization affect us at any specific time. Creating connections across national boundaries can bring good and bad consequences. Some of the consequences of globalization improve the human condition, enhance social welfare, create wealth, and enrich our lives. The very extent of economic globalization and the cross-border cooperation

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necessary to fuel that globalization should give some hope to those despairing of the global arena as full of inevitable violence and conflict. Yet, other aspects of globalization produce dislocations that can damage individuals, families and communities, spread illness, contribute to violent conflict, poison our environment and even threaten our existence. Globalization is neither all good, as many proponents of globalization argue, nor all bad, as many opponents assert. Concurrently, the processes of globalization can improve the well-being of many, but also create new risks and problems for societies. This contributes to schizophrenias in societies. Some praise globalization, others rail against it, and yet others see both good and bad consequences of globalization and argue for managing the negatives and promoting the positives. Globalization evokes visceral public arguments, passions and fears. Demonstrators regularly protest globalization and the transformations of global capitalism at the World Trade Organization, World Bank and IMF (International Monetary Fund) meetings. Despite popular punditry and recent attention by academics and politicians, globalization is far from a new phenomenon. The earliest incidents of communication, exchange, sharing, and conflict across political and societal boundaries are examples of the processes of globalization at work. Modern globalization and global capitalism dates back to the emerging trade networks of medieval trade based in the Mediterranean, and then followed by the growth of global Italian banking operations of the thirteenth to fifteenth centuries. Bankers from Lombardy lent funds to the English king Edward I, and then to his successors Edward II and Edward III. Edward III may have precipitated the first global financial crisis when he defaulted on his obligations to his Italian banker, which led to banking collapses in Florence. Italian bankers of this era helped finance the expansion of trade across borders. Italian banks, such as the Medicis, opened overseas offices and provided bills of exchange as early as the fifteenth century. These limited currency and default risks associated with global trade, and, consequently, promoted the expansion of such trade. A century later, the Dutch and their Amsterdam markets emerged at the center of global trade and finance. The Dutch used these markets, access to goods and capital from around the world, to support their 80-year rebellion against Hapsburg rule. Openness to global processes fueled the rise and success of the Dutch trading empire and provided foundations upon which global capitalism began to flourish. The British, after getting their house in order with the Glorious Revolution in the 1600s, essentially importing Dutch institutions and processes through a specific form of globalization called invasion and conquest, followed and eventually surpassed the Dutch as the key cog in advancing globalization and global capitalism. Globalization of relations rapidly accelerated with the British nurturing of global capitalism in the 1800s. The mid- to late-1800s witnessed a flourishing of global capitalism and an increasing density of the networks connecting societies. For many, this was a golden era of globalization. Shifts in

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transportation and communication technology lowered barriers to the flow of people, products, capital, and information across borders. O’Rourke, later in this volume, shows that migration enabled poor countries and migrants to improve their standard of living, far more than trade in commodities. The flows and connections associated with the processes of globalization created a skeletal framework for a global political economy and contributed to qualitative shifts in the relationship between governments and their peoples, between polities and their economies, and between national political economies. In the societies of the Atlantic economy, economic and social welfare improved, middle classes emerged and grew, and political and civil liberties expanded. The relative absence of international conflict during the 1800s encouraged such connections and cooperative behavior to flourish. By the late 1800s the nations of the Atlantic Economy sat perched on the edge of a golden age of enlightenment and cooperation that grew from a period of long peace, extension of political rights, economic transformation and expansion, and expanding international trade and financial globalization. The participants in this age of enlightenment, or belle époque, celebrated rational and liberal civilization, developed representative government, encouraged the rule of law, and respected constitutionalism. Arbitrary and unrestrained monarchical rule disappeared in many societies and faced increasing constraints in others. Due partly to globalization, the twentieth century began on an optimistic note, with great hope for the expansion of prosperity and human opportunity. History warns us not to take such social, political, and economic transformations and the resulting gains in social welfare for granted. Even as changes in transportation and communication technology that contributed to the rapid expansion of globalization during the 1800s continued to advance and improve, the normatively productive social components of progress and globalization proved vulnerable to human choice and susceptible to retrenchment. Just as the Atlantic economies sat on the edge of a golden age, globalization and prosperity came crashing down as Europe launched into one of the most violent and tragic conflicts in human history. World War I and the resulting peace settlement undermined economic expansion in Europe, constrained trade and exchange across borders, generated a legacy of political rancor among the losers, and opened the door to fascist and socialist malcontents in societies experiencing economic hardship; all of which contributed to the rise of fascist political leadership that led to World War II. During this period cooperation in the global arena broke down as nationalist forces within political economies pressed for policies that raised barriers to the processes of globalization in the hope of garnering nation-specific gains, ultimately a strategy that proved to be fatally and violently misguided for the world. Economic breakdown and the destruction of two world wars, more than 70 million dead and far more injured physically and psychologically,

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communities destroyed or disrupted, tends to sharpen the focus of policymakers and politicians. Policymakers sought to learn from policy choices made at the conclusion of World War I and during the interwar years. Policymakers and planners began meeting at Bretton Woods in New Hampshire before the end of World War II to prepare for the post-war era. Negotiations, deliberations, and agreements begun at Bretton Woods sought to rebuild the foundations of globalization, prosperity, and international cooperation. Policymakers endeavored to construct institutional frameworks that would enable their societies to recapture the success of the late 1800s and early 1900s and avoid the mistakes that led to the cataclysmic failure of the two world wars that served as bookends to economic depression. They sought to embed the processes of a global liberal economy in a system defined by a nation-state political geography, to manage the tensions between the processes of globalization and those processes of a nation-state political geography. Addressing this tension between national autonomy and interdependence involved building international scaffolding to support cooperation and coordination in the arenas of trade, capital, exchange rates, and security; and domestic scaffolding to constrain pressures upon policymakers to adopt policies that would shift the costs of adjusting to the forces of creative destruction unleashed by globalization and economic change upon those living in other countries. Keynes and his colleagues at Bretton Woods sought to build mutually reinforcing international and domestic structures by creating institutions of international cooperation and concurrently encouraging the expansion of the modern social welfare state, both with the objective of shielding policymakers from short-term pressures to intervene in cross-border exchange to allocate the costs of adjustment abroad. The efforts initiated at Bretton Woods succeeded incredibly well. Economic and political relations within and across nations began to shift dramatically and they continued to change at a rapid rate during the latter part of the twentieth century. In the years following, trade expanded, and economies grew. By the late 1900s, the size, frequency, and density of cross-border interactions rivaled those of the late 1800s. The institutional foundation that emerged after the war provided a basis for cooperation, coordination, for adjudicating and managing disagreements, and for new institutional creation when the older institutions faltered. Much of the period reflected the lessons that policymakers learned from the two world wars and the interwar years: markets do not always self-correct, are subject to failure, and may need regulation and cooperative cross-national intervention to limit wild swings and dislocations that can threaten economic security and political stability. By the 1980s, the successes of the post-war era and globalization pushed many of the interwar lessons into the background. Policy debates shifted toward greater reliance on market forces and less state involvement—the pendulum swung away from states and toward markets, away from the legacy

Opportunities and challenges

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of Keynes and toward that of von Hayek. This was an ideological shift reflected in the political success of Reagan, Thatcher, and Kohl in their respective nations. These ideological shifts advocated policy changes that led to deregulation in many sectors of national economies, privatization of state-owned enterprises, greater capital mobility, financial innovation, and a general unleashing of market forces. Many of these fell under the label of the Washington Consensus, reflecting the importance of ideas and policy pressures centered in Washington-based organizations such as the U.S. Treasury, the U.S. Federal Reserve, and the IMF. In many cases these contributed to efficiency, economic growth, and greater interdependence, but like all pendulum swings they also overshot and unleashed potentially damaging forces such as increased volatility, more income inequality, greater risk, and financial failures that could spread like contagions across national borders. At the end of the twentieth and beginning of the twenty-first centuries we saw an increase in financial crises, nationally and internationally, as traders in markets attacked currencies or engaged in activities that undermined confidence in markets. The peso crisis, the ruble crisis, an attack on the European Monetary System, the 1997 Asian Financial Crisis, the savings and loan crisis in the United States, Enron, and then the sub-prime crisis that bloomed into a systemic credit crisis and recession are all consequences of forces being unshackled by the rollback in regulation begun in the 1980s. We see evidence of similar problems in other arenas of global exchange as concerns arise over food, drug, and product safety produced abroad. These crises point toward the need for cross-border cooperation to manage the forces and pressures of globalization in order to capture the gains of globalization and avoid the costs that could lead to distrust of globalization and even its unraveling. Some argue that the mechanisms of globalization pressure convergence in economic, social, and political processes across nations as markets and societies become increasingly exposed to each other and increasingly integrated. Some evidence supports this convergence hypothesis. Commodity prices began to converge dramatically with the transport revolution of the 1800s as canals, trains, and steel-hulled ships powered by steam shortened transport time, increased tonnage and efficiency of shipping methods, improved reliability, and connected markets. Yet continued divergence in commodity and labor prices across markets, in political systems and practices, and in cultural and social activities demonstrates the persistence of distinct national political economies and societies in the face of globalizing pressures. In statistical models that test for convergence across national borders and include fixed effects that control for country-specific conditions as well as variables connected to the convergence hypothesis, the most influential variables in accounting for variation in the data are invariably the nation-specific fixed effects. This highlights the important persistence of national characteristics despite the pressures of globalization.

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Research results that find both convergence across national borders and the persistence of local effects point toward a fundamental tension at the heart of the modern political economy of globalization, one embedded in the structure of political economic relations. The political geography of the nation-state system differs from the economic geography of globalization. The globalization of economic relations can blur the economic boundaries of the nation-state, spill over into non-economic arenas of social activity, and challenge the policy autonomy of national governments and our very notions of community and identity. Even as we focus upon the processes that span national borders, the activities that create the boundaries that separate communities are far from dead or brushed aside. Even with the increasing linkage of societies, because the organization of political life overlaps the physical geography of the state (i.e. all politics is local), there is every reason to anticipate the persistence of strong community identities, preferences, and policy orientation and little reason to expect complete, or even near, convergence in many arenas of social life. This tension appears in many of the contributions to this volume. In this shifting arena and balance between global and local, significant challenges, perils, and opportunities confront governments, societies, firms, policymakers, and individuals. Globalization spawns debate about the changing role of markets and states, the risks individuals face in this changing state of affairs, and whether those risks can be managed and by whom. Policymakers are confronted with the challenge of reaping the rewards of globalization for the majority in their societies and managing the dislocation to the few. In the 1980s, a body of research emerged in comparative and international political economy questioning the viability of the modern social welfare state and locally based labor organizations in an era of highly mobile capital. This research hypothesized, explicitly or implicitly, that with increasing globalization and demise of capital controls, increasingly mobile capital would gain bargaining leverage over less mobile assets or factors of production. Capital would gain disproportionate influence over government policies, perhaps even veto power. As hypothesized, this would produce a regulatory and redistributive race-to-the-bottom, undermining social contracts between societies and their governments that emerged in the advanced industrial world following World War II. Successive generations of investigation have cast doubts on the determinacy of this race-to-the-bottom argument, lowering some of its claims and even rejecting the hypothesis in some cases. Increasingly, as several of the chapters in the volume reflect, investigators are testing conjectures that the modern social welfare state co-evolved with globalization. They go hand-inhand as the modern social welfare state provides insurance, or cushioning, against potential dislocations created by globalization, which, if unmanaged, could lead to demands for policies that rollback globalization, allocate the costs of adjustment to change abroad upon other states’ citizens, encourage

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economic warfare, and undermine the gains from globalization. This is not a new conjecture, but reflects the arguments about developing the domestic and international institutional foundations for embedding liberal economic exchange in a nation-state system following World War II. Dislocations are inevitable in capitalist economies that shift via the processes of creative destruction. These dislocations may originate locally, but are often blamed on the forces of globalization by policymakers and groups seeking to shift responsibility and the costs of adjustment abroad. A dislocated minority disfavored by economic change, perhaps a consequence of globalization, could prevail upon a government to intervene and undermine the gains of globalization for a broader, but politically under-mobilized slice of society. A social welfare state that cushions and insures against the risks of an increasingly liberal global economy can change the calculus of those negatively afflicted by change to engage in political activity that could improve their positions but at the expense of their larger societies. Events of the late twentieth and early twenty-first centuries are again raising doubts about the benefits of globalization. As the pendulum swung away from states and toward markets since the 1980s, the retrenchment of the regulatory and redistributive state contributed to increasing frequency and severity of financial crisis, growing income inequality, and fears that fuel crises of identities in societies and lead to increasing visceral debates over immigration. Instead of becoming instrumental in reassessing the importance and co-evolution of the social welfare state for globalization, these problems have become foundations for debates over globalization. Debates, protestations and concerns surrounding globalization will continue as global political economic relations in a nation-state system are complex and incompletely understood phenomena. The experiences of the late 1800s and first half of the twentieth century suggest that globalization requires nurturing to ensure that societies garner the advantages offered by globalization and manage the risks and fears unleashed by such dramatic transformation in social affairs. How best to nurture and manage such a transformation requires far more research and examination, far more debate and informed discussion, and a far better understanding of the fears and concerns provoked by globalization. The Sesquicentennial Commission at Washington University, the Center for Interdisciplinary Studies, the Institute for Global Legal Studies, the Center for New Institutional Social Sciences, and the Political Science Department at Washington University contributed to this effort by hosting an interdisciplinary conference Globalization, the State and Society in November 2003. For their efforts I thank John Drobak as Director of the Center for Interdisciplinary Studies, John Haley as Director of the Institute for Global Legal Studies, and Itai Sened as Chair of the Political Science Department and Director of the Center for New Institutional Social Sciences. I especially want to thank Linda McClain, the Assistant Director

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for the Center for Interdisciplinary Studies. Her tireless efforts made the conference possible and contributed to its overall success. Participants came from the fields of Law, Political Science, Economics, and Sociology. Investigators from universities and research centers around the nation presented papers considering the influence of globalization upon labor, social welfare, migration, and governance. This conference served as the basis for this edited volume. The first several chapters in this volume look at one process of globalization: migration. In a wide-ranging paper Philip Martin (Department of Agricultural and Resource Economics, University of California-Davis, and Chair of the UC Comparative Immigration & Integration Program) describes changes in migration over the past 50 years. As world population quadrupled during the twentieth century, different rates of economic growth and demographic change promoted more international migration. With widening differences in economic and demographic conditions, the pressures encouraging migration are increasing. The number of migrants living outside their countries of birth or citizenship reached 175 million by 2000. Martin notes that if all these individuals populated one geographic space then “Migrant Nation” would be the fifth most populous country in the world. Many more want to migrate—mostly for economic reasons. International law and convention has sought to provide some protections for these individuals—establishing minimum labor standards for foreign workers in permanent jobs, discouraging labor smuggling and illegal employment of foreign workers, and protecting the rights of migrant workers and their families. Perhaps a surprise to those of us living in developed political economies where migration has become a volatile political issue, approximately half of international migration occurs between developing political economies. Martin describes the typical process of modern migration. In the first wave, guest workers tend to be recruited or attracted from abroad, often from rural areas with high levels of unemployment. They initially move only temporarily. This pattern also appears within countries as urban areas in developing nations grow with the influx of migrants from rural areas—great migrations off the land. This movement from rural to urban areas within a country fuels international migration as workers who have taken the step to move from rural to urban areas—to break their social and geographical ties—are also more willing to move abroad if recruited for work or if some infrastructure for migration exists. Migration does not mean a breaking of ties by migrants to their émigré nations. The initial wave of migrants provides information about their experience and opportunities abroad to those who stay behind. Networks are created that provide information about opportunities abroad as well as infrastructure for moving across borders. This helps more workers to follow, lured by higher wages and economic opportunities, and aided by information and an emerging migration infrastructure. Once established abroad, many migrants then bring their families. Family ties

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constitute perhaps the most important non-economic factor underpinning migration. Migrants often send a portion of their earnings back to their home countries, remittances, which contributes to economic activity in their home countries as the recipients of remittances buy goods and invest in their housing and human capital. Martin links the rise of civil conflict after the end of the Cold War in the early 1990s with increased pressures to migrate. The break-up of the Eastern Bloc and the Soviet Union and the demise of bipolar geopolitics led to a rise in separatist movements, civil conflicts, nation-building, ethnic cleansing and consolidation, and increased security and human rights concerns for people living in areas experiencing such changes. Some people became international migrants without moving as borders shifted, while others fled to avoid violence. With more nations there are more international borders that can be crossed and more opportunities to be categorized as an international migrant. Martin shows that migration helps address a growing labor shortage in many of the developed political economies as their populations stagnate and grow older as birth rates have declined. For Germany, Italy, France, and the United Kingdom to maintain their 1995 population levels given their current birth rates, they would have to triple their current immigration levels, and even more (some 37-fold) to keep the ratio of workers to pensioners stable in order to maintain a status quo social welfare state at current levels of taxation. Citizens and politicians of developed political economies, where added migration could help address labor shortfalls and weaknesses in social safety nets, have been unwilling to increase immigration on such a scale. Instead, increasingly virulent movements have arisen in such political economies favoring less legal migration, greater efforts to restrict unauthorized immigration, and more management of migration in general. In the next chapter, Stephen Legomsky (Washington University School of Law) examines the tension between national identity and globalization. If sovereignty means anything in the Westphalian state system it must certainly mean that a sovereign state has the power to define who is a national and who is not, and who can physically enter its territory and who cannot. Legomsky argues that these pillars of sovereignty are no longer in the sole domain of the sovereign state, but are now a function of both domestic and international rules and regulation. He lays much of the responsibility for this transformation, an erosion of exclusive state sovereignty over nationality and immigration, to the undermining of classical international law in which only states have rights. In the post-World War II era, a growing appreciation of human rights led to gains in individual rights at the expense of the state. This growth of individual rights contributes to the globalization of nationality and immigration law. Legomsky argues that policymakers have come to recognize that the movements of peoples across national boundaries present many of the same

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challenges and opportunities that accompany the flow of goods, capital, services, and information across national boundaries and, consequently, should require a mix of national and international regulation that characterize those areas of global exchange. Migration is increasingly multinational as opposed to binational—especially in the case of refugees. Immigrants often pass through one or more states after leaving their home state in search of a new home. This means that more than two states—the emigratory state and the state of final destination—have interest in migratory outcomes. State decisions about nationality and immigration have increasingly multilateral and not just bilateral implications and may be easier to manage through international cooperation rather than by the unilateral and autonomous policy choices of a sovereign state. Collaborative, multilateral regulation is bound to work more effectively in many of the most problematic issue areas related to migration: human trafficking, terrorism, and refugees. Next, Kevin O’Rourke (Department of Economics at Trinity College Dublin) looks to history for lessons for today’s policymakers in the area of immigration. He uses the period from the Irish Famine (1845–49) to World War I to examine the economic consequences of open migration. This period is unusual in its lack of constraints upon the mobility of individuals across national borders. This provides an opportunity to consider the empirical economic consequences of international labor mobility. As immigration is an increasingly important policy issue today, lessons from an earlier era of free migration can be instructive to today’s policy debates. O’Rourke advances three major lessons, some of which echo aspects of Martin’s paper in Chapter 2. First, emigration enables poor countries to raise their standards of living. Current limitations on immigration effectively handicap poor countries in their attempts to develop and catch up to the developed political economies of the OECD (Organization for Economic Co-operation and Development). Second, emigration is a self-limiting process. With emigration from poorer countries real wages will actually rise in those countries as labor supply shrinks. This raises living standards in those countries and reduces the economic impetus for those remaining to migrate. Third, migration can affect income distribution and living standards in the countries of origin and destination. The evidence shows that living standards of emigrant political economies in the Atlantic Economy rose rapidly in the late 1800s. In effect, emigration was “a major source of poor relief.” Emigration provided an important stimulus to convergence in living standards across origin and destination political economies. Emigration also reduced income inequality in those countries from which individuals emigrated. In the next chapter, Howard Chang (University of Pennsylvania School of Law) looks at immigration in the context of cultural communities. He notes that economic theory favors international labor mobility in terms of maximizing economic efficiency and economic social welfare. In an earlier paper, O’Rourke demonstrated results consistent with economic theory. The

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relatively free movement of labor across national boundaries in the mid- to late-1800s produced net gains in aggregate wealth. High-wage countries were able to gain by employing more immigrant labor and residents of low-wage countries were able to sell their labor to employers in high-wage countries. As O’Rourke demonstrated in the previous chapter, immigration waves of the 1800s helped reduce poverty in labor abundant economies such as Ireland. Other studies have shown that greater migration could vastly improve the global distribution of income by raising the wages of the world’s poorest workers. Chang notes that despite the insights of economic theory about how the free mobility of labor will produce a more efficient use of resources, improve the real wages of the poor, and maximize economic welfare, the nations of the world maintain restrictions on immigration and do not seem likely to liberalize those restrictions significantly. Essentially the geography of efficient economic exchange differs from the geography of states and communities. Communitarian political theorists such as Michael Walzer argue for such restrictions as a means of sustaining distinctive cultural communities, an important value-laden distinction and a means of distinguishing us versus them. Chang is willing to assume that the communitarians are correct in valuing distinctive cultural communities, but he questions whether immigration restrictions that enforce cultural segregation at the national level are the most effective means for maintaining such communities. Chang seeks to preserve the idea of distinct cultural communities, but he also wants to reap the economic gains from the greater international labor mobility. Essentially he argues that it might be possible to have the best of both worlds—distinct cultural communities and the gains from trade in labor via migration. How? He notes that individuals with heterogeneous preferences are likely to voluntarily separate themselves into distinctive communities. People tend to live in communities with others that tend to share many of their values and characteristics. This occurs even as many condemn the local level segregation that emerges from such processes as unfair and damaging to equality of opportunity within domestic arenas. Any such attack on equality of opportunity is lamentable, but Chang reasons that wide-scale immigration restrictions to protect cultural communities are more damaging to equality of opportunity than local voluntarily constructed segregation that protects the distinctiveness of communities. Local voluntarily constructed segregation into cultural communities still allows individuals to benefit from gains in trade in the labor market. In the next contribution, Mariana Medina and Andrew Sobel (Department of Political Science at Washington University in St. Louis) use survey data of elites and the general public in the United States to study attitudes toward the processes of trade, outsourcing, and migration and to search for consistencies or inconsistencies across those attitudes. They examine whether

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Andrew Sobel

an economic dimension is sufficient to account for individual preferences toward these issues. Medina and Sobel use economic theory to generate expectations about individuals’ preferences toward these processes of economic globalization. Economic theory treats trade, migration and outsourcing as policy substitutes or complements in relatively open political economies with significant factor mobility. As substitutes, these processes of globalization generate comparable effects, good or bad depending upon who you are and where you sit in society. They can be interchanged either intentionally via policy choice or by market response. As complements, they reinforce the gains or losses to an individual’s employment and create additional pressures for more or less trade, more or less factor mobility, and greater receptiveness or resistance to the processes of globalization. If individuals are rational economic actors who make their choices guided by a dominant underlying economic dimension, then an individual’s attitudes should be consistent across the issues of trade, outsourcing, or migration— the mechanisms of economic globalization—regardless of whether they are substitutes or complements. Those advantaged by globalization should demonstrate a consistent and similar positive reaction in their attitudes toward the issues of trade, outsourcing, and migration. Those disadvantaged or threatened by globalization should anticipate a consistent and similar negative reaction to the issues of trade, outsourcing, and migration. Medina and Sobel use the Stolper–Samuelson model of trade and its consequences to anticipate who in society gains or loses by expanding exposure to the economic processes of globalization. Abundant factors, or assets, of production gain and scarce factors, or assets, of production tend to be disadvantaged. Medina and Sobel find significant differences between mass and elite attitudes with elite responses more closely conforming to expectations of an underlying economic dimension. Nevertheless an economic dimension fails to fully account for mass or elite attitudes toward these processes. Individuals, mass and elites, do not treat trade, migration and outsourcing as equal substitutes or complements. Even when their effects in the labor market are similar, a second dimension appears for immigration that suggests that many individuals do not view migration as a substitute for trade or outsourcing. Individual attitudes toward migration, and their inconsistency with attitudes toward trade and outsourcing, conflict with the notion of a dominant underlying economic dimension in the arena of migration. Using attitudes toward these processes and other, non-attitudinal data, they find systematic evidence of a non-economic dimension based on identity or cosmopolitanism. Evelyene Huber and John Stephens (Department of Political Science at the University of North Carolina-Chapel Hill) shift topics to examine the relationship between globalization and inequality. In many regions of the world, inequality is higher today than in the past several decades, and it appears to be growing in many societies. Huber and Stephens focus their investigation upon Latin America and the Caribbean, the region of the world exhibiting

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the highest degree of inequality. Inequality in this region, as in every region, is historically rooted, but inequality in Latin America has been more resistant to changes in economic growth than in many other areas. In the advanced industrialized regions of the world inequality narrowed for several decades following World War II and then stabilized. In the last several decades we have witnessed a resurgence in levels of inequality. Certainly factors within national political economies such as the nature of the social welfare state and redistributive mechanisms of the state, partisanship, and democratization can affect inequality, but it is hard to ignore that inequality has increased even with the expansion of the social welfare state and the adoption of government policies that could constrain the expansion of inequality. This is especially true in Latin America, where levels of social welfare expenditures, redistributive policies, and democracy have increased over this period. Huber and Stephens note that this retrenchment in inequality takes place as globalization has accelerated. Increasing globalization occurs temporally at the same time as increasing and sustained levels of inequality. This begs several questions. Are the two trends causally linked? Does globalization contribute to higher levels of inequality? If so, then how are they causally connected? Huber and Stephens find evidence that globalization and inequality are indeed causally associated in Latin America, but in an interesting and complicated manner that challenges mainstream notions of globalization. Huber and Stephens begin with a standard approach to globalization that conceptualizes globalization as a greater integration of national economies into world markets via greater openness to trade and capital flows, greater presence of foreign investment, and greater IMF involvement. Controlling for other variables that have been shown to influence levels of income inequality, they discover only limited effects of globalization upon levels of inequality in Latin America. They then argue that we need to expand our conception of globalization, to think more broadly and systematically about changes in the Latin American economies rooted in the debt crisis and by subsequent demands from international financial institutions for structural adjustment. Huber and Stephens advocate a different, more nuanced, complex and creative conception of globalization as a transition from one model of engagement with the world economy to another form of engagement. This alternative conception attempts to capture the shift from an import substitution industrialization model of engagement to a neoliberal model of engagement, a historical and foundational transition. Over the past several decades Latin American economies shifted from high levels of protection and heavy state intervention to greater constraints on state intervention and greater reliance upon market forces. This transition led to greater import competition, privatization, and deindustrialization, which destroyed relatively goodpaying jobs for workers with limited skills. Many of the changes underpinning this shift may have happened regardless of globalization, with globalization only highlighting the failures of the import substitution industrialization

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Andrew Sobel

model. But the failures of the import substitution industrialization model and excessive borrowing and reliance upon petrodollars fueled crises that led to intense pressures from the international financial institutions for structural adjustment, to liberalize quickly and completely regardless of short-term social consequences. Where the transition was radical, fast, and deep, inequality and poverty increased more rapidly than where the transition to greater market engagement was more measured and managed. Consequently, they conclude that the speed and nature of engagement with global market forces is a political creation and not a choice driven by the inexorable logic of capitalism. Engagement with the global economy can be managed, potentially with a prospect of limiting inequality instead of exacerbating it as in the case of Latin America. A paper by Zahra Egal (Orrick, Herrington & Sutcliffe LLP) and Andrew Sobel (Department of Political Science at Washington University in St. Louis) tests some popular arguments about the relationship between globalization and the social welfare state. Specifically they examine two popular hypotheses about the efficacy of the modern welfare state and the ability of governments to provide social safety nets in the face of globalization. These are known as the race-to-the-bottom and capital mobility hypotheses. In these hypotheses, holders of highly mobile capital can use cross-border mobility, vote with their feet, to gain bargaining leverage and avoid the redistributive burdens of the modern social welfare state. This leads to a rollback in state policy autonomy, with either a rollback in the social welfare state or a redistribution of the costs of the social welfare state upon less mobile and more disadvantaged assets of production. Similar to the earlier O’Rourke chapter, Egal and Sobel shift the domain of their study to another time to gain analytic leverage. They turn to history, the 1800s, and to the political economies of the Atlantic Economy. Shifting focus to the mid- to late-1800s provides a strategy to examine another period of comparable dynamics—essentially increasing the number of cases under which these theoretical conjectures have been examined. Are the dynamics similar? Much research has demonstrated that the mid- to late-1800s are comparable to today in terms of globalization, its degree and processes. Capital was highly mobile during this earlier period and level of international financial integration in the late 1800s was unmatched until the 1990s. Significant amounts of foreign securities traded actively in the London capital markets and in proportions comparable to today but with fewer types of securities. Capital exports from the London markets expanded over the late 1800s and were used to finance governments, infrastructure, and private enterprise around the world. In terms of liquidity, size, complexity, and responsiveness to shocks and crises, the global financial market for sovereign debt in the late 1800s merits comparison with such markets today. If capital mobility is an important causal mechanism affecting the size and efficacy of the social welfare state, then the late 1800s provide a setting with comparable dynamics to test this relationship.

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Using qualitative historical descriptions of changes in the social welfare state across many of the core states in the Atlantic Economy during the 1800s, Egal and Sobel show that the evidence dramatically conflicts with the theoretical dynamics and predictions of the capital mobility and race-tothe-bottom hypotheses. Instead of the inverse relationship between capital mobility and welfare state provisions anticipated by the capital mobility and race-to-the-bottom hypotheses, they find a positive association. At the very time that the processes of globalization and capital mobility exploded in the 1800s, they note the birth of the modern social welfare state and its expansion. This evidence challenges arguments about retrenchment of the social welfare state and a race to the bottom that depends solely upon the causal dynamic of capital mobility. The positive relationship between the social welfare state and globalization broadly—capital mobility specifically—in the 1800s and the ambiguous evidence from the late 1900s suggests that the relationship is much more complex than the simple inverse relationship posited in the capital mobility and race-to-the-bottom hypotheses. In the nineteenth century, globalization and the state co-evolved. Plus, democratization made tremendous leaps in many societies as suffrage expanded. Democratization introduced new pressures into political economies and demands upon politicians at the very time that globalization advanced. The advance of globalization and democratization accompanied the transformation of the warfare state into the welfare state. Globalization is a demanding taskmaster and challenges governments, but they can complement each other. Even as globalization contributed to overall social welfare gains in societies, it also increased risk and uncertainty for some in those societies. This took place as individuals gained political voice and ability to demand redress against the dislocations and risks of creative destruction. Some of the most important activities of the modern social welfare state, education, and training, help individuals and communities adjust to the consequences of creative destruction and to take advantage of globalization. Governments can use effective social welfare state mechanisms to meet the challenges of globalization, manage its risks and dislocations that could prompt retrenchment, and promote its further expansion. In the last chapter of the volume, Miles Kahler (Department of Political Science at the University of California–San Diego) shifts focus to the subject of global governance. In his paper, he defines global governance by means of four criteria of institutional design. First, which actors are the principals in a system of global governance? Second, at what level of governance is authority concentrated? Third, what are the institutional characteristics of a system of global governance—extent of centralization, degree of legalization, and amount of bureaucratic delegation? Finally, what is the nature of accountability of the institutions and bureaucrats of global governance to their principals?

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Kahler notes that variation can exist on each of these aspects of institutional design with implications for the nature and extent of global governance. Moreover, these are not static or stable equilibrium, but rather they can change and have done so over the past century. Before World War I, governance was increasingly concentrated in the hands of national governments. International institutions were designed to address a narrow range of issues, specifically cross-border infrastructural demands created by the pressures of industrialization and growing economic integration. These narrow institutions were thrust aside by world war, military insecurity, and rising economic nationalism. With the end of World War II, a new wave of international institution building sought to address a fractured and disintegrated global economy. This produced a system of global governance that favored national governments over supranational institutions. Governments engaged in multilateralism and intergovernmentalism through international governmental organizations (IGOs), but national governments—particularly those of the major economies—retained tremendous authority. These IGOs and institutions, designed at a time of strong centralized national governments and cleavage between capitalist democracies and socialist authoritarian regimes, helped transform the immediate post-war global economy into a much more economically liberal and open global economy. The institutions of global governance designed in the wake of World War II are now challenged to operate in a radically different global arena. Kahler claims that the economic integration and globalization that emerged in the latter part of the twentieth century calls for a redefinition and transformation of global governance, but in what manner? He notes that many observers of these changes in globalization forecast a shift in governance upward (away) from national governments to regional and supranational organizations, downward to sub-national levels of governance with demands for local autonomy, or laterally with expanding roles for private governance pushing a retreat in national public authority. Although the push and pull is in different directions, each of these scenarios leads to a winnowing, a “hollowing out,” of national governance. Anti-globalization activists rally around concerns that national authority would be eroded in favor of far less democratically accountable supranational bureaucratic organizations or collusive arrangements among private firms. Such anti-globalization forces, which run counter to centralization of authority in the hands of supranational organizations, might push for greater devolution of authority. Such downward pressures on governance can be reinforced by heterogeneous or distributional preferences. This again erodes national governance, but by a different path. Yet, none of these stark predictions have been fulfilled. Instead of a zerosum tension across levels of governance with either devolution downward or consolidation and harmonization upward, recent transformations in global governance suggest that authority at different levels can emerge that is

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mutually reinforcing. Kahler argues that effective national institutions and capabilities lie at the heart of the ongoing transformation in global governance. The complexity of modern globalization requires a much more sophisticated set of governance relationships across levels and state and non-state actors. Cooperation across national governments, between national governments and private actors, and between national governments and supranational organization are critical to the provision of positive global outcomes and the avoidance of negative outcomes. He then proceeds to consider possible pitfalls that must be overcome for existing global institutions to survive and prosper within this redefinition of global governance.

Chapter 2

Sustainable labor migration policies in a globalizing world Philip Martin

“Man is of all sorts of luggage the most difficult to be transported.” Adam Smith The number of international migrants doubled between 1975 and 2000, and has been rising by over three million a year in the twenty-first century.1 About 60 percent of the world’s migrants are in more developed countries, including 56 million in Europe and 41 million in North America. Is the number of migrants too high or too low? Between 1965 and 1985, the number of migrants rose by 30 million, or 1.5 million a year. In the next two decades, the number rose by 85 million, four million a year, with a remarkable 10 million a year increase between 1985 and 1990.2 The growth in the stock of migrants has since slowed, but if the world’s migrants were in one place, “Migrant Nation” would be the fifth most populous country: China, India, United States, Indonesia, Migrant Nation, Brazil, Russia, and Pakistan (see Table 2.1). Most migrants cross borders for economic reasons, and half are in the labor force. The world’s nation-states, meeting under the auspices of the International Labor Office (ILO), approved two migrant-related Conventions and Recommendations that reflected the migration issues of the time. ILO Table 2.1 Global migrants, 1965–2005

1965 1975 1985 1990 1995 2000 2005

Migrants millions

World population billions

Migrant share of world population

Annual change millions

75 85 105 154 164 175 191

3.3 4.1 4.8 5.3 5.7 6.1 6.5

2.3% 2.1% 2.2% 2.9% 2.9% 2.9% 2.9%

1 2 10 2 2 3.2

Source: UN Population Division

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Convention 97 (1949), developed when there were efforts to promote the transfer of surplus manpower across national borders in post-war Europe, established the principle that legal foreign workers would be treated the same as native or local workers, with equal wages and benefits.3 ILO Convention 143 (1975), approved during the global recession that followed oil price hikes in 1973–74, aimed to discourage labor smuggling and the employment of irregular workers while prompting the integration of settled migrant workers and their families.4 As immigration surged in the late 1980s, these international labor conventions were considered inadequate, especially for protecting irregular workers and the families of migrant workers. In 1990, the United Nations General Assembly adopted the International Convention on the Protection of the Rights of all Migrant Workers and Members of their Families to “contribute to the harmonization of the attitudes of States through the acceptance of basic principles concerning the treatment of migrant workers and members of their families.” The UN Convention, which is more comprehensive than the ILO conventions by encompassing irregular workers, has so far been ratified only by labor-sending countries. The international architecture governing labor migration is incomplete, even as migration frequently appears in the headlines. Reactions to this migration vary. Classic immigration or settlement countries such as Australia, Canada, the United States, and New Zealand distinguish immigrants, who are entitled to live and work almost anywhere and to naturalize after three to five years, from temporary visitors or non-immigrants, foreigners in the country for a specific time and purpose, such as to study or work. Most European countries as well as Japan do not consider themselves countries of immigration, and their data systems distinguish citizens from foreigners who are in the country 90 days or more, since foreigners typically have to register with local authorities after 90 days. Many European countries have begun to open themselves to immigrants, but most have a more arduous path to immigration and naturalization than the classical countries of immigration. The world’s migrants are very heterogeneous, sharing only the 12 months or more “abroad” characteristic. Most of the world’s residents never cross a national border—most people live and die near their place of birth—and those crossing national borders usually move only to neighboring countries. Since most people live in developing countries and move only short distances, about half of the world’s migrants move from one developing country to another. The World Bank reported that 5.5 billion people, 85 percent of the world’s residents, live in low- or middle-income developing countries with an average per capita Gross National Income (GNI) of $2,000 in 2006. So-called south–south migration involves Filipinos or Indonesians moving to Malaysia, Burmese moving to Thailand, Malians moving to the Ivory Coast, Ukrainians moving to Russia, Colombians moving to Venezuela, or Haitians moving to the Dominican Republic.

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A billion people live in high-income countries, with an average per capita GNI of $36,500 in 2006. As economic theory would predict, the high-income countries have only 15 percent of the world’s residents, but 60 percent of the world’s migrants. Migration into the high-income countries from developing countries involves Mexicans moving to the United States, the largest migration flow between two countries, as well as Chinese moving to Canada and Japan, Poles, and Turks moving to Germany, and students and young people from many lower-income countries studying or working in high-income countries.

Managing migration Migration is the movement of people from one place to another. Migration is as old as humankind wandering in search of food, and later evolved into migration for conquest and proselytizing, but “international migration” is a relatively recent development, since it was only in the early twentieth century that the system of nation-states, passports, and visas developed to regulate the flow of people across national borders. International migration is the exception, not the rule, and the number one form of migration control is inertia—most people do not want to move away from family and friends. Second, governments have significant capacity to regulate migration, and they do, with passports, visas, and border controls. For example, an integral component of national sovereignty is governmental control over who enters and stays in a territory. Third, historical experience, as with European migration to the Americas as well as contemporary experiences in Italy, Spain, and South Korea, demonstrate that there can be a migration transition, as countries sending workers abroad develop economically and switch from labor senders to receivers in a decade or two. Migration is a response to differences between areas. The major differences that can lead to migration arise in demography, economics, and security. These differences have been likened to plus and minus charges on a battery— nothing happens until a link is established between them. Migration links over borders are often described as networks that encourage migrants to move, help them to cross borders, and enable them to settle abroad. These networks have been strengthened by three recent revolutions, in communications, transportation, and rights, at a time when growing differences promise more pressures to cross national borders. The major reasons to migrate over borders can be grouped into two categories: economic or non-economic, while the factors that encourage a migrant to actually cross a border are often divided into three categories: demand-pull, supply-push, and network factors. This framework distinguishes between economic migrants who are encouraged to migrate by demand-pull guest worker recruitment from non-economic migrants who are encouraged to cross borders to join family members settled abroad. A person

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in rural Mexico, for example, may be recruited to work in U.S. agriculture by a job offered by a recruiter,5 a demand-pull factor. The potential migrant may not have a job at home, or have failing crops, and thus be willing to move, a supply-push factor. After obtaining information about U.S. work and wages from a returned migrant, a network factor, the person may decide to migrate from Mexico to the United States. The three factors encouraging an individual to migrate do not have equal weights in an individual or family situation, and the weight of each factor can change over time. Generally, demand-pull and supply-push factors are strongest at the beginnings of a migration flow, and network factors become more important as the migration stream matures. The first guest workers tend to be recruited, often in rural areas where unemployment and underemployment are high. But after migrants return with remittances and stories of high wages, network factors may become more important in sustaining migration, and eventually even employed Mexican workers may move to the United States for higher wages. Family unification is probably the most important non-economic factor encouraging migration. In many cases, one member of a family obtains residence rights abroad and sponsors family members for admission, explaining why the migration literature uses nautical metaphors such as anchor migrants and follow-on chain migration. The differences that encourage migration, in demography, economics, and security and human rights, are widening. Demographic trends provide an example. The world’s population reached six billion in October 1999, and continues to grow by about 1.2 percent or 80 million a year, with almost all population growth in developing countries.6 In the past, significant demographic differences between areas prompted large-scale migration. For example, Europe had 21 percent of the world’s almost one billion residents in 1800 and the Americas 4 percent. When there were five Europeans for every American, millions of Europeans emigrated to North and South America in search of economic opportunity as well as religious and political freedom. Will history repeat itself ? Africa and Europe have roughly equal populations today, but by 2050, Africa is projected to have three times more residents (see Table 2.2). If Africa remains poorer than Europe, the two continents’ diverging demographic trajectories may propel young people from overcrowded cities such as Cairo and Lagos to move to Berlin and Rome. Economic differences between countries are widening, encouraging international migration for higher incomes and jobs. The world’s GNI was $48 trillion in 2006, according to the World Bank, making average per capita income $7,400 a year. However, there were significant differences between countries. Low-income countries from Bangladesh to Zimbabwe had per capita GNIs below $500 per person per year, while per capita GNI in Norway topped $66,000. When countries are grouped by their per capita GNIs, the gap between high-income countries, with GNIs per capita of $11,100 or

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Philip Martin Table 2.2 World population by continent, 1800, 2000, 2050 (percent shares)

World (mils) Africa Asia Europe Latin America and Caribbean Northern America Oceania

1800

2000

2050*

978 11 65 21 3 1 0

5,978 13 61 12 9 5 1

8,909 20 59 7 9 4 1

Source: UN, 1999, The World at Six Billion, Table 2 * projected

more, and low (below $905 per person per year) and middle income (between $905 and $11,100) countries, have been widening—and very few low and middle income countries have climbed into the high-income ranks.7 In 1975, average per capita GNIs in the high-income countries were 41 times higher than those in low-income countries, and eight times higher than in middle-income countries. By 2000, this gap had widened, so that high-income countries had per capita GNIs 66 times those in low-income countries and 14 times those in middle-income countries. Despite recent rapid economic growth in countries such as China and India, the gap narrowed only slightly to 61 and 13 by 2005 (see Table 2.3). The chance to earn 13 or 61 times more money explains why so many youth in low- and middle-income countries are willing to take big risks to enter high-income countries. There is a second dimension to increasing economic differences that adds to international migration. The world’s labor force was 3 billion in 2005, including 2.4 billion in what the ILO calls less-developed countries and 600 million in more developed countries. Almost half of the workers in lessdeveloped countries were employed in agriculture, usually as small farmers. In less-developed countries with a large share of workers in agriculture, farmers are taxed.8 Meanwhile, in more developed countries, governments provide subsidies for the fewer than 5 percent of workers employed in agriculture. Taxes on agriculture in less-developed countries and subsidies for agriculture in more-developed countries promote migration in several ways. First, farming sectors in rich countries are kept large, attracting migrants to fill seasonal farm jobs. Second, rural–urban migrants are often willing to accept so-called 3-D jobs (dirty, dangerous, difficult) in the places to which they move, inside their countries or abroad. Finally, ex-farmers often make physical as well as cultural transitions, and many are willing to go overseas if there is recruitment or a migration infrastructure to help them to cross borders.

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Table 2.3 Countries grouped by average per capita GNI, 1975–2005 Average GNI per capita ($/year) Ratio

1975 1985 1990 1995 2000 2005

Ratio

Low

Middle

High

High-Low High-Mid

150 270 350 430 420 580

750 1,290 2,220 2,390 1,970 2,640

6,200 11,810 19,590 24,930 27,510 35,131

41 44 56 58 66 61

8 9 9 10 14 13

Source: World Bank, World Development Indicators, various years

Rising demographic and economic differences, combined with rural–urban migration, promise more economically motivated migration. The third major difference that prompts more migration involves security and human rights. After the global conflict between capitalism and communism ended in the early 1990s, local conflicts erupted in many areas, leading to separatist movements, new nations, and more migrants, as in the ex-Yugoslavia and the ex-USSR. Creating new nations is almost always accompanied by migration, as populations are reshuffled so that the “right” people are inside the “right” borders. Governments sometimes send migrants to areas in which there were or are separatist feelings or movements, and if the area later breaks away and forms a new nation, these internal migrants and their descendants can become international migrants without moving again, as with Russians in the Baltics or Indonesians in East Timor. The rising number of nation-states means there are more international borders to cross: there were 191 generally recognized nation-states in 2000,9 up from 43 in 1900. Differences encourage migration, but it takes networks or links to enable people to move. Migration networks are a broad concept, and include factors that allow people to learn about opportunities abroad as well as the migration infrastructure that moves them across national borders (Massey et al. 1998). Networks have been shaped and strengthened by three major revolutions in the past half-century: in communications, transportation, and rights. The communications revolution helps potential migrants to learn about opportunities abroad. The best source of information comes from migrants established abroad, since they are in a position to provide family and friends at home with information in a context they understand. Even without anchors abroad, many people in developing countries see movies and TV shows produced in high-income countries and some believe that, if they can get into countries with wealth, they can share it. It is sometimes said that movies and TV shows such as Dallas and Dynasty portraying wealth have encouraged migration toward the United States from all corners of the world.10

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The transportation revolution highlights the declining cost of travel. British migrants unable to pay their passage to the colonies in the eighteenth century often indentured themselves, promising to work for three to six years to repay one-way transportation costs. Migrants would sign contracts before departure, and employers looking for workers would meet the ships, pay the fare, and obtain an indentured worker. Transportation costs today, even for unauthorized migrants, are typically less than $2,500 to travel anywhere in the world legally and $1,000 to $20,000 for unauthorized migration. Most studies suggest much shorter payback times, less than two to three years even for those who pay the highest smuggling fees. The rights revolution refers to the spread of individual rights and entitlements that allows some foreigners to stay abroad (Cornelius et al. 2004). Many countries have ratified United Nations, International Labor Organization, and refugee conventions that commit them to providing all persons with basic rights such as due process, so that foreigners are not summarily removed. In addition, most nation-states are committed to protecting foreigners who would face persecution in their countries of citizenship. Many countries have social safety net programs, and some extend eligibility for at least basic services to all residents, making it easier for migrants who are abroad to stay abroad. Growing demographic, economic, and security differences increase potential migration, and the communications, transportation, and rights revolutions strengthen the networks that enable migrants to learn about opportunities abroad, move, and stay abroad. There is little that countries experiencing “unwanted immigration” can do in the short-term about the demographic, economic, and security differences that promote migration. Policymakers have little power or desire to reverse the communications and transportation revolutions that, as a byproduct of connecting the global village, inform migrants about opportunities abroad and make it less costly for them to travel. However, governments create and enforce rights, and the default policy instrument to manage migration in the past two decades are new or modified laws that restrict the rights of migrants. For example, the United States in 1996 enacted laws that restricted the access of unauthorized as well as many legal immigrants to social assistance program benefits, and many European countries revised their laws to define when and where a foreigner must apply for asylum to receive housing and support while his application for asylum is considered. Low- and middle-income countries also restrict rights in an effort to manage migrants, often tolerating the presence of migrants in economic booms and then stepping up enforcement efforts when there is recession or complaints about migrant crime. There is general agreement that manipulating the rights of migrants is not the optimal way to manage economically motivated migration. However, labor-receiving countries have not come up with a better alternative. Most

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countries deal with unauthorized and unwanted migration unilaterally, such as announcing programs to step up enforcement, sometimes coupled with regularization or amnesty. In other cases, bilateral agreements open channels for legal migration in exchange for sending country assistance to close doors to unauthorized migrants. The fact that there are similar migration pressures and problems has prompted many calls for a new global migration management regime, one that would help governments to understand fundamental migration pressures, promote cooperation between governments, and respect the rights of migrants. There have been many commissions and reports describing migration problems and laying out proposed solutions, but none of the recommendations have won widespread support. One reason why it has been hard to win support for a new global migration regime is because migration histories are so different, as exemplified by attitudes toward migration across the Atlantic Ocean.

Europe versus North America Migrants are scattered around the world, but migration patterns and issues differ between regions (Castles and Miller 2003; Stalker 1999). The United States in the 1950s and Europe in the 1960s recruited guest workers, setting in motion demand-pull, supply-push, and network factors that contributed to subsequent legal and unauthorized migration. Canada and the United States are classic countries of immigration, shaped by newcomers from many countries and planning for the arrival and integration of additional immigrants. Most European countries, by contrast, are reluctant countries of immigration, accepting guest workers who settled and asylum seekers in need of refuge, but generally not planning for immigration or welcoming newly naturalized citizens as symbols of an immigration tradition. Europe Most European societies were shaped by emigration to the Americas—about 60 million Europeans emigrated between 1820 and 1914.11 During this great Atlantic migration, there was also significant migration from east to west within Europe, as from Poland to Germany. Two world wars led to the creation of new nation-states, and there were large-scale exchanges of people who wound up in the “wrong” country when borders were redrawn, such as the exchange of Greeks and Turks in the 1920s and the migration of ethnic Germans to West Germany after World War II. Most of the economically motivated migration within and to Europe after World War II reflected rural–urban migration within a country and movements between territories and colonies and the home country, such as between Algeria and France or India and Pakistan and the United Kingdom.

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However, faster post-war recovery in northern Europe prompted the recruitment of guest workers in southern Europe, where economic and job growth was slower. Most European guest worker programs were probationary immigration systems, meaning that Yugoslav or Turkish guest workers could earn an immigrant status and the right to unify their families if they were satisfactory workers and their Dutch, French, or German employers requested that their initial one-year work and residence permits be renewed (Miller and Martin 1982). Most guest workers returned to their countries of origin according to the assumptions of the rotation model, which imagined that migrants would save enough during a few years of work abroad at high wages to finance upward mobility at home. However, many settled and unified their families, as they were allowed to, giving many European countries populations and labor forces that were comprised of 10 percent foreigners a few decades later. The 1960s guest workers were primarily men, but foreign populations today are more evenly balanced. Germany had the most foreign residents in 2005, some 6.8 million, followed by France with 3.3 million (in 1999), the United Kingdom with 3 million, and Italy and Spain with 2.7 million each. Luxembourg had the highest percentage of foreigners among residents—40 percent12—followed by Switzerland with 20 percent and Austria with 10 percent (see Table 2.4). Among European countries with more than a million residents, Switzerland had the highest share of foreigners in its labor force, over 20 percent, followed Table 2.4 Foreigners and foreign workers in Western Europe, 2005

Austria Belgium Denmark France Germany Ireland Italy Luxembourg Netherlands Norway Spain Sweden Switzerland UK

Foreign pop (thousands)

Percent of total population

Foreign labor force (thousands)

Percent of total labor force

802 901 270 3,263 6,756 259 2,671 181 691 222 2,739 480 1,512 3,035

9.7 8.6 5 5.6 8.8 6.3 4.6 39.6 4.2 4.8 6.2 5.3 20.3 5.2

418 435 109 1,456 3,823 102 1,479 196 288 159 1,689 216 830 1,504

12 9.1 4 5.3 9.3 5.5 6 62.6 3.4 6.9 8.1 4.8 20.9 5.4

Source: OECD, International Migration Outlook, 2007, Tables A.15 and A2.3 French foreign population data are for 1999 Ireland foreign labor force data are for 2002; Italy for 2003; Sweden for 2004

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by Austria, Germany, and Belgium. However, Belgium’s foreign workers are different from those in Austria and Germany. Many are well-paid EU nationals employed by the EU or seeking to influence it, while many of the foreign workers in Austria and Germany are lower-paid non-EU nationals employed in agriculture, construction, and services. The number of foreigners rose in all European countries in the early 1990s, and their economic impacts were hotly debated, sometimes influencing election outcomes. During the peak years of guest worker recruitment, 1961–1973, immigration was generally considered an economic plus that also served the political goal of accelerating economic integration within the EU. Unemployment was very low, and in many countries the number of vacant jobs exceeded the number of unemployed workers. Meanwhile, undervalued European currencies in a world of fixed exchange rates encouraged domestic and foreign capital to be invested in Western Europe to produce manufactured goods for domestic consumption and export markets. There was little serious consideration of policies that might have increased the size of the domestic labor force because the Great Migration off the land was largely completed, there was a baby boom that made it hard to raise female labor force participation rates, and the expansion of education and retirement systems delayed the labor force entry of some young workers and encouraged the exit of some older workers. Recruiting workers in a labor-surplus country to work temporarily in a labor-short country seemed to make eminent economic and political sense. Many Europeans believed that the 3 R’s of recruitment, remittances, and returns were a form of “foreign aid” to labor emigration countries such as Greece and Turkey. Unemployed workers recruited in southern Europe would reduce joblessness there, this argument went, and their remittances would provide the foreign capital needed for economic development. Returning migrants with training and experience could become productive factory workers in their countries of origin, and the fact that they became familiar with machinery and cars in France or Germany could help to increase trade. The oil crisis of 1973–74 prompted western European governments to stop recruiting additional guest workers from outside the EU. However, instead of returning home to unemployment and a thinner social safety net, many guest workers remained abroad. Labor-receiving countries attempted to discourage family unification by prohibiting spouses from working for several years after arrival. However, wives came anyway, but wound up isolated in ethnic enclaves. Perhaps the most telling figure is the declining employment rate of foreigners. In 1972, two-thirds of foreigners in Germany were employed wage and salary workers, a figure that fell to less than a third two decades later (see Figure 2.1). The fall of the Berlin Wall in 1989 unleashed a new wave of East–West migration. This migration, often economically motivated but reflected in an

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Figure 2.1 Foreign residents and employed foreigners, Germany, 1968–2000. Source: http://www.bundesauslaenderbeauftragte.de/

upsurge of asylum seekers, contributed to the perception that migrants were associated with higher unemployment rates and social welfare costs. Guest workers and their children by the 1990s had unemployment rates that were often twice native worker levels, so most European governments did not want to resume large-scale guest worker recruitment. Furthermore, many of the new migrants arriving in the 1990s applied for asylum in order to delay their removal, which meant that governments had to provide housing and support while asylum applications and appeals were pending. With 80 to 90 percent of asylum applications rejected, there was a backlash against foreigners that prompted most European governments to preserve the right to asylum, but made it harder to gain access to the asylum system. During the 1990s, persisting high unemployment rates, especially among foreigners, made it hard to discuss the economic contributions of migrants in a way that allowed easier entry. Instead, many European leaders promoted immigration as a way to offset shrinking populations and labor forces. The demographic argument for more immigration reflects the fact that there are more deaths than births in many European countries, so that without immigration, there could be labor shortages, deflation, and a lack of dynamism. However, immigration cannot reverse population decline or aging in Europe unless it rises to unprecedented levels. The UN projected the number of migrants required to avoid population decline, to maintain the 1995 working age population, and to maintain the ratio of 16–64 year olds to residents 65 and older at 1995 levels.

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The projections are eye opening. The Big 4 EU countries, France, Germany, Italy, and the United Kingdom, included two-thirds of EU-15 residents and received about 88 percent of EU-15 immigrants in 1995. If the Big 4 countries wanted to maintain their 1995 populations at current fertility rates, they would have to triple immigration levels, from 237,000 to 677,000 a year, with the greatest increase in Italy. To maintain their 1995 labor forces, the Big 4 would have to increase immigration to 1.1 million a year. Finally, to “save social security,” which means keeping stable the ratio of persons 18 to 64 years old to persons 65 and older, the Big 4 EU countries would have to increase immigration 37-fold, to almost 9 million a year, largely because people are living longer but assumed by the UN to retire at 65 (see Table 2.5). Most European countries are not ready to increase immigration on such a scale, and even limited additional migration seems problematic. The EU added 10 Eastern European countries on May 1, 2004, and Bulgaria and Romania joined January 1, 2007. Turkey began accession negotiations October 3, 2005, but they stalled in 2007–8, in part because of fears of too much migration from what would likely be the most populous country in the EU by 2015. Hostility to Turkey’s EU entry was evident in the statement of EU Commission president Jose Manuel Barroso, who said in 2007: “Turkey is not ready to become an EU member and the EU is not ready to accept Turkey as a member—neither tomorrow nor the day after tomorrow.”13 The fact that far more Poles and other Eastern Europeans migrated to Ireland and the United Kingdom than anticipated between 2004 and 2007 is likely to further complicate Turkey’s bid to join the EU. When 10 countries joined the EU on May 1, 2004, the “old” EU-15 member nations such as France and Germany were allowed to restrict freedom of movement from these so-called A8 (accession 8) countries. All of the EU-15 restricted A8 migration except Ireland, Sweden and the United Kingdom despite predictions from researchers that there would be relatively little East–West migration. In fact, there was far more migration to Ireland and the United Kingdom than projected, prompting all EU-15 member nations to restrict labor migration from Bulgaria and Romania when these countries joined the EU on January 1, 2007. European leaders have been keen to open doors to skilled non-EU foreigners, both to spur economic growth and to help convince local residents that immigrants can be an economic asset. EU Commissioner for Justice, Freedom and Security Franco Frattini in Fall 2007 complained that the United States got 55 percent of the world’s skilled migrants and 5 percent of the unskilled, while the EU received 5 percent of the skilled and 85 percent of the unskilled migrant flows.14 Frattini advocated a Blue Card program that would admit non-EU professionals for up to two years in the country that invited their entry. After two years, Blue-card holders would be able to circulate between the EU and their country of origin, a provision aimed at heading off criticism of a brain drain from developing countries.

270,000 237,000 7,000 204,000 6,000 20,000 33,000 760,000

949,000 677,000 29,000 344,000 251,000 53,000 272,000 128,000

4 3 4 2 42 3 8 0

to maintain 1995 Multiple of population 1995 (thousands) immigration 1,588,000 1,093,000 109,000 487,000 372,000 125,000 495,000 359,000

to maintain 1995 working-age population (thousands) 6 5 16 2 62 6 15 0

13,480,000 8,884,000 1,792,000 3,630,000 2,268,000 1,194,000 4,596,000 11,851,000

Multiple of 1995 to maintain pop immigration support ratio* (thousands)

* Migrants necessary to maintain 1995 population ratio of persons ages 15–64 to those ages 65 or older

Source: United Nations, “Replacement Migration: Is It A Solution to Declining And Aging Population?”

EU (15 countries) Big 4 EU France Germany Italy United Kingdom Other EU United States

Actual immigration in 1995 (thousands)

Average annual number of migrants required: 2000–2050

Table 2.5 Immigration required to avoid population decline

50 37 256 18 378 60 139 16

Multiple of 1995 immigration

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European countries have struggled to attract more non-EU professionals. During the high-tech boom of the late 1990s, European IT employers complained of labor shortages in computer-related occupations, as did their U.S. counterparts. Governments in France, Germany, the United Kingdom, and other European countries responded with modifications to existing programs or new programs to facilitate the entry of foreign computer professionals, or eased rules to allow foreign students who graduated from local universities to remain and work. For example, the German government approved a “green card” program that offered up to 20,000 five-year work permits to non-EU foreign computer professionals. Few foreign IT workers were admitted. German employers in 2000 said they had 75,000 vacant IT jobs, but only 14,600 green cards were issued between August 2000 and July 2003, an average 400 a month. About 85 percent went to non-EU foreigners who were abroad (rather than foreign students graduating from German institutions), and 83 percent of the green-card holders were admitted on the basis of having a university degree in computer science (lacking an IT degree, non-EU foreigners could be admitted if their German employers pay them at least E51,000 a year). A fourth of those admitted were from India, another quarter from Eastern Europe, and an eighth from the ex-USSR. The green-card program did not bring in large numbers of skilled foreigners, but it did set the stage for Germany’s first planned immigration system by giving political leaders the opportunity to emphasize that migrants can benefit themselves as well as Germans. The SPD-Green government elected in September 1998 pledged to change German naturalization policy from one of the most restrictive in Europe to one of the most liberal.15 However, the opposition CDU-CSU parties that won state elections in Hesse in February 1999 by opposing routine dual nationality forced a compromise that since 2000 has allowed children born to legal foreign residents of Germany to be considered dual nationals until age 23, when they normally lose German citizenship unless they give up their old citizenship. An independent commission recommended that Germany admit 50,000 more foreigners than currently arrive via family unification and recognized asylum seekers, including 20,000 foreign professionals a year selected on the basis of a point system, another 20,000 admitted temporarily with five-year permits, and 10,000 trainees and foreign graduates of German universities allowed to adjust from temporary to permanent resident status. The German Parliament eventually approved a modified version of the commission’s recommendations, but the German experience suggests that it will not be easy to develop an EU-wide immigration policy that welcomes large numbers of newcomers.

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North America The North American migration system includes the world’s major emigration and immigration destinations, whether defined in volume terms (migration between Mexico and the United States averaged 230,0000 legal immigrants a year in the 1990s, plus 300,000 unauthorized settlers) or in per capita terms (10 to 20 percent of persons born in the Dominican Republic and El Salvador have emigrated, and Canada aims to increase its population by 1 percent a year via immigration). Migration in North America has demographic and economic impacts in both sending and receiving areas. For example, Canada and the United States have some of the fastest growing populations among industrial countries, and most of the countries sending migrants to Canada and the United States are very dependent on earnings from remittances. Canada is an exception among industrial countries, with high levels of immigration, generous social welfare programs, and significant public satisfaction with immigration policies (Beach, Green, and Reitz 2003). Many analysts trace this satisfaction to Canada’s point system, under which foreigners seeking to immigrate are assessed on the basis of their education, youth, work experience, and knowledge of English or French. Canada has three major avenues of entry for legal immigrants. The largest flow comprises economic or independent skilled workers and business investors, 138,300 or 55 percent of the 251,600 immigrants in 2006.16 The second stream of immigrants arrives under family unification rules, 60,500 or 28 percent, and the third are refugees, 52,300 or 20 percent. Almost half of Canada’s immigrants are from Asian countries—the leading countries of origin in 2006 were China 13 percent, India 12 percent, and the Philippines 7 percent.17 Canada’s Immigration Act of 1976 established a point system to select non-family or independent immigrants. This system assesses foreigners wishing to immigrate for economic reasons against nine criteria on which an applicant can score a maximum 107 points, and must score at least 70 points to qualify for an immigrant visa (75 points after March 2003). For example, language skills (knowing English and/or French) can earn a maximum 15 points, while education beyond a BA can earn a potential immigrant up to 16 points. There is an additional educational training factor (ETF) worth up to 18 points that reflects the level of education and training required for an applicant’s occupation, and up to 10 points are awarded to applicants between the ages of 21 and 44.18 The United States is a nation of immigrants with the motto “e pluribus unum” (from many one), a reminder that Americans share the experience of themselves or their forebearers leaving another country to begin anew in the United States.19 Most Americans believe that immigration is in the national interest, and this belief did not change after the September 11, 2001 terrorism attacks—political leaders consistently drew a distinction between immigrants

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and terrorists. During the 1990s, more than 12 million newcomers—legal and illegal immigrants—settled in the United States, more than the 10 million who arrived during the first decade of the twentieth century. Immigration has economic costs as well as benefits (Borjas 1994), and these costs were the focus of often contentious debates in the mid-1990s, after the approval of Proposition 187 in California in 1994 and major federal legislative changes restricting the access of immigrants to social assistance (welfare) in 1996.20 Proposition 187 was never fully implemented, the access of some legal immigrants to social assistance was restored, and immigration faded from the headlines in the late 1990s, when the unemployment rate reached its lowest level in three decades and the economy generated an average 10,000 net new jobs each work day (Martin and Midgley 2006). The United States accepts three major types of immigrants through the front door for foreigners expected to settle. Almost 1.1 million foreigners became permanent immigrants in FY07; 60 percent were already in the United States and adjusted from a temporary status such as student or tourist to permanent immigrant. The largest group includes relatives of U.S. residents; 690,000 or 66 percent of the immigrants in FY07 had family members in the United States who petitioned the U.S. government to admit them. The second-largest category are employment-based immigrants, the 162,000 foreigners and their families admitted for economic or employment reasons, usually because their employer says the foreigner is uniquely qualified to fill a job. The third group was refugees as well as diversity21 immigrants. The United States also receives side-door non-immigrants or temporary foreign visitors who arrive to visit, work, or study. The number of temporary foreign visitors tripled in the past 20 years, primarily because of the growing number of tourists and business visitors. However, there has also been a sharp increase in the number of foreigners working temporarily in the United States, and their presence is more controversial. Among the most controversial foreign workers are H-1B professionals, who are allowed to bring their families and adjust to immigrant status if they can find a U.S. employer to sponsor them during the six years they can remain in the United States. The rapid expansion of this H-1B program prompted a debate over U.S. employer preferences, foreign workers, and U.S. education. Those in favor of expanding H-1B admissions argued that U.S. employers need easy access to the world’s “best and brightest,” so the U.S. government should not erect barriers between U.S. employers and needed foreign workers. Critics countered that there is no shortage of U.S. workers interested in computer and scientific jobs, only a shortage of U.S. workers willing to work long hours for low wages and short careers in fast-changing industries. Most students graduating from U.S. universities in science and math with bachelor’s degrees are U.S. citizens, but most do not pursue advanced degrees because they do not find the resulting extra earnings and opportunities sufficient to warrant the trouble and expense.

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The most controversial group of foreigners are the unauthorized, those who arrive without inspection at ports of entry or arrive legally but violate the terms of their visas. There were an estimated 12 million unauthorized foreigners in the United States in 2007, and their number was believed to have been increasing by 500,000 a year for the previous five years. About a million foreigners a year are apprehended just inside the U.S. border.22 U.S. public opinion favors less legal immigration and more efforts to reduce unauthorized migration. However, there is a difference between elite and mass opinion—support for immigration rises with income and education. In a 2002 poll, 55 percent of the public said legal immigration should be reduced, compared to 18 percent of opinion leaders.23 Many politicians dismiss public concerns about immigration by pointing out that, throughout U.S. history, fears that the United States was accepting too many and the wrong kinds of immigrants proved to be unfounded. Benjamin Franklin, for example, worried that German immigrants arriving in the late 1700s could not be assimilated. Why, he asked, should “Pennsylvania, founded by the English, become a colony of aliens, who will shortly be so numerous as to Germanize us, instead of our Anglifying them?” (Degler 1970: 50).

Managing migration Migration is a response to differences that encourage individuals to move, and UN agencies, national government programs, and private charitable efforts aim to reduce these migration-inducing differences. Most of the root causes of migration lie within the developing countries, but the trade, investment, and aid policies of the industrial nations can accelerate migrationreducing changes. Would a global migration conference lead to a regime that increased cooperation to better manage migration? In March 1999, the UN sent letters to its permanent members asking whether a conference should be convened to explore the links between legal and irregular migration, under the theory that opening more doors to legal migrants could reduce irregular migration. Of the 78 governments that responded, 47 expressed support for a global conference, 26 expressed reservations, and 5 had mixed views (UN 2002: 36). The mostly developing governments that supported a global migration conference wanted to examine the positive and negative aspects of migration for developing countries and encourage receiving countries to protect the rights of migrants. Instead of a global migration conference, the UN in September 2006 held a conference on migration and development. The motivation was that migration is occuring, and remittances and the return of migrants with newly acquired skills should speed up development in labor-sending countries. Beginning in 2007, there has been an annual Global Forum on Migration and Development (www.gfmd-fmmd.org) that rotates between receiving and

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sending countries to explore how migration can speed up development. The GFMD is revisiting many global issues that affect development, including remittances, trade, investment, and aid. Remittances and development Remittances are that portion of the monies earned or obtained by migrants that are returned to their country of origin. If labor is considered an export, remittances are that part of wages earned abroad that returns to the country of origin. The IMF publishes remittance data in its Balance of Payments Statistics Yearbook under several categories, including worker remittances, the wages and salaries sent home by migrants abroad 12 or more months, and compensation of employees (called labor income until 1995), monies sent home by migrants abroad less than 12 months.24 Since most governments do not know how long the migrants remitting funds have been abroad, analyses usually combine workers remittances and compensation of employees. For example, Mexico in 1998 reported most of its $6.5 billion under worker remittances, while the Philippines reported most of its $5.1 billion in remittances under compensation of employees. The volume of remittances depends on the number of migrants, their earnings, and their willingness to remit. Remittances to developing countries more than doubled in the 1990s, to $65 billion in 1999, after experiencing drops in 1991 (Gulf war) and again in 1998 (Asian financial crisis). Remittances surged in 2002, reflecting in part an increased flow through regulated financial institutions in the wake of the September 11, 2001 terrorist attacks. Remittances continued to increase, doubling between 2002 and 2007 in part because of the increased number of migrants and the declining value of the U.S. dollar, which makes e.g. Euro remittances more valuable (see Table 2.6). The spending of remittances in areas that receive them generates jobs: most studies suggest that each $1 in remittances generates another $1 to $2 in local economic activity, as recipients buy goods or invest in housing, education, or health care. Remittances clearly improve the lives of the households that receive them, and also can improve the lives of non-migrant neighbors as they are spent. Research suggests that the exit of men in the prime of their working lives initially leads to reduced output in local economies, but the arrival of remittances can lead to adjustments that maintain output, as migrant families shift from crops to livestock, which requires less labor, or to hire labor to produce crops. Remittances have produced a new group of moneylenders in emigration areas, sometimes the wives of migrants who are abroad. Trade, investment, and development Trade can be a substitute for migration. Between 1950 and 2005, world GDP (gross domestic product) increased six fold, from about $8 trillion to $48

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Remits ($bil)

Per change

28 32 39 33 37 39 44 51 55 65 61 65 65 72 116 143 163 194 226 251

13% 22% −15% 13% 5% 14% 15% 8% 19% −6% 7% −1% 12% 61% 23% 14% 19% 16% 11%

Source: IMF, Balance of Payments Statistics Yearbook www.worldbank.org/prospects/migrationandremittances

trillion, but world trade in goods increased much faster, from less than $1 billion to $24 trillion, or half the value of global output.25 Increased trade was stimulated by both economic growth and multiple rounds of trade talks aimed at reducing barriers to trade in goods. Services, which are normally produced and consumed at the same time, involved exports worth $2.8 trillion and imports worth $2.8 trillion.26 As with trade in goods, over 80 percent of services trade was between high-income countries. Most global trade involves goods, and trade in goods means that a good is produced in one country, taken over borders, and used in another. Economic theory suggests that, if countries specialize in producing those goods in which they have a comparative advantage,27 most residents of countries that trade will be better off. Even if the United States can produce both TV sets and corn cheaper than Mexico, but is relatively better at corn production, the United States should devote resources to corn production and buy televisions from Mexico so that Americans have cheaper TVs and Mexicans cheaper tortillas. With trade accelerating economic and job growth in both countries, trade becomes a substitute for migration, and Mexico–U.S. migration falls as trade narrows wage differences.

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Migration and trade were substitutes across the Atlantic and within Europe in the nineteenth and early twentieth century. When European growth rates in the 1950s and 1960s rose above U.S. rates, the gaps in wages and incomes across the Atlantic narrowed, and migration slowed even when the United States re-opened opportunities for European immigration in the mid-1960s. A similar story of narrowing wage and income gaps due to freer trade and aid helps to explain why labor migration from southern European nations such as Italy and Spain stopped in the 1970s and 1980s just as Italians and Spaniards got the right to live and work anywhere in the European Union. The U.S. Commission for the Study of International Migration and Cooperative Economic Development studied the links between trade and migration and concluded that: “expanded trade between the sending countries and the United States is the single most important remedy” for unwanted migration (1990: xv). However, the Commission emphasized that when countries suddenly embrace freer trade and investment, there can be labor-displacing adjustments that temporarily increase migration. For example, the state of Iowa produces twice as much corn as Mexico, and at about half the cost, so Mexican farmers may quit growing corn as U.S. corn imports rise under a freer trade regime. Since Mexicans were migrating to the United States from rural areas before there was freer trade in corn, migration and trade may increase together or, in the words of the Commission: “the economic development process itself tends in the short to medium term to stimulate migration,” producing a migration hump when flows are charted over time (1990: xvi). The migration hump can be relatively smaller and shorter-lived if immigration and emigration countries cooperate to accelerate the pace of job creation in emigration countries. For example, instead of migrating to the United States, displaced corn farmers may remain in Mexico if U.S. and other foreign investment create jobs for them (Martin 1993). Foreign direct investment (FDI) that leads to factory and service jobs can reduce emigration in the long term, but stimulate internal migration. In the case of Mexico, much of the FDI went into border-area maquiladoras that hire mostly young women in their first jobs, not displaced corn farmers. FDI has increased rapidly in the past decade to almost $1 trillion, as private firms “discovered” Mexico, China, and other lower cost areas in which to produce goods and services. However, the incentive for private firms to invest in developing countries is motivated by expected profits, not the need for jobs to reduce migration pressures. Indeed, there is often more FDI into middle-income countries that attract migrants than into labor-sending countries. In 2006 Malaysia attracted $20 billion in FDI, four times more than the $5 billion in Indonesia, the home to many of the workers employed in Malaysian factories.

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Aid, migration, and development Official Development Assistance (ODA) are grants and low-interest loans given by one government to assist development in another. In 2006, the OECD nations that are members of the Development Assistance Committee provided $104 billion in ODA, almost double the $54 billion in 2000. ODA is rising far slower than remittances to developing countries. What role can ODA play in reducing migration? The ILO and UNHCR (UN High Commissioner for Refugees) cooperated on a study that asked what role aid had played in the various countries and regions that sent large numbers of economic migrants and political refugees across national borders in the 1970s and 1980s, and how aid could be reconfigured to reduce migration pressures (Böhning and Schloeter-Paredes 1993). In the case of refugees, aid sometimes aggravated conflicts as superpowers jockeyed for position, leading to longer conflicts and more refugees. In the case of labor migrants, the most important “aid” is for industrial countries to open themselves to goods from developing countries. Indeed, one suggestion was that aid be kept inside industrial countries and used to buy off industries and workers who would otherwise close off opportunities for developing countries to export garments and farm commodities.

Conclusions Most of the world’s labor force growth is in developing countries; most industrial country labor forces will shrink without immigration. The movement of migrant workers over borders may seem like a natural fit that leads to closer economic integration and a narrowing of economic differences, but fears of out-of-control migration can also slow the economic integration that fosters stay-at-home development. For example, there is little doubt that the presence of partially integrated Turks in Europe has made some EU countries reluctant to embrace full Turkish entry into the EU, and the U.S. justified intervention in Haiti in 1994 to slow emigration to the United States. International labor migration can utilize remittances and returns to foster the economic development that can make economically motivated migration unnecessary. However, in managing the arrival of migrant guest workers, how can and should numbers and rights be balanced if the higher numbers can be achieved only with lower rights? Researcher Roger Böhning concluded that host governments must “balance nationals’ legitimate expectation of some preferential treatment against human, economic and social rights that foreigners can justifiably claim to be theirs” (Böhning 1996: 87). Other analysts have come down clearly on the side of full rights for migrants, even if the result is fewer being admitted. Writing in the United States in the early 1950s, when migrant farm workers were excluded from the protections of labor laws and were unable to use self-help efforts to improve their wages and

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conditions, Fisher concluded that: “The brightest hope for the welfare of seasonal agricultural workers [in the United States] lies with the elimination of the jobs upon which they now depend” (Fisher 1953: 148); that is, the best way to improve conditions for migrant and seasonal workers was to eliminate their jobs. International labor migration can be managed for the benefit of migrants, employers, and labor-sending and -receiving countries. Economically motivated migration is manageable, but only if governments recognize that people are unlike goods, and that managing migrant workers requires both economic instruments to align worker and employer incentives and program rules. In addition, management must be hands on and flexible, ready to change with unexpected or unintended consequences of policies. Economic instruments and flexibility will not convert man from “the most difficult luggage” to the easiest to transfer over borders, but will help to make labor migration far more manageable.

Notes 1. The UN Population Division defines a migrant as someone outside her country of birth or citizenship for 12 months or more, and includes as migrants refugees and asylum seekers, foreign students and other long-term visitors, unauthorized foreigners, and legal immigrants and naturalized foreign-born citizens in countries such as Australia, Canada, and the United States. The UN originally reported 120 million migrants in 1990, but in its International Migration report raised the 1990 number to 154 million (2002: 3) after the number of migrants in the USSR was raised from two million in 1989 to 29 million in 2000—previously internal migrants became international migrants with the breakup of the USSR. 2. The migrant estimate for 1990 was raised from 120 million to 154 million in 2002, largely to reflect the breakup of the ex-USSR, which increased the number of migrants as people crossed borders, e.g. Russians returning to Russia, and added to the stock of migrants even with no movement, as Russians who became foreigners in the newly independent Baltic states. 3. Convention 97 defines a “migrant for employment” as “a person who migrates from one country to another with a view to being employed otherwise than on his own account,” that is, migrants are legally admitted wage and salary workers, and excludes border-crossing commuters (frontier workers), seamen (covered by other ILO conventions), and artists and similar professionals abroad for a short time. 4. The texts of ILO Conventions are available at: http://www.ilo.org/ilolex/english/ convdispl.htm. 5. Both historically and today middlemen recruiters and transporters have been involved in the migration process. Today, these understudied middlemen—who might be considered as arbitrageurs of differences between international labor markets—play an role in facilitating illegal labor migration, extracting a fee from migrant workers or their employers equivalent to 25 to 100 percent of what the migrant will earn in his first year abroad. 6. According to the Population Reference Bureau (www.prb.org), the world’s fastestgrowing population is in Gaza, where the population growth rate is 4.5 percent a year, and the fastest-shrinking population is in Russia, where the population is declining by 0.5 percent a year.

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7. For example, Portugal and South Korea moved from middle- to high-income between 1985 and 1995, while Zimbabwe and Mauritania moved from middle- to low-income. 8. Taxes are extracted from agriculture via monopoly input suppliers who sell them seeds or fertilizers or via monopoly purchasers of farm commodities who set prices that are below world prices, and pocket the difference when the coffee or cocoa is sold on world markets. 9. The CIA factbook lists 191 “independent states,” plus one “other” (Taiwan), and six miscellaneous entities, including Gaza Strip, West Bank, and Western Sahara (www.cia.gov/library/publications/the-world-factbook/index.html). 10. Even if migrants know that movies and TV shows portray exaggerated lifestyles, some of the migrants who find themselves in slave-like conditions abroad sometimes say that they did not believe that things in rich countries could be “that bad.” 11. Bade (2003: 142) summarizes estimates of transatlantic emigration, and concludes that the most likely number was 60 to 65 million emigrants, of whom 10 to 15 million returned. 12. Luxembourg has the unusual distinction of having more foreign workers than foreign residents, 196,000 versus 181,000, reflecting the fact that many residents of neighboring Belgium, France, and Germany commute daily to jobs in the Grand Duchy. 13. Quoted in Migration News. 2007. Turkey, Spain, Italy. Volume 13 Number 4 October. http://migration.ucdavis.edu/mn/more.php?id=3326_0_4_0. Turkey in 2006 had a labor force of 25 million, including 22.3 million employed, with 6.1 million employed workers in agriculture, 4.4 million in industry, 1.3 million in construction and 10.1 million in services. 14. Migration News. 2007. EU: Blue Cards, Turkey, Air Travelers. Volume 13 Number 4 October. http://migration.ucdavis.edu/mn/more.php?id=3323_0_4_0. 15. Under the government’s original plan, foreigners who became naturalized Germans could have routinely retained their original nationality. 16. There were another 5,500 or 2 percent “other immigrants” in 2006. www.cic.gc.ca/english/resources/statistics/index.asp. 17. Ibid. 18. In 1998, an independent commission urged a series of changes to Canadian immigration policy, including requiring immigrants admitted under the point system to speak English or French before their arrival, and requiring immigrants arriving to join settled family members to speak English or French or pay fees to learn English or French after arrival; measures were aimed at facilitating the entry of immigrants into the Canadian labor market. 19. The exceptions are Native Americans, slaves, and those who became U.S. citizens by purchase or conquest, such as French nationals who became Americans with the Louisiana Purchase, Mexicans who became Americans with the settlement ending the Mexican War, and Puerto Ricans who became U.S. citizens as a result of the American victory over Spain in 1898. 20. Prop. 187 Approved in California. Migration News. December 1994. Vol. 1, No. 12. http://migration.ucdavis.edu/ and Immigration Overhaul. Migration News. October 1996. Vol. 3, No. 10. http://migration.ucdavis.edu/. 21. Diversity immigrants are persons who applied for a U.S. immigrant visa in a lottery open to those from countries that sent fewer than 50,000 immigrants to the United States in the previous five years. 22. Apprehensions record the event of capturing an unauthorized alien, and are not a count of individuals; one alien apprehended five times is recorded as five apprehensions.

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23. Chicago Council on Foreign Relations, Worldviews 2002-American Public Opinion and Foreign Policy, accessed online at www.worldviews.org/detailreports/usreport/ html/ch5s5.html, on March 26, 2003. 24. A third item not generally included in discussions of remittances are migrants’ transfers, which is the net worth of migrants who move from one country to another. For example, if a person with stock migrates from one country to another, the value of the stock owned moves from one country to another in international accounts. 25. Half of this $48 trillion in trade was exports and half was imports. 26. The United States accounted for $400 billion in service exports in 2006, a seventh of the total, followed by the United Kingdom with $226 billion of service exports. 27. Comparative advantage advises countries to specialize in producing goods in which they have a relative advantage, because of their resources, location, or capital–labor costs. Even if one country can produce all goods cheaper than another, it is still better off specializing in the production of those goods that are most profitable, and importing other goods. Trade can also lead to economies of scale, which lower the cost of production as output increases for a larger market, promote technological change and increase competition and choice.

Bibliography Bade, Klaus. (2003) Migration in European History, Oxford: Blackwell. Beach, Charles M, Alan G. Green, and Jeffrey G. Reitz (eds). (2003) Canadian Immigration Policy for the 21st Century, Toronto: McGill-Queen’s University Press. Böhning, W.R. (1996) Employing Foreign Workers: A Manual on Policies and Procedures of Special Interest to Middle- and Low-Income Countries, Geneva: International Labor Office. Böhning, W.R. and M. Schloeter-Paredes. (1993) Economic Haven or Political Refugees: Can Aid Reduce the Need for Migration? Geneva: International Labor Office. Borjas, George J. (1994) “The Economics of Immigration,” Journal of Economic Literature 32, no. 4: 1167–1717. Borjas, George J. (2002) “An Evaluation of the Foreign Student Program,” Center for Immigration Studies Backgrounder June, www.cis.org/articles/ index.html#backgrounders. Castles, Stephen and Mark Miller. (2003) The Age of Migration: International Population Movements in the Modern World, New York: Guilford Press. Cornelius, Wayne, Philip Martin, and James Hollifield (eds). (2004) Controlling Immigration: A Global Perspective, Stanford, CA: Stanford University Press. Degler, Carl N. (1970) Out of Our Past: The Forces That Shaped Modern America (2nd ed.), New York: Harper & Row. Fisher, Lloyd. (1953) The Harvest Labor Market in California, Cambridge: Harvard University Press. Martin, Philip L. and Elizabeth Midgley. (2006) “Immigration: Shaping and Reshaping America,” Washington D.C. Population Reference Bureau 61, no. 4. Martin, Philip. (1993) Trade and Migration: NAFTA and Agriculture, Washington, DC: Institute for International Economics. Massey, Douglas S., Joaquin Arango, Graeme Hugo, Ali Kouaouci, Adela Pellegrino, and J. Edward Taylor. (1998) Worlds in Motion: Understanding International Migration at the End of the Millennium, New York: Oxford University Press.

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Migration News. Quarterly, http://migration.ucdavis.edu. Miller, Mark J. and Philip L. Martin. (1982) Administering Foreign-Worker Programs: Lessons from Europe, Lexington, MA: Lexington Books, D.C. Heath and Company. OECD. Annual. Trends in International Migration, Paris: OECD, www.oecd.org. Smith, James and Barry Edmonston (eds). (1997) The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, Washington, DC: National Research Council. Stalker, Peter. (1999) Workers Without Frontiers. The Impact of Globalization on International Migration, London: Lynne Rienner Publishers. United Nations. (2002) Report of the Secretary-General on International Migration (A/60/871), www.unmigration.org. U.S. Commission for the Study of International Migration and Cooperative Economic Development. (1990) Unauthorized Migration: An Economic Development Response, Washington, DC: Government Printing Office.

Chapter 3

The last bastions of state sovereignty Immigration and nationality go global Stephen Legomsky

By now we all know that “globalization” has transformed our world. Activities once confined primarily within national boundaries now have international consequences of still unknown scale and impact. Yet, while strong opinions about globalization have been expressed from most quarters, the term continues to mean different things to different people. One of the more common usages of “globalization” focuses on international trade—both the economic benefits of freer commercial exchanges and the potential labor, environmental, and other dangers. Another usage emphasizes the new technologies, which make possible a sharing of information and transportation that in turn creates opportunities for a variety of global interactions. At times “globalization” is used to describe the growing number and influence of regional organizations like the European Union, the African Union, or the Organization of American States. On still other occasions the term reflects the increased acceptance of multiple identities and allegiances—to two or more states, to a state and a regional association of which it is a part, or to two or more other entities that each demand some measure of official loyalty. Globalization can also refer to the enhanced collaboration of policymakers, researchers, educators, and others across national boundaries, in search of solutions to common problems. With the end of the Cold War, international cooperation in such diverse fields as business, security, human rights, health, agriculture, environmental protection, and crime fighting holds out new promise. The international character of leading NGOs (non-governmental organizations) is yet another element of globalization. So, too, is the expanded reach of international law and international regulation into areas previously assumed to be within the realm of almost unfettered national sovereignty. These various components of globalization often defy separation, but the prime concern of this chapter is that last component—the growth of international regulation. While international law now regulates an unprecedented range of human activities, certain activities are more heavily regulated by the international community than others. Some subjects are so historically, politically, and functionally suited to international regulation that the need for

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such regulation is seldom questioned. No one today could seriously dispute the practical need for international agreement on such matters as world aviation, telecommunications, or postal services. For certain other activities the primacy of national sovereignty was the historical rule. Among the latter, two have stood out as the last bastions of national sovereignty—the powers of a state to decide, first, who its own nationals are and, second, which foreign nationals are to be granted physical access to its territory.1 These are the two classic examples, long cited by international writers, of quintessentially sovereign decisions with which the international community should not interfere. If sovereignty means anything at all, it has often been said, surely it means that a state has the sovereign power to decide with whom to share bonds of allegiance and protection and whom to admit into its territory. Yet, as this chapter will show, such is the force of globalization that even these twin paradigms of national sovereignty have increasingly given way to consensual international regulation (Aleinikoff and Chetail 2003; Cholewinski et al. 2007). There is no inherent contradiction here, since the sovereignty of a state obviously encompasses the power willingly to cede a portion of its sovereignty by entering into international agreements. The modesty of the claim made in this chapter requires emphasis. I do not suggest that in recent years we have moved from a world of literally exclusive state sovereignty over nationality and immigration to a world in which international regulation of these areas is the norm. Neither depiction would be accurate. For centuries, disputes over the nationalities of particular individuals have sometimes been played out in the international arena, through a combination of law, diplomacy, and military force. Conversely, even with the dramatic changes in outlook that this chapter will describe, the vast majority of legal norms on both nationality and immigration today are still prescribed by states, not by the world community—just as is true of virtually all other areas of public life. The claim here is merely one of degree—that assertions of sweeping state sovereignty over nationality and immigration decisions must now be asterisked by a greatly expanded set of qualifications. The last bastions of sovereignty are, today, virtually indistinguishable from almost any other area of regulated human activity; they are constrained by a combination of domestic and (significant) international rules. The chapter will also comment on the forces that account for this transformation. Some of them are generic phenomena that have influenced globalization generally; others are specific to nationality and immigration. Chief among the explanations is the post-World War II crumbling of the classical international law notion that only states have rights. The expanded reach of human rights norms, firmly rooted in the premise that individuals have rights in international law, has had much to do with the globalization of both nationality law and immigration law, as the chapter will illustrate. Other chapters of this book explore the many challenges globalization poses in fields such as immigration, social welfare, and global governance.

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This chapter, the second section in particular, take up the immigration challenge directly. Because the norms of individual states invariably deviate from those of the international community as a whole—especially in the field of human rights—the allocation of regulatory responsibility between the national and international communities has social welfare implications. The differing national conceptions of both formal and informal citizenship, as well as the emerging roles of both public and private actors in public decision-making, require increased attention to issues of global governance. The first section of the chapter examines changes in the willingness of states to accept international regulation of nationality. The second section does the same for immigration. The forces responsible for these changes are the subjects of the third section.

The international regulation of nationality Most states afford multiple routes to nationality (Hansen and Weil 2001; Kondo 2001; U.S. Office of Personnel Management Investigations Service 2001). Individuals might acquire the nationality of a particular state by virtue of birth on that state’s soil (the principle of jus soli), by birth to one or more parents who possess the nationality of that state (jus sanguinis), or by taking steps to acquire the nationality of that state some time after birth (naturalization). State practices vary considerably, but the typical state adopts more than one of these possibilities and attaches limitations to all of them. Similarly, states have differing rules for terminating nationality. A state might withdraw a person’s nationality because of defects in the naturalization process (“revocation of naturalization,” or “denaturalization”), because of the individual’s voluntary renunciation of nationality (“expatriation”), or because the individual’s conduct evidences either a lack of allegiance or other undesirable qualities (“denationalization”). The combination of the rules for acquiring nationality and the rules for losing it means that not every person has exactly one nationality. Some have more than one (“dual nationals”), and some have none (“stateless persons”). Moreover, application of the rules often requires findings of fact or resolutions of difficult legal questions. Special complications can arise when states dissolve or merge or achieve independence. For all these reasons, whether a given individual possesses a particular nationality is sometimes uncertain. The uncertainty can arise in any number of contexts. In the domestic context, it might arise if the government proposes to deport a person or bar him or her from entering the country, and the person claims to be a national of that country. It might arise when the person seeks to bring a spouse, children, or other family members into the country pursuant to laws that grant such privileges to designated family members of the country’s own nationals. It might arise when the person applies for a passport. It might arise when the person attempts to register to vote. Since various countries build various

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nationality or citizenship restrictions into various laws, the uncertainty might also arise when a person applies for military service or other government employment, or for public assistance, or even for certain professional licenses. Or it might arise when the person’s children seek to assert nationality on the basis of jus sanguinis. In the international context, nationality questions can surface when an individual is maltreated by the government of one country and seeks diplomatic intervention from the government of his or her assumed country of nationality. It might arise when a country attempts to conscript a person whom it regards as its own national or, more dramatically, when two or more countries lay similar claims to the same person’s military service. It might arise when one or more countries believe they are entitled to income tax. It might arise when a country requests extradition and the requested country has a law that prohibits extradition of its own nationals. Or it might arise when a country wishes to deport a person to his or her assumed country of nationality, and the latter country denies that the person is its national. If two or more countries agree to grant special travel privileges to each other’s nationals (as in the European Union, for example), then nationality questions can arise for that purpose as well. In these and other contexts it can become crucial to determine the person’s nationality. And since two or more states might have differing views on that question, it becomes crucial to decide who decides. As to that, the conventional wisdom—not always stated in absolute form, admittedly—has been that it is up to each state to decide who are, and who are not, its own nationals. This view has emerged repeatedly, from different sources, and in different contexts. It appears in the writings of the classical international lawyers at least as early as the sixteenth century, albeit with occasional qualifications (Donner 1994). The now defunct Permanent Court of International Justice, while acknowledging the dynamic nature of international law, made clear that, at least at the time of its 1923 decision in the Tunis and Morocco Nationality Decrees Case (P.C.I.J. Serial B, No. 4 (1923), at 24), “questions of nationality are . . . within this reserved domain” (referring to “the jurisdiction of a State”). The 1930 Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws explicitly provides that “It is for each State to determine under its own law who are its own nationals,” though importantly it allows other States to withhold recognition from such decisions when they are not “consistent with international conventions, international custom, and the principles of law generally recognized with regard to nationality” (179 L.N.T.S. 101, art. 1, done at The Hague, Apr. 12, 1930). Article 2 of the same Convention adds: “Any question as to whether a person possesses the nationality of a particular State shall be determined in accordance with the law of that State.” The International Court of Justice repeated this principle in 1955 in the Nottebohm case, even as the Court diminished the practical significance of this statement by refusing to recognize the state’s

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right of diplomatic intervention when the link between the individual and the state of nationality was too flimsy (Liechtenstein v. Guatemala (Second Phase), ICJ Reports 1955, at 4). The United States Department of State also follows the principle that “[e]ach country establishes its own law of nationality” (U.S. Dept. of State, 7 Foreign Affairs Manual 1111.4). The qualifications that typically accompanied the classical view deserve acknowledgment. As noted above, the 1930 Hague Convention permitted states to disregard other states’ nationality decisions in those limited circumstances where the decisions violated international law—the clear implication being that international law did indeed place some constraints on the power of a sovereign state to make nationality decisions. In Europe, the 1963 Convention on the Reduction of Cases of Multiple Nationality and on Military Obligations in Cases of Multiple Nationality, as its name implies, put at least some limits not only on the power of states to conscript dual nationals but also, more importantly here, on state laws that would produce dual nationality in the first place (European Treaty Series, No. 043, done at Strasbourg, June 5, 1963). And several multinational conventions have sought to restrain state nationality practices that result in statelessness.2 But the inroads into sovereign state control over nationality have now gone far beyond the narrow exceptions of earlier days. One fertile field for international regulation has been dual nationality. A combination of increased levels of international migration and a greater willingness of states to tolerate dual nationality has spurred a spectacular growth in the population of dual nationals in the world. The international community has responded with a numbing series of universal, regional, and bilateral agreements. Many of these agreements focus on specific consequences of dual nationality, especially how to accommodate conflicting military obligations, but many others attempt to regulate the very acquisition of a second nationality (Donner 1994: 201 et seq.; Hansen and Weil 2002; Legomsky 2003). Probably one of the liveliest international forays into matters of nationality has been the longstanding concern with the problem of statelessness. As noted earlier, several international agreements specifically on statelessness have been concluded over the years, though the range of participation has been generally disappointing. Perhaps more striking than the statelessness conventions themselves, however, have been the repeated inclusion in more general human rights instruments of specific provisions aimed at preventing statelessness by requiring states to recognize nationality in certain instances where statelessness would otherwise result. Article 15(1) of the Universal Declaration of Human Rights (UDHR) (U.N.G.A. Res. 217A, UN GAOR, 3rd Sess., Pt. I, Resolutions, at 71, UN Doc. A/810, Dec. 10, 1948), for example, says: “Everyone has the right to a nationality” (see generally Zilbershats 2002). Article 20 of the American Convention on Human Rights (OAS Treaty Series No. 36 at 1, OAS Off. Rec. OEA/Ser.L/V/II.23 doc. rev. 2, done at San José, Nov. 22, 1969) repeats this language and then gives flesh to

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it by adding: “Every person has the right to the nationality of the state in whose territory he was born if he does not have the right to any other nationality.” Interpreting this provision, the Inter-American Court in 1984 made clear that “nationality is an inherent right of all human beings” and that, accordingly, the traditional state role in nationality matters is now subject to international legal constraints.3 The right to a nationality has been accorded specific recognition in the case of children. Both the International Covenant on Civil and Political Rights (ICCPR) (999 U.N.T.S. 171, done at New York, Dec. 19, 1966), in article 24(3), and the Convention on the Rights of the Child (CRC) (1577 U.N.T.S. 3, done at New York, Nov. 20, 1989), in articles 7 and 8, explicitly require states to ensure the child’s right to a nationality. A closely related but more general international incursion into state control over nationality decisions has been the law that governs loss of nationality (see generally de Groot 2003). That body of law generally covers two distinct situations—that in which a state unilaterally terminates a person’s nationality against his or her will (denationalization) and that in which an individual voluntarily attempts to terminate his or her nationality (expatriation). Most of the international activity has related to denationalization. At the most general level, article 15(2) of the Universal Declaration of Human Rights (UDHR) provides: “No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality” (emphasis added). The Declaration does not speak to the issue of when a deprivation of nationality will be considered arbitrary, but other instruments take up that challenge in particular contexts. One such historical context is the (asymmetrical) state practice of automatically terminating the nationality of a woman who marries a foreign national (or terminating her nationality upon similar termination of her husband’s nationality). In 1957 the Convention on the Nationality of Married Women (309 U.N.T.S. 65, done at New York, Feb. 20, 1957) essentially prohibited this practice. Article 9 of the Convention on the Elimination of All Forms of Discrimination Against Women (the Women’s Convention) (UNGA Res. 34/180, 34 UN GAOR Supp. No. 46 at 193, UN Doc. A/34/46, adopted Dec. 18, 1979) reaffirmed that restriction, added the more general requirement that “States Parties shall grant women equal rights with men to acquire, change or retain their nationality,” and required the states parties to “grant women equal rights with men with respect to the nationality of their children.” In one other area, international agreements have attempted to do the opposite—i.e., to encourage states to denationalize in certain situations to minimize the incidence of dual nationality. These efforts have yielded a combination of universal, regional, and bilateral agreements that have become less popular in recent years as states increasingly accept and even applaud dual nationality (Legomsky 2003: 114–19).

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In some instances it is the individual who wishes to terminate his or her nationality and the state that resists. The most famous historical example was the British doctrine of “perpetual allegiance,” whereby Britain refused to recognize a British subject’s renunciation of nationality. When this practice led Britain to capture British-born, U.S.-naturalized sailors and impress them into the British Navy, the stage was set for the War of 1812 (Gordon 1965: 319). Today, the doctrine of perpetual allegiance is seldom invoked, but occasionally states still prevent their nationals from renouncing, for example when dual nationals attempt to renounce one of their nationalities on the eve of military conscription. For the most part, international law has had little to say on the permissibility of such restrictions (Legomsky 2003). By far the most comprehensive international attempt to regulate loss of nationality has been the 1997 European Convention on Nationality (European Treaty Series No. 166, Council of Europe, done at Strasbourg, Nov. 6, 1997; see also de Groot 2003). Article 7 prohibits denationalization except in certain specific situations, such as when the person voluntarily acquires another nationality, acquired the state’s nationality by fraud, voluntarily served in a foreign military, engaged in conduct “seriously prejudicial to the vital interests of the State Party,” habitually resides abroad and lacks a “genuine link” to the state party, etc. Article 8 requires each state party to recognize an individual’s voluntary renunciation of nationality except to prevent statelessness and except when the person habitually resides abroad. Other European developments furnish additional examples of international regulation of nationality. As noted earlier, the Council of Europe sponsored the 1963 Convention on the Reduction of Cases of Multiple Nationality and on Military Obligations in Cases of Multiple Nationality, which among other things put some limitations on state laws that would result in dual nationality. Of specific relevance here, a 1993 Protocol to that Convention (Second Protocol amending the Convention on the Reduction of Cases of Multiple Nationality and Military Obligations in Cases of Multiple Nationality, Euro. Treaty Series No. 149, done at Strasbourg, Feb. 2, 1993, art. 1) adopted several exceptions to the Convention provision for automatically terminating one nationality when the individual acquired another. Among the situations in which such terminations will no longer automatically occur are those in which the person was born in and resides in the naturalization state, as well as certain other situations that involve marriage or minors. Of course, the most familiar European example of international regulation of nationality is the European Union. Apart from the many provisions of EU law that speak specifically to the rights and obligations of nationals of the member states vis-à-vis other member states, the entire EU arrangement is seen by many as itself a type of federation that might form the basis for a European “citizenship” much resembling traditional nationality. That concept is controversial and well beyond the scope of the present chapter (Hansen and Weil 2001: chs. 13 and 14).

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Finally, though less relevant here, international law now comprehensively regulates the ways in which states treat their own nationals. Among the general human rights limitations on state actions toward even their own nationals are provisions that require states to accept their own nationals into their territories and provisions that prohibit states from expelling their own nationals (see, e.g., UDHR art. 13(2); Amer. Convention on Human Rights, art. 22(5); see also the instruments cited in Chetail 2003: 52–4).

The international regulation of migration Parallel developments have occurred with respect to international migration. The historical mantra that states are free to decide which foreign nationals to admit into their territories, while still recited today, is now subject to a wide range of limitations imposed by international law. Statements of the classical view are perhaps most closely associated with the United States Supreme Court, which from the outset has expounded the notion that control over a nation’s territory is a distinctively sovereign function. In 1812 Chief Justice Marshall declared “Jurisdiction over its own territory to that extent is an incident of every independent nation. It is a part of its independence” (The Exchange, 11 U.S. 116, at 136 (1812)). Quoting that language, the Supreme Court in 1889 handed down its seminal decision in Chae Chan Ping v. United States (Chinese Exclusion Case), 130 U.S. 581 (1889). There, upholding the power of the U.S. Congress to exclude noncitizens from the United States, the Court invoked Chief Justice’s Marshall’s general notion that the power to exclude non-citizens is inherent in the very concept of a sovereign state.4 Since then, this view has been frequently reaffirmed and even expanded to the realm of deportation. A series of Supreme Court decisions have relied specifically on the theory of territorial sovereignty to justify broad congressional powers over the admission and expulsion of non-citizens.5 Analogous reasoning appears in the British cases, where the courts have been more prone to rely on the royal prerogative and the act of state doctrine to uphold Crown actions rooted in the sovereign power to control access to the state’s territory (Legomsky 1987: 87–95). In recent years, commentators have drawn welcome attention to the international legal constraints that attach even to such traditionally sovereign powers as the exclusion and expulsion of non-citizens (Aleinikoff and Chetail 2003; Cholewinski et al. 2007; Goodwin-Gill 1978; Nafziger 1983; Plender 1988). These constraints today span almost every sub-area of migration law, from refugees, to migrant workers, to family reunification, to children, to cooperation in matters of law enforcement, to human rights, to harmonization, to agreements concerning readmission and special travel or residence privileges. In no sub-area of migration law, however, has the influence of international law been felt as keenly as it has with respect to the law of refugees and

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asylum (Goodwin-Gill and McAdam 2007; Grahl-Madsen 1966, 1972; Hathaway 1991, 2005). At the heart of this body of law are the 1951 UN Convention Relating to the Status of Refugees (the 1951 Convention) (189 U.N.T.S. 137, done at Geneva, July 28, 1951) and the 1967 UN Protocol Relating to the Status of Refugees (the 1967 Protocol) (606 U.N.T.S. 267, 19 U.S.T. 6223, T.I.A.S. No. 6577, done at New York, Jan. 31, 1967). As of November 2006 some 141 states had signed both the Convention and the Protocol (25 Refugee Survey Quarterly 207 (2006)). (The United States signed the Protocol only, but doing so binds it derivatively to the Convention as well.) Together, the Convention and the Protocol define the term “refugee” to require a “well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group, or political opinion” (1951 Convention, art. 1.A.2, as amended by 1967 Protocol, art. 1.2), and they assign an array of legal consequences to that definition. The principal significance of refugee status is that article 33 of the 1951 Convention prohibits states parties from returning refugees to their countries of persecution (with some limited exceptions). This is the principle of “nonrefoulement.” In addition, however, the Convention lays out an assortment of other protections that states parties are bound to respect. The protections range from non-discrimination to freedom of religion, certain property rights, certain labor and employment rights, freedom of association, access to court, rights to public assistance and to education, and freedom of movement, among others (arts. 3–34). Article 35 of the Convention delegates supervisory responsibility for its implementation to the United Nations High Commissioner for Refugees (UNHCR), a 5,000-employee agency headquartered in Geneva but with offices (and the vast majority of its staff) deployed all over the world. Arguably, UNHCR is the most active and practically significant of all the UN human rights agencies. It performs the dual function of protecting refugees in individual cases and promoting larger and more permanent solutions to refugee problems. Other large bodies of international refugee law emanate from the Convention and the Protocol and from the efforts of UNHCR and other refugee resettlement agencies. For quite some time UNHCR and others have promoted cooperation among refugee-receiving countries to resettle refugees and to help fund refugee resettlement efforts elsewhere. These sorts of “responsibility-sharing agreements” have succeeded on a limited basis in the past and are hoped to play a larger international legal role in the future. In addition, UNHCR is seeking to forge international consensus on the rules (mostly in the western states) for returning asylum-seekers to the typically less prosperous “third countries” through which they have passed en route (Legomsky 2003a). More generally, much has been written on the various forms of “harmonization” in process within the European Union (Boeles 1997; Guild 2001; Hailbronner 2000; and Noll 2000).

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Aside from the Convention, the Protocol, and their derivative sources, general human rights instruments are playing an increasingly important role in constraining state practices with respect to refugees. The UDHR, in article 14 says: “Everyone has the right to seek and to enjoy in other countries asylum from persecution.” Article 3 of the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT) prohibits a state party from sending anyone to another state “where there are substantial grounds for believing that he would be in danger of being subjected to torture.” Article 3 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights) (213 U.N.T.S. 222, Euro. Treaty Series No. 5, done at Rome, Nov. 4, 1950) prohibits subjection to “torture or to inhuman or degrading treatment or punishment,” and the European Court of Human Rights has interpreted this provision as also barring states parties from sending individuals to other states in which there is a “real risk” of such conduct occurring (Soering v. United Kingdom, 1989 ECHR 14038/88, 1989 (11) EHRR 439). The practical effect is to establish an additional form of nonrefoulement. Beyond the refugee context, international law has increasingly concerned itself with labor migration generally and the rights of migrant workers in particular. The international legal norms have surfaced in the areas of human rights, labor law, trade law, and development.6 General human rights law has also begun playing an increasingly important role in the internationalization of migration policy. A number of international human rights agreements require respect for the family (e.g., ICCPR, arts. 17, 23; European Convention on Human Rights, art. 8; African Charter on Human and Peoples’ Rights, OAU Doc. CAB/LEG/67/3 Rev. 5, done at Banjul, June 26, 1981, reproduced in 21 I.L.M. 59 (1982), art. 18; Amer. Convention on Human Rights, art. 17; see generally Jastram 2003). Others confer specific family unification protection on the child, including in the migration context (Amer. Convention on Human Rights, art. 19; Convention on the Rights of the Child, arts. 9,10,16; see generally Bhabha 2003). Still other international agreements insist on certain minimum procedural protections before non-citizens may be expelled, absent national security considerations (ICCPR, art. 13; Protocol No. 7 to the European Convention for the Protection of Human Rights and Fundamental Freedoms, Euro. Treaty Series No. 117, done at Strasbourg, Nov. 22, 1984, art. 1). Additional international norms reflect cooperative ventures among states, typically in the realm of law enforcement. Agreements of this type have been forged in such areas as illegal immigration (partly through readmission agreements), human trafficking, and counterterrorism (Fisher et al. 2003; Kyle and Koslowski 2001; Muntarbhorn 2003). Finally, the European Union provides the clearest regional example of international regulation of migration. First, within the EU are various arrangements for the freedom of movement of nationals of EU member

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states (and their non-EU family members) to other member states. Second, the EU has been working on a series of arrangements, some completed and some still in progress, for the “harmonization” of certain substantive and procedural rules for dealing with asylum seekers and in some instances other migrants (Boeles 1997; Guild 2001; Hailbronner 2000).

Why the change? What explains the increased willingness of states to submit to international regulation of such traditionally sovereign policy decisions as nationality and migration? Here are my top ten reasons: 1 Even though states have legitimate interests in deciding what enters their territories, they have long accepted the need for international regulation of the flow of goods, services, money, information, and even ideas (particularly intellectual property) across national boundaries. They have done so because the international implications are so obvious that some legitimate role for the international community can scarcely be denied. States have come to realize that the movement of human beings across national boundaries presents issues that are not sufficiently different. 2 States are increasingly aware that, for every act of immigration to a state, there is a corresponding act of emigration from a state (unless the person originated from the High Seas, Antarctica, or outer space). Conversely, any time a state denies admission to someone, the practical result is that the person will eventually enter another state. Thus, the state that makes the admission decision is not the only state with a legitimate interest in the outcome. 3 In an age of technological advances in information and readier access to transportation, people are far more mobile than in former times. That fact does not merely accentuate the importance of deciding to what extent migration should be internationally regulated; it also multiplies the impact of migration on the affected countries. 4 Today, international movements of people are increasingly multinational, not just binational. This is especially true with respect to refugees, who are now more prone to seek out the first port in a storm and then resume the journey later. The results are circuitous routes that involve a greater number of countries and make the international implications more conspicuous. 5 In the case of refugees, the world community has come to recognize that international agreements can make migrations safer, more orderly, more predictable, and more equitable for those countries whose geographic proximity to countries of origin leaves them susceptible to disproportionate responsibilities.

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6 Some of the most significant contemporary migration-related problems lend themselves to international cooperation. These include terrorism, human trafficking, and illegal immigration. In each of these areas, states have found collaborative law enforcement efforts to be effective and efficient. 7 Once one accepts the legitimacy of some international regulation of policies that govern the admission and expulsion of non-nationals, acceptance of international regulation of the very determination of who is a national logically follows. Otherwise, a state could falsely disclaim a person’s nationality in order to defeat limitations on exclusion and expulsion. Moreover, the vastly increased number of dual nationals in the world and the possible conflicts dual nationality presents make international agreements critical in many contexts. 8 Classical international law and its emphasis on states as the exclusive possessors of rights have now given clear way to a regime that finds room for recognizing the human rights of individuals. This modern regime requires a body of international law to define and protect those rights. In particular, international agreements like the Race Convention and the Women’s Convention, as well as specific prohibitions contained in the more generic human rights conventions, now make non-discrimination a guiding principle for the international community. 9 In a world in which government officials wield awesome physical power over individuals, the need for protection has become unusually vital. Among the protections have been the existence of a state with the power and the responsibility to intervene (hence the renewed emphasis on international rules designed to minimize statelessness) and the willingness of the international community to intervene when the state of nationality is either unable or unwilling to do so. 10 The increased recognition that human beings are capable of multiple allegiances has carried over to the international sphere. In our more cosmopolitan society, national citizenship as the source of legal rights has inevitably been devalued and the role of the international community has correspondingly expanded.

Conclusion For a while, it appeared that globalization would leave untouched two formerly sacrosanct elements of state sovereignty—deciding who a state’s nationals are and deciding which non-nationals to admit into a state’s territory. But that was not to be. As this chapter has demonstrated, the logic of globalization leaves little reason to insulate even these two classical sovereign functions from international regulation. For the reasons summarized in the third section, globalization now embraces state policies on nationality and immigration as surely as it embraces any other fields of human activity.

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Notes 1. One writer (Dauvergne 2008) has recently argued that globalization has prompted some states to view migration as the “last bastion of sovereignty” and then to use that sovereignty as an excuse for harsh measures against illegal immigration. 2. Examples include Convention Relating to the Status of Stateless Persons, U.N.T.S. No. 5158, done at New York, Sept. 28, 1954; Convention Relating to the Status of Stateless Persons, entered into force, June 6, 1960; Convention on the Reduction of Statelessness, entered into force Dec. 13, 1975, reproduced in 17 Refugee Survey Quarterly 101, 103 (1998). See generally Batchelor 1995. 3. Proposed Amendments to the Naturalization Provisions of the Constitution of Costa Rica, No. OC-4/84 (advisory opinion, Jan. 19, 1984), reported, 5 Human Rts. L.J. 161 (1984). The Court went on to hold, however, that Costa Rica would not violate article 20 by withholding naturalization from a woman whose former state’s withdrawal of nationality (upon marriage to a Costa Rican national) had rendered her stateless. In such a case, the Court suggested, any fault would lie with the country of origin, not with Costa Rica. 4. The Court then glided effortlessly from recognition of this power in international law to the non-recognition of domestic constitutional constraints on the power—a tragic nonsequitur that would distort the shape of United States constitutional law for more than a century. But that is a story for another day (Legomsky 1987: ch. 3). 5. The foundational decisions for this application of territorial sovereignty, apart from The Exchange and the Chinese Exclusion Case, include Ekiu v. United States, 142 U.S. 651, 659 (1892), and Fong Yue Ting v. United States, 149 U.S. 698 (1893) (extending the sovereignty theory to deportation). Twentieth-century reaffirmations include United States ex rel. Knauff v. Shaughnessy, 338 U.S. 537, 542 (1950), and Kleindienst v. Mandel, 408 U.S. 753, 766 (1972). 6. Useful treatment of each of these topics appears, respectively, in chapters 10 (Fitzpatrick), 13 (Leary), 14 (Charnovitz), and 15 (Chimni), of Aleinikoff and Chetail 2003.

Bibliography Aleinikoff, T.A. and V. Chetail (eds). (2003) Migration and International Legal Norms, The Hague: Asser Press. Batchelor, C.A. (1995) “Stateless Persons: Some Gaps in International Protection,” International Journal of Refugee Law 7: 232. Bhabha, J. (2003) “Children, Migration and International Norms,” in T.A. Aleinikoff and V. Chetail (eds) Migration and International Legal Norms, The Hague: Asser Press. Boeles, B. (1997) Fair Immigration Proceedings in Europe, London: Martinus Nijhoff Publishers. Chetail, V. (2003) “Freedom of Movement and Transnational Migrations: A Human Rights Perspective,” in T.A. Aleinikoff and V. Chetail (eds) Migration and International Legal Norms, The Hague: Asser Press. Cholewinski, R. et al. (eds). (2007) International Migration Law—Developing Paradigms and Key Challenges, The Hague: Asser Press. Dauvergne, C. (2008) Making People Illegal—What Globalization Means for Migration and Law, Cambridge: Cambridge University Press. de Groot, G. (2003) “Loss of Nationality: A Critical Inventory,” in D.A. Martin

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and K. Hailbronner (eds) Rights and Duties of Dual Nationals—Evolution and Prospects, The Hague: Kluwer Law International. Donner, R. (1994) The Regulation of Nationality in International Law 2nd ed., Irvington-on-Hudson, NY: Transnational Pub. Fisher, D. et al. (2003) “Migration and Security in International Law,” in T.A. Aleinikoff and V. Chetail (eds) Migration and International Legal Norms, The Hague: Asser Press. Goodwin-Gill, G.S. (1978) International Law and the Movement of Persons Between States, Oxford: Oxford University Press. Goodwin-Gill, G.S. and J. McAdam (2007) The Refugee in International Law 3rd ed., Oxford: Oxford University Press. Gordon, C. (1965) “The Citizen and the State: Power of Congress to Expatriate American Citizens,” Georgetown Law Review 53: 315, 319. Grahl-Madsen, A. (1966 and 1972, 2 volumes) The Status of Refugees in International Law, Leyden: Sijthoff. Guild, E. (2001) Immigration Law in the European Community, The Hague: Kluwer Law International. Hailbronner, K. (2000) Immigration and Asylum Law and Policy in the European Union, The Hague: Kluwer Law International. Hansen, R. and P. Weil (eds). (2001) Towards a European Nationality: Citizenship, Immigration and Nationality Law in the EU, Hampshire, UK: Palgrave. —— . (2002) Dual Nationality, Social Rights and Federal Citizenship in the U.S. and Europe, Oxford: Berghahn Books. Hathaway, J.C. (1991) The Law of Refugee Status, Toronto: Butterworths. —— . (2005) The Rights of Refugees Under International Law, Cambridge: Cambridge University Press. Jastram, K. (2003) “Family Unity,” in T.A. Aleinikoff and V. Chetail (eds) Migration and International Legal Norms, The Hague: Asser Press. Kondo, A. (ed.). (2001) Citizenship in a Global World—Comparing Citizenship Rights for Aliens, New York: Macmillan. Kyle, D. and R. Koslowski (eds). (2001) Global Human Smuggling: Comparative Perspectives, Baltimore and London: The Johns Hopkins University Press. Legomsky, S.H. (1987) Immigration and the Judiciary—Law and Politics in Britain and America, Oxford: Oxford University Press. —— . (2003) “Dual Nationality and Military Service: Strategy Number Two,” in D.A. Martin and K. Hailbronner (eds) Rights and Duties of Dual Nationals— Evolution and Prospects, The Hague: Kluwer Law International. —— . (2003a) “Secondary Refugee Movements and the Return of Asylum Seekers to Third Countries: The Meaning of Effective Protection,” International Journal Refugee Law 15: 567. Martin, D.A. and K. Hailbronner (eds). (2003) Rights and Duties of Dual Nationals— Evolution and Prospects, The Hague: Kluwer Law International. Muntarbhorn, V. (2003) “Combating Migrant Smuggling and Trafficking in Persons, Especially Women: The Normative Framework Reappraised,” in T.A. Aleinikoff and V. Chetail (eds) Migration and International Legal Norms, The Hague: Asser Press. Nafziger, J.A.R. (1983) “The General Admission of Aliens Under International Law,” Amer. J. International L. 77: 84.

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Noll, G. (2000) Negotiating Asylum—The EU Acquis, Extraterritorial Protection and the Common Market of Deflection, The Hague: Kluwer Law International. Plender, R. (1988) International Migration Law rev. 2nd ed., The Hague: Martinus Nijhoff Publishers. U.S. Office of Personnel Management Investigations Service. (2001) Citizenship Laws of the World, Washington, DC: GPO. Zilbershats, Y. (2002) The Human Right to Citizenship, Ardsley, NY: Transnational Publishers.

Chapter 4

The era of free migration Lessons for today * Kevin O’Rourke

Why should today’s policymakers concern themselves with history? In the case of international migration, the answer is straightforward: the late nineteenth century, and more precisely the period between the Irish Famine of 1845–49 and the First World War, was an era of free migration. As such, it constitutes a unique policy experiment. In earlier epochs, emigration had often been constrained, either in an attempt to prevent skilled workers from transferring technology overseas, or in an attempt to prop up land rents by preventing cheap labor from moving elsewhere. For example, in comparatively liberal Britain, skilled workers were forbidden to emigrate in 1719, a restriction which was only removed in 1825. In the twentieth century, it was immigration that was restricted, by governments anxious to avoid downward pressure on wages or upward pressure on unemployment. A symbol of this shift is the decision of the U.S. Congress in 1917 to override President Wilson’s veto of the immigrant literacy test, a move that was to be followed by a progressive tightening of restrictions in the world’s most popular destination for would-be emigrants. Simultaneously, other New World countries such as Canada and Argentina were imposing immigration barriers of their own; European countries, once a major source of emigrants, would eventually move to curb immigration as well. In 2001, 21 out of 48 developed country governments had policies designed to reduce immigration, while only two had policies designed to raise it (UN 2002a, Table 3, p. 18). As will be seen, some of these twentieth-century trends had their origins in the late nineteenth century, and it is therefore inaccurate to describe this period as one of completely unfettered mobility; and yet, the fact remains that the late nineteenth century was a generally liberal era in which migration flows reflected underlying economic forces, rather than government policy. The period thus comes as close to a laboratory experiment in this domain as we are ever likely to encounter. Moreover, since there was large-scale migration between relatively rich countries with relatively well-developed states, and since the migration was legal, it was extremely well-documented, as a glance at the statistical detail in Ferenczi and Willcox (1929) will confirm. It is

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easier, therefore, to study the economic fundamentals driving international migration a hundred years ago than it is to study them today. Roughly 60 million Europeans emigrated to the New World between 1820 and 1914. At the beginning of the century, transport costs remained high, free labor flows were still small, and intercontinental migration was dominated by slavery. During the 1820s, free immigration into the Americas averaged only 15,380 per annum, compared with a slave inflow of 60,250 per annum. By the 1840s, the free inflow had increased to 178,530 per annum (and the slave inflow had declined to 44,510 per annum: Chiswick and Hatton 2003: 68), although it was not until the 1880s that the cumulative European migration exceeded that of the African (Eltis 1983: 255). In the first three decades after 1846, European intercontinental emigration averaged around 300,000 per annum; the numbers more than doubled in the next two decades, and rose to more than a million per annum after 1900 (Chiswick and Hatton 2003, Figure 2.1, p. 69). There were also significant migrations within Europe and the New World, as well as substantial intercontinental emigration from Asia. As was also the case with trade and capital flows, this dimension of globalization went into reverse after 1914. European emigration had averaged over 1.2 million per annum in the decade before the war, but was less than half that between 1916 and 1930; and during the 1930s it was lower than it had been in the late 1840s (Chiswick and Hatton 2003, Figure 2.1, p. 69). Decline was followed by recovery: gross immigration into the U.S. was 4.1 million during the 1920s, 0.5 million in the 1930s, 1 million in the 1940s, 2.5 million in the 1950s, 3.3 million in the 1960s, 4.5 million in the 1970s, and 7.3 million in the 1980s (Chiswick and Hatton 2003: 76). However, this recovery is not yet complete. The world stock of migrants was 2.3 percent of the total world population in 1965, and 2.9 percent in 2000. Within rich countries, the share of migrants in the total population increased from 3.1 percent to 8.7 percent over the same period, while within North America, the migrant share increased from 6 percent to 13 percent (Zlotnik 1999; UN 2002b). By contrast, the foreign born accounted for 14.7 percent of the population of the United States, and 22 percent of the Canadian population in 1911. Similarly, 1990s immigration rates into countries like the U.S. (roughly 30 per thousand), Canada (70 to 80 per thousand in the early 1990s) and Germany (roughly 80 per thousand in the first half of the decade, and 50 per thousand thereafter), while substantial, were much smaller than those of the late nineteenth and early twentieth centuries: in the first decade of the twentieth century these were 167.6 in Canada, 118.4 in Cuba, 102 in the United States, and 291.8 in Argentina (O’Rourke 2002). What lessons can we draw from history? Good lessons come in threes, and here are the big lessons from the late nineteenth century:

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First, emigration is an incredibly effective way for poor countries to raise their living standards. By blocking immigration, rich countries are making it much harder for poor countries to catch up on the OECD. Second, emigration is ultimately a self-limiting process. Left to its own devices, emigration from a poor country will eventually decline, although this may be preceded by an initial period of increasing emigration rates. Third, international migration can have big effects on internal income distribution, both in the source country and in the country of origin; and this in turn has obvious consequences for immigration policy. In the following three sections I justify these statements, one at a time, before reaching some general conclusions, making some suggestions for future research, and indulging in what is, no doubt, some politically naive speculation.

Emigration as poverty relief Emigration due to poverty can be a source of great sadness for the families and communities left behind. Emigration typically involves young adults, who leave their parents and countries after the latter have finished investing in them. No one brought up in a country with a history of emigration is unaware of the emotional distress that this can cause; and the distress is obviously greater when the emigration is permanent, as was frequently the case a hundred years ago. For this reason, countries with a history of emigration often see that emigration as a problem, or even a catastrophe. Irish popular culture is replete with maudlin ballads lamenting the phenomenon; while in 2001 four times as many developing country governments had policies trying to lower emigration as had policies trying to raise it (although admittedly the vast majority were trying to do neither; see UN 2002a, Table 5, p. 19). It can be difficult therefore for people to admit that emigration may in fact have been hugely beneficial for peripheral and impoverished economies; and yet this is precisely what first year undergraduate economics would suggest: lower the supply of labor, and its price should rise. There are no shortage of theoretical arguments to the contrary, of course, and the arguments have scarcely changed over the last century and a half. The literature on Irish nineteenth-century emigration is full of them, for example. First, one claim made in the Irish context was that emigration reduced the size of the home market; once the home market was too small, scale economies were hard to achieve, Irish manufacturing became less competitive and

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industry declined; this caused further emigration, and the market got even smaller. Partial evidence in support of the hypothesis comes from Ó Gráda (1994: 345), who argues that Dunlop’s decision to transfer its bicycle business to Coventry from Dublin was due to its desire to be near markets. Second, there is some evidence from pre-Famine Ireland that emigration may have implied a life-cycle loss to the economy, providing other nations with “instant adults” reared at the nation’s expense. Conversely, this life-cycle effect was a major benefit to immigrant economies such as the United States (Neal and Uselding 1972; Mokyr and Ó Gráda 1982). Third, many contemporaries felt that it was the most energetic and productive who emigrated. For example, Mr O’Brien, reporting to the 1893 Royal Commission on Agricultural Labour from Kanturk in Co. Cork, stated that: there is a very general opinion, and, probably, a perfectly well-founded opinion entertained by the employers of labour in this district that the labourers are now neither as efficient as formerly, nor as those met with elsewhere, owing to the circumstance that the best, youngest, and most competent are those who have emigrated; the old and immature remaining behind (BPP 1893–4, Vol. IV, Part II, p. 35). If this was really true, then low Irish wages might not necessarily have translated into cheap Irish labor; and this in turn could help explain why the expectations of many contemporaries that British capital would invest massively in Ireland never came to pass.1 Ó Gráda’s (1994: 337–42) wage evidence, taken from the Gardeners’ Chronicle of 1860, suggests that Irish labor may indeed have been poorly paid, but not cheap; selective emigration offers one way of reconciling this evidence with a non-racist prior that there was no inherent quality differential between Irishmen and Britons. The evidence on whether it was in fact the “best” who left is mixed. Nicholas and Shergold (1987) compare Australian convicts shipped from Ireland with convicts born in Ireland but shipped from Britain; the latter group were more likely to be literate and report skilled occupations than the former. On the other hand, Mokyr and Ó Gráda (1982) find no evidence of brain or skill drains in the passenger lists of ships carrying the pre-Famine Irish to North America. Moreover, anecdotal evidence can be used to support any conceivable position: consider the following extract from an interview with St. George Johnston, in the Land Act Commission Report of 1881: Labour has of late increased very greatly in price, still I fancy that though I pay more for labour than I did formerly, I have it practically just as cheap as when I paid a great deal less . . . After some time I considered it was bad economy to have my horses well fed, and the men that were driving them badly fed. The men could not work after a good horse inasmuch as they were not fed up to the mark. I determined to put them

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in a better position, and I increased their wages to 1s.3d. a day, and a cow’s grass . . . it is in reality cheaper than when they were not so well paid; I used to employ fifty men, I can now do with thirty, and they work more and work better. This efficiency wage argument, which implies that emigration indirectly raised the average productivity of those staying behind, seems as theoretically plausible as the selective emigration argument (although there is no quantitative evidence to support it either). The stories outlined above seem interesting and important enough to warrant serious study; but theory can be used to support any number of positions. In the end, it is empirical evidence that convinces economic historians; and the evidence that emigration boosted living standards in Ireland and other emigrant countries is overwhelming. Consider Figure 4.1, which shows the (PPP-adjusted) wages of unskilled male urban workers in three countries of mass emigration, Ireland, Italy and Norway. Between 1870 and 1910, emigration lowered the Irish labor force by 45 percent, the Italian labor force by 39 percent, and the Norwegian labor force by 24 percent (O’Rourke and Williamson 1997, Table 6, p. 160). The wages are measured relative to wages in the leading European economy of the day, Britain. The figure shows that living standards in these three economies did not just rise during the late nineteenth century: they rose more rapidly than in Britain, allowing these countries to catch up on the economic leader

Figure 4.1 Wages relative to Britain, 1870–1913. Source: database underlying O’Rourke and Williamson (1999).

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of the day. In Ireland, for example, real wages rose from 73 percent to 92 percent of British wages during this period, while Norwegian wages rose from 48 percent to 95 percent. This represents impressive convergence. In Italy there was no convergence until the turn of the century, which is exactly when Italian emigration rates exploded, attaining levels of over 100 per thousand per decade; thereafter, real Italian wages rose from 40 percent of British wages in 1900 to 56 percent in 1913. Figure 4.2 repeats the exercise, this time reporting the three countries’ wages relative to wages in the U.S., which had always been very high as a result of the country’s favorable land–labor ratio. The figure shows that Norwegian wages continually converged on U.S. wages, while Italian wages converged after 1900; Irish wages converged over the period as a whole, although very rapid U.S. growth in the final two decades of the period implied Irish divergence after 1895 or so. Clearly, living standards in these peripheral emigrant economies rose very rapidly in the late nineteenth century, more rapidly even than in core economies like Britain and the U.S. At a minimum, emigration did not prevent convergence; more positively, econometric and simulation studies show that emigration was an important source of living standard convergence for all these countries. Take for example the Southern Irish catch-up: what makes this experience unique is that it was achieved despite a decline in manufacturing’s share of total employment from 29 percent to 23 percent over the period. The question thus arises: did the growth in real wages reflect movement up the labor demand curve, rather than an outward shift in the demand

Figure 4.2 Wages relative to United States, 1870–1913. Source: database underlying O’Rourke and Williamson (1999).

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curve? Boyer et al. (1994) attempt to answer this question, using a small-scale CGE model of the Irish economy calibrated to 1907–8 data. They estimate that if there had been no emigration between 1851 and 1911, the real urban wage would only have been 66–81 percent of its actual 1908 level, while per capita income would have been 75–87 percent of its actual level: there would have been no Irish catch-up on Britain. Econometric exercises also find a strong link between emigration and improvements in Irish living standards. To what extent can these findings be generalized? Taylor and Williamson (1997) calculate the labor market impact of migration in 17 Atlantic economy countries between 1870 and 1910, taking care to take account of return migration rates, which varied from country to country. According to their analysis, which makes use of econometrically estimated labor demand elasticities and information on labor’s share of income, emigration raised Irish wages by 32 percent, Italian by 28 percent and Norwegian by 10 percent. International real wage dispersion fell by 28 percent between 1870 and 1910, reflecting a convergence of poorer countries on the rich; but in the absence of the mass migrations international real wage dispersion would have increased by 7 percent. Wage gaps between the New World and the Old in fact declined from 108 to 85 percent during the period, but in the absence of the mass migrations they would have risen to 128 percent in 1910. The results suggest that more than all (125 percent) of the real wage convergence between 1870 and 1910 was attributable to migration. Even when allowance is made for the possibility that capital may have chased labor, lowering the impact of migration on capital–labor ratios, migration emerges as a major determinant of living standards convergence, explaining about 70 percent of the convergence. Mass migration accounted for all of Ireland’s and Italy’s convergence on the United States, and for 65–87 percent of their convergence on Britain. Emigration was thus a major source of poverty relief in these economies, allowing living standards to grow far more rapidly than they would have done in its absence. To be sure, it was not a perfect form of relief, since poverty traps ensured that some of those most in need of relief were unable to benefit from it. This was, for example, the case during the Irish Famine of the late 1840s. In the richer countries, such as Kildare or Wicklow, the ratio of emigration rates to death rates were high, with more than twice as many people emigrating as dying during the 1840s; in poorer counties, such as Cork, Kerry, or Galway, the ratio of emigration to death rates was low, with deaths outnumbering emigration. More generally, mass emigration started earlier in the richer countries of north-west Europe than in the poorer countries of southern and eastern Europe. Poverty traps are still probably important today; even the cheapest one-way fares from Addis Ababa, Mogadishu or Khartoum to London or New York are multiples of income per capita in Ethiopia, Somalia, or Sudan, rather than fractions, as was true in the Irish case. However, emigration itself helps eliminate these poverty traps, by raising

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incomes generally, and also through previous migrants sending home remittances. For example, Ó Gráda and O’Rourke (1997) found that while the cross-county correlation between Irish emigration and wages was only −0.023 in 1835 (indicating that emigration was not predominantly from poorer counties), it was −0.489 in 1880: after the Famine was over, emigration was highest from the poorest counties, suggesting that poverty was no longer a serious constraint preventing people from making the move. The biggest lesson of nineteenth-century migration history is that emigration is of major benefit to poor economies (a point also stressed by Williamson 2005). Not only did emigration make developing economies in the nineteenth century richer, it made their societies more equal as well. Emigration raised the wages of unskilled laborers, but this lowered both profits and land rents. Since capitalists and landlords were richer than landless workers, the result was greater equality. Complete income distributions are typically unavailable for the late nineteenth century, but Williamson (1997) constructed an alternative measure of inequality: the ratio of the unskilled wage to GDP per worker hour, w/y. This measure compares the income of those at the bottom of the distribution with a weighted average of all other relevant factor prices— skilled wages, as well as returns to such factors as capital and land. Williamson found that inequality fell dramatically (w/y increased, from 100 in 1870 to 153 or 154 in 1913) in poor European countries like Denmark, Norway, Sweden, and Italy, all of which experienced substantial emigration and increases in average living standards. On the other hand, inequality remained relatively stable in peripheral economies, which did not fully participate in the globalization of the period (such as Iberia). Moreover, other dimensions of globalization were no substitute for the poverty-reducing, convergence-enhancing, properties of mass migration. In the late nineteenth century, international capital flows were predominantly from relatively poor, labor-abundant Europe to the relatively rich, laborscarce New World. This was of course because of a third factor, land, which was so abundant in the New World that both labor and capital flowed to it. To this extent, international capital flows were a force for overall divergence, at least as far as the current OECD countries are concerned. True, there were exceptions, notably the Scandinavian countries. According to O’Rourke and Williamson (1997) capital inflows boosted Swedish real wages by some 25 percent, and made more modest contributions to living standards growth in Norway and Denmark. This experience was not typical, however, since Scandinavian countries resembled the New World in that they were resource rich: capital probably flowed out of Ireland and Italy, and only flowed into Iberia in very small quantities (O’Rourke and Williamson 1997). Why was cheap labor not sufficient to attract capital inflows? In part, the answer may lie with less productive workers, as was suggested earlier in the Irish context (Clark 1987); in part with the failure of peripheral countries to adhere to sound macroeconomic policies (Bordo and Rockoff 1996: 414). Whatever the

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reason, capital flows did not lead to the convergence that simple two-factor two-country neoclassical models might predict; and neither as it turns out did trade flows. O’Rourke and Williamson (1997) tried to quantify the impact of falling trans-Atlantic transport costs on real wages in the European periphery, and found only a modest impact: Swedish real wages rose only by 6 percent or so, while trans-Atlantic commodity price convergence actually lowered Irish real wages, by almost 9 percent.2 The uncomfortable lesson of the nineteenth century for policymakers today is that capital flows may not yield the expected increases in southern hemisphere living standards that simple economic models predict, and that both ethical considerations and enlightened self-interest demand. Indeed, the failure of capital to flow to the poorest countries that need it most is a prominent feature of today’s international economy as well (Lucas 1990). Migration may offer a quicker fix to the south’s economic problems; the problem is that migration is less palatable politically than either trade or overseas investment.

Emigration as a self-limiting process The second big lesson, which the migrations of the late nineteenth century teach us, follows directly from the first. Emigration raises living standards in source countries, both in absolute terms and relative to those in destination countries. As a result, the incentive to emigrate eventually declines, and so do emigration rates. Emigration is thus a self-limiting process. However, in the nineteenth century this decline in emigration rates typically followed an initial phase in which emigration rates rose. In some countries this was due to poverty traps being overcome, in part due to previous emigrants sending home remittances, which allowed others to make the journey to the New World. In others, it was due to demographic pressures, with baby booms having a predictable effect on emigration rates 20 years later. Sometimes large, exogenous shocks were to blame, such as the Irish Famine, which had an immediate effect on emigration rates, and a more persistent long run impact due to remittances. Indeed, one of the lessons of the late nineteenth century is that this “friends and relatives” effect can be extremely powerful: to this extent, emigration was self-reinforcing, rather than self-limiting. The implication of all this is that emigration from poor countries typically followed an inverted U-shaped “life cycle,” first rising, then declining. Hatton and Williamson (1998, 2005) are the classic references on this phenomenon, which can be documented for the majority of European countries for the late nineteenth century. Their econometric exercises reveal that emigration was a negative function of relative source country wages, as expected, implying that as source country wages caught up with destination country wages, emigration rates declined. The explanation for the initial increase in emigration rates is that this emigration function initially shifted outwards, as a result of

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shocks such as the Irish Famine, demographic pressures and the friends and relatives effect. Eventually these forces, and especially the demographic pressures, leveled off, the emigration function stabilized, and real wage convergence led to a decline in emigration rates. For some countries, this decline could be quite substantial. For example, Irish emigration rates were an astonishing 141.7 per thousand during the 1880s, but 88.5 per thousand in the 1890s, and 69.8 per thousand in the 1900s. German emigration rates fell from 28.7 in the 1880s to 4.5 in the 1900s; Danish emigration rates fell from 39.4 in the 1880s to 28.2 in the 1900s; and Swedish rates fell from 70.1 in the 1880s to 42 in the 1900s (O’Rourke and Williamson 1999: 122). Migration is still self-limiting today. When 10 southern and eastern European countries joined the European Union in 2005, only Ireland, Sweden and the United Kingdom opened their frontiers to workers from these countries immediately, presumably because the other 12 existing member states feared the impact of a sudden influx of workers. There was indeed a large migration into Ireland and the United Kingdom of eastern European workers following this decision, but at the time of writing (the summer of 2008) it was becoming clear that not only were these migration flows diminishing, but that many of these workers were now heading home again, in part at least because of rising wages in their homelands. On the other hand, the forces that dominated European emigration flows during the upswing—particularly demographic pressures—are powerfully present in large sections of today’s third world (Hatton and Williamson 2005). This implies that there are underlying pressures pushing larger worldwide migration flows, which will remain at work until birth rates subside and living standards increase. In such circumstances, raising immigration barriers will have the predictable consequence of encouraging illegal migration, with all the humanitarian problems this entails. The surest way to lower these underlying migration pressures, apart from lowering developing country birth rates—something which is happening already—is to raise living standards there, something which greater legal access to rich country markets for developing country products and workers should help to accomplish.

The political economy of immigration The third big lesson, which the nineteenth-century experience teaches us, also follows fairly directly from the first. Labor demand curves slope downwards: this is the basic fact that explains why emigration boosted living standards in poor source countries. But the same fact implies that immigration should lower wages in rich host countries. Simple economic theory suggests that this is a source of net gain to the host country, in that other factors of production will gain more than workers lose (see for example Borjas 1995). However, the fact that immigration lowers native wages has obvious political implications.

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Whose wages are lowered depends on the composition of the immigrant flow: if immigrants are largely low-skilled, compared with host-country populations, then the impact will be to lower unskilled wages, and thus to boost inequality. In order to understand the political economy of late nineteenth-century immigration restrictions, it is thus necessary to first be clear about who the migrants were (Hatton and Williamson 1998, Chapters 7, 8; O’Rourke and Williamson 1999, Chapter 7). Late nineteenth-century migrants were typically young adults with high labor force participation rates—for example, 76 percent of immigrants entering the U.S. between 1868 and 1910 were aged between 15 and 40. Crucially, they were typically unskilled, and as the century progressed they became even less skilled, as the source of the European emigration shifted southwards and eastwards. Immigration should have tended to lower the relative wages of unskilled workers in the New World, raising inequality. Moreover, in the late nineteenth century there was another factor implying that immigration raised inequality in New World countries: a major dimension of inequality in those days was the gap between landless laborers and land-owners, with the latter typically being richer than the former. Immigration should have boosted labor–land ratios in the New World, raising land rents, lowering wages, and increasing inequality. These predictions follow directly from the laws of supply and demand; more importantly, they are verified by the data. Williamson’s (1997) index of inequality, w/y, rose substantially in rich New World economies like the U.S. and Australia (w/y fell, from 100 in 1870 to 53 or 58 in 1913). Moreover, Williamson found that there was a strong relationship between migration flows and movements in w/y, with w/y rising more (falling less) in countries that experienced more emigration (less immigration). Furthermore, several studies, using various methodologies, have shown that in immigrant nations such as the U.S., immigration had a significant negative impact on unskilled real wages (O’Rourke and Williamson 1999, Chapter 8). For example, Hatton and Williamson (1998), using time series methods, found that real U.S. wages would have been 11 to 14 percent higher in 1910 had there been no immigration after 1870; while simulation exercises suggest that immigration after 1870 lowered U.S. real wages in 1910 by 11 percent (Williamson 1974), 15 percent (O’Rourke and Williamson 1995), and 8 percent (the last result allowing capital to chase after labor; O’Rourke, Williamson and Hatton 1994). Given the unprecedented nature of late nineteenth-century migration flows, and the fact that immigration lowered workers’ living standards, it would have been surprising if there had been absolutely no political response, especially from the 1890s or so, when the U.S. frontier was officially declared closed, and states were no longer able to cope with expanding populations by increasing the amount of land under cultivation. And, indeed, there was a gradual closing of New World labor markets to would-be immigrants from the 1880s

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or so (Timmer and Williamson 1998; O’Rourke and Williamson 1999, Chapter 10), manifested in such legislation as head taxes, Chinese exclusion acts, the definition of various categories of persons as “excludable,” and so on. What explains this international trend toward excluding immigrants, which was common across the “regions of recent settlement”? Was increased racism to blame; or a constant level of racism, combined with a shift in the ethnic composition of the migrants (fewer north-western Europeans, more southern and eastern Europeans)? Or were the roots of this backlash economic? Timmer and Williamson (1998) show that there was a causal link between rising New World inequality, on the one hand, and rising barriers to immigration on the other. Their crucial contribution is to provide an index of immigration barriers in the U.S., Canada, Argentina, Australia, and Brazil from 1850 to 1930, based on a careful reading of each country’s immigration legislation. An increase in the index signifies more pro-immigration policies, while a decline in the index implies a tightening of immigration barriers. Having constructed this index, they are then able to analyze the causes of increasingly restrictive policies in their sample countries, and their conclusions are striking. The most consistently significant variable in the analysis reported by Timmer and Williamson is the measure of inequality mentioned earlier, namely the ratio of the unskilled wage to per capita income, or of income near the bottom of the distribution to income in the middle. Regardless of what else is included in the regression equation, this measure of unskilled labor’s relative economic position turns out to have been an important influence on policy. Rising equality encouraged more open immigration policies; rising inequality encouraged more restrictive immigration policies. Other economic variables also seem to have mattered for policy: high real wage levels were associated with liberal policy in some countries, high real wage growth in others. Low and falling immigrant “quality,” as measured by real wages in source countries, induced immigration restrictions. There is also evidence of policy spillovers during the period: for example, Argentinian policy tended to mimic policy in Australia, Canada, and Brazil, while Brazil tended to mimic policies in Argentina and the U.S. However, there is no evidence that widening ethnicity gaps between immigrants and host country populations were responsible for tighter controls: policy can be well explained by the economic effects of immigration, and by policy overseas. Once other variables have been controlled for, there does not seem to have been an independent role for xenophobia, of the sort frequently stressed by qualitative histories of the period. The big political lesson from the period is thus that immigration can be hard to sustain politically. Moreover, the basic factor leading to the nineteenthcentury anti-immigration backlash—the impact of immigration on wages—is present in today’s world as well. To be sure, several papers by labor economists (e.g. Card 1990) have had trouble in isolating this effect, but this is due to the well-known problem which faces the area studies approach which they

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have used: regressing a measure of inequality, or native wages, in an area on immigrants in that area will find no correlation if there is sufficient labor mobility between areas. An alternative approach, associated with Borjas, Freeman and Katz (1997), looks at the impact of immigration on national labor supplies and uses independently generated information regarding labor demand elasticities to conclude that immigration must have had a sizable impact on unskilled wages. This approach has been criticized on the basis that it is simulating the impact of migration on wages, not econometrically estimating it. The latest word on the subject, however, takes account of this last objection, and exploits the fact that immigrants do not just have different skill characteristics from natives, but different levels of work experience as well; and that these imbalances have changed over time (Borjas 2003). This makes it possible to isolate the impact of immigration on wages within particular skill-experience categories, and the bottom line is that the nineteenth-century experience continues to be relevant for today: a 10 percent increase in labor supply reduces real wages by between 3 and 4 percent. Not only is the basic economic mechanism driving the nineteenth-century anti-immigration backlash still alive and well, but it has a predictable impact on the political preferences of individual voters today. Table 4.1 reports the results of a major international survey (described in O’Rourke and Sinnott 2006) carried out in 24 countries (in the OECD, central and eastern Europe, and the Philippines) in 1995. Of the many questions which respondents were asked to answer, two directly bear on their attitudes toward immigration. The first asked if the number of immigrants to their economy should be increased a lot (1), a little (2), remain the same (3), be reduced a little (4) or reduced a lot (5). The second asked if refugees should be allowed to stay in the country; responses ran from agree strongly (1) to disagree strongly (5). Table 4.1 reports the mean response to these questions in each country, where countries are ordered according to the mean value of their response to the question on immigration. A separate column reports the ranking of countries according to their mean response to the question on refugees. A score greater than 3 indicates that on average respondents were leaning toward greater restriction. As can be seen, individuals tended to be more strongly opposed to immigration in general than to refugees, suggesting that the interviewees were making a distinction between forced migration due to political repression and migration more generally. Sample respondents in every country on average favored lowering the number of immigrants; by contrast, the mean response to the refugee question only exceeded 3 in five countries (Slovenia, the Philippines, Japan, Latvia, and Slovakia). This is of course the reason why it will be so difficult for OECD politicians to liberalize immigration generally (as distinct from adhering to their international human rights obligations), but the real point is that these preferences regarding immigration are largely driven by economic considerations. Using the 24-country data set mentioned above, both O’Rourke and Sinnott (2006)

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Table 4.1 Average sentiment regarding immigrants and refugees Country

Hungary E. Germany W. Germany Bulgaria Latvia Czech Rep. Italy Britain Slovakia Sweden Slovenia Poland USA Norway Netherlands Austria Philippines Australia New Zealand Russia Spain Japan Canada Ireland

Anti-immigrant

Anti-refugee

Mean

Std. Dev.

Mean

Rank

Std. Dev.

4.402 4.338 4.226 4.219 4.182 4.158 4.151 4.052 4.004 3.961 3.939 3.888 3.873 3.847 3.826 3.804 3.796 3.768 3.742 3.717 3.401 3.391 3.317 3.071

0.817 0.871 0.910 0.990 0.884 0.880 0.900 0.962 0.911 1.017 0.868 1.060 1.044 0.982 0.924 0.933 1.102 1.042 1.053 0.971 0.813 1.008 1.135 0.829

2.838 1.961 2.049 2.661 3.757 2.463 2.846 2.820 3.021 2.275 3.565 2.535 2.748 2.340 2.366 2.095 3.708 2.954 2.807 2.698 2.460 3.014 2.404 2.163

8 24 23 13 1 15 7 9 4 20 3 14 11 19 18 22 2 6 10 12 16 5 17 21

1.077 0.879 1.022 1.379 1.312 1.143 1.269 1.100 1.258 1.074 1.103 1.144 1.098 0.990 1.044 1.111 1.000 1.202 1.075 1.242 1.036 1.296 1.129 0.911

Source: O’Rourke and Sinnott (2006). Data from ISSP National Identity Survey 1995.

and Mayda (2006) show that being low-skilled significantly increases individual voters’ antipathy to immigrants, consistent with the result for the U.S. given in Scheve and Slaughter (2001). Even more tellingly, this effect is stronger in richer countries than in poorer countries, and in more equal countries than in more unequal countries. The first observation is consistent with simple Heckscher-Ohlin logic, which predicts that in richer countries, with their higher relative endowments of skilled labor, unskilled wages will be higher both in absolute and in relative terms, and that immigrants are thus more likely to be unskilled. The second observation is consistent with Borjas’ (1987) theory of migrant self-selection, which concludes that immigrants will more likely be unskilled if (a) the correlation between the earnings which they receive in the home and destination countries is sufficiently high; and (b) if income is less dispersed (more equal) in the destination country than in the home country. These theoretical considerations suggest that, since in richer, more equal countries immigration is more likely to involve unskilled workers, it will thus be more harmful to native unskilled workers than immigration

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into poorer, more unequal countries. Strikingly, the survey data bear out these theoretical predictions, in that voters’ attitudes are precisely what one would predict if the theories were true. Indeed, in two of the poorer and more unequal countries in the sample, Latvia and the Philippines, it is the highskilled who are marginally more anti-immigrant, just as the simple logic of economic self-interest would predict. The political importance of these forces can be clearly seen in the results of the Irish referendum on the Lisbon Treaty held in June 2008. According to a Eurobarometer poll held in the immediate aftermath of the vote, the Irish electorate fractured along class lines: 60 percent of the self-employed, 66 percent of senior managers, 58 percent of professionals and 57 percent of those who left the educational system after the age of 20 voted in favor of the Treaty. By contrast, 58 percent of the unemployed and 74 percent of manual workers voted against it. It seems clear that this class cleavage was at least in part driven by economic interests, and by attitudes toward immigration. As Table 4.1 shows, in 1995 the Irish were the most favorably disposed toward immigration in the ISSP sample of countries. However, Ireland was still a country recovering from a history of emigration, rather than a country of immigration. By 2008, not only had Ireland seen a large influx of eastern European immigrants, but the economy was in decline, raising fears about unemployment. In a survey conducted a few days after the referendum, 65 percent of those against the Treaty agreed with the statement that “There should be much stricter limits on the number of foreigners coming into Ireland,” as opposed to a still depressingly high 52 percent of those in favor of it: a far remove from the liberal attitudes of the mid-1990s. To sum up: it was true in the late nineteenth century that immigration lowered native wages, and this remains true today. It was true in the late nineteenth century that immigration policy was largely driven by the economic (distributional) consequences of immigration, and it remains true that individual preferences regarding immigration can be well explained by simple economic logic today. In the late nineteenth century, mass migration undermined itself by raising New World inequality, which had predictable consequences. Nothing suggests that those wishing to ease barriers to migration would not face similar political obstacles today.

Conclusions There are huge potential economic gains from the freeing up of international migration, from the point of view of poor countries and the world as a whole. For poor countries, emigration offers a much surer escape route from poverty than a reliance on capital inflows, which may never emerge; despite all the theoretical counter-arguments, emigration did in fact boost living standards in such desperately poor countries as Ireland and Italy a hundred years ago. For the world as a whole, mass migration holds out the possibility of a more

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efficient allocation of labor, by moving workers to where they will be more productive: according to one estimate, freeing up world migration could double world income (Hamilton and Whalley 1984), a gain that leaves the much-trumpeted estimated benefits of world trade deals in the shade. Finally, rich countries need not fear that such mass migration will go on for ever, since as source countries see their living standards converge on those of host countries, emigration streams eventually dry up. However, the historical evidence strongly suggests that it will be difficult, if not impossible, for the world to achieve these potential gains. The reason is that in democracies, politicians will not be able to ignore the protests of native workers whose living standards would inevitably be eroded by mass immigration; even if immigration on balance boosts host country GDP, and even if in principle the losers could be compensated, leaving everyone better off. This mechanism undermined the basis for free migration a hundred years ago, and is still present today. The contrast with international trade is instructive, since trade also benefits the world, but hurts particular groups within society, such as unskilled workers in rich countries, and is thus potentially subject to the same political pressures as migration.3 However, this dimension of globalization has been underpinned in the twentieth century both by the national welfare state, and by systems of global governance. First consider the welfare state. As Michael Huberman and Wayne Lewchuk have recently shown (Huberman and Lewchuk 2003; Huberman 2002), late nineteenth-century and early twentiethcentury governments introduced a range of domestic policies which helped ensure continued trade union support for free trade. This “labor compact” took two forms: labor market regulation (e.g. minimum working ages, the prohibition of night work, limits on the working day or factory inspections) and social insurance (e.g. accident compensation; or unemployment, sickness or old age insurance), and reforms such as these were adopted in the majority of European economies in the years prior to World War I. Huberman and Lewchuk show that these reforms were more likely to arise in more open economies, reminiscent of Rodrik’s (1998) late twentieth-century finding that more open economies have bigger governments; and that unions in Belgium and elsewhere committed to supporting free trade in exchange for such reforms. More strikingly, in terms of the subject of this chapter, the FrancoItalian labor accord of 1904 raised labor standards in Italy as a quid pro quo for granting Italian workers in France benefits which their French colleagues already enjoyed (Huberman 2002). Similarly, post-1945 Western economies were based on a dual commitment to free trade and expansive welfare states. Unfortunately, it seems that while welfare states can indeed help maintain political support for free trade, they coexist much more uneasily with immigration flows, given taxpayer hostility to providing benefits for foreigners. Second, post-1945 free trade has been underpinned by the creation of international institutions such as the GATT (General Agreement on Tariffs

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and Trade)/WTO (World Trade Organization), which had no counterparts in the pre-1914 era. Might such international institutions play such a role in promoting free international labor markets? Interestingly, there was an attempt after World War I to adopt precisely such a strategy. Both the French and the German delegations at Versailles suggested that free migration be stitched into the post-World War I international economic architecture, but these proposals came to nought (James 2001: 176–7). The Treaty of Versailles did establish the International Labor Organization, and some countries— such as France, Italy, Japan, and Poland—argued that the ILO should be involved in regulating migration. New World countries disagreed, however, and the result was that the ILO found itself limited to issues of domestic regulation: immigration control was left to the discretion of individual countries.4 The history of international migration after 1918 is thus different from the history of international trade, since in the trade sphere the League of Nations was supposed, among other things, to provide a forum within which countries could agree to lower trade barriers; and even though it failed dismally, the promise of the League would eventually be fulfilled via the GATT and WTO. In recent years world trade talks have encompassed issues such as foreign investment, which go beyond the traditional remit of the GATT. This has been at the behest of rich countries, who see themselves as benefiting from freer flows of capital and intangible assets across borders but within the boundaries of multinational companies. In the late nineteenth century, developing countries became richer and more equal as a result of emigration, but they find this route to progress largely blocked today. If rich countries can put foreign investment on the table at the WTO, why should developing countries not be able to bring up international labor flows?

Notes * This paper was written while the author was an IRCHSS Government of Ireland Senior Fellow. I am grateful to the Irish Research Council for the Humanities and Social Sciences for their generous financial support. I am also grateful to Cormac Ó Gráda, Richard Sinnott and Jeffrey Williamson for allowing me to draw on joint work, to Tim Hatton for comments and suggestions, and to William Hynes and Hampus Willfors for excellent research assistance. The usual disclaimer applies. 1. For example, in 1825, an observer predicted that “Lancashire and Louth will form as it were one factory . . . whatever operations can be procured best by the human hand, I think, will be performed in Ireland, for the hand which is satisfied with the cheaper subsistence will necessarily undersell the hand not so circumstanced” (cited in Mokyr 1985: 259). 2. In agricultural Ireland, the negative impact of cheap overseas food on labor demand dominated the positive impact of a lower cost-of-living. 3. And indeed the unskilled are protectionist in rich countries, just as they are anti-immigration: see Mayda and Rodrik (2005) and O’Rourke and Sinnott (2001). 4. State sovereignty is not absolute in this area; as Stephen Legomsky points out in his contribution to this volume, there are rules which inter alia constrain the

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behavior of governments toward refugees. However, refugees only account for about 9 percent of all migrants (UN 2002a: 4).

Bibliography Bordo, M.D. and H. Rockoff. (1996) “The Gold Standard as a ‘Good Housekeeping Seal of Approval,” Journal of Economic History 56: 389–428. Borjas, G.J. (1987) “Self-Selection and the Earnings of Immigrants,” American Economic Review 77: 531–553. —— (1995) “The Economic Benefits From Immigration,” Journal of Economic Perspectives 9: 3–22. —— (2003) “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market,” Quarterly Journal of Economics 118: 1335–1374. Borjas, G.J., R.B. Freeman and L.F. Katz. (1997) “How Much Do Immigration and Trade Affect Labor Market Outcomes?” Brookings Papers on Economic Activity 1: 69–119. Boyer, G.R., T.J. Hatton, and K.H. O’Rourke. (1994) “Emigration and Economic Growth in Ireland, 1850–1914,” in T.J. Hatton and J.G. Williamson (eds) Migration and the International Labor Market, 1850–1939, London: Routledge. B.P.P. (1893–4) Royal Commission on Labour: The Agricultural Labourer, Assistant Commissioners’ Reports on the Agricultural Labourer, Volume IV, Ireland, British Parliamentary Papers, Volume XXXVII. Card, D. (1990) “The Impact of the Mariel Boatlift on the Miami Labor Market,” Industrial and Labor Relations Review 43: 245–257. Chiswick, B. and T.J. Hatton. (2003) “International Migration and the Integration of Labor Markets,” in M.D. Bordo, A.M. Taylor, and J.G. Williamson (eds) Globalization in Historical Perspective, Chicago: University of Chicago Press. Clark, G. (1987) “Why Isn’t the Whole World Developed? Lessons from the Cotton Mills,” Journal of Economic History 47: 141–173. Eltis, D. (1983) “Free and Coerced Transatlantic Migrations: Some Comparisons,” American Historical Review 88: 251–280. Ferenczi, I. and W.F. Willcox. (1929) International Migrations, Vol. I, New York: National Bureau of Economic Research. Hamilton, B. and J. Whalley. (1984) “Efficiency and Distributional Implications of Global Restrictions on Labour Mobility: Calculations and Policy Implications,” Journal of Development Economics 14: 61–75. Hatton, T.J. and J.G. Williamson. (1998) The Age of Mass Migration: Causes and Economic Impact, Oxford: Oxford University Press. —— (2005) Global Migration and the World Economy: Two Centuries of Policy and Performance, Cambridge, MA: MIT Press. Huberman, M. (2002) “International Labor Standards and Market Integration Before 1913,” paper presented at the conference on The Political Economy of Globalization: Can the Past Inform the Present? Trinity College, Dublin (August). Huberman, M. and W. Lewchuk. (2003) “European Economic Integration and the Labour Compact, 1850–1913,” European Review of Economic History 7: 3–41. James, H. (2001) The End of Globalization: Lessons from the Great Depression, Cambridge, MA: Harvard University Press.

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Lucas, R.E. (1990) “Why Doesn’t Capital Flow from Rich to Poor Countries?” American Economic Review 80: 92–96. Mayda, A.M. (2006) “Who Is Against Immigration? A Cross-Country Investigation of Individual Attitudes Towards Immigrants,” Review of Economics and Statistics 88: 510–530. Mayda, A.M. and D. Rodrik. (2005) “Why Are Some People (and Countries) More Protectionist Than Others?” European Economic Review 49: 1393–1430. Mokyr, J. (1985) Why Ireland Starved: a Quantitative and Analytical History of the Irish Economy, 1800–1850, London: George Allen & Unwin. Mokyr, J. and C. Ó Gráda. (1982) “Emigration and Poverty in Prefamine Ireland,” Explorations in Economic History 19: 360–84. Neal, L. and P. Uselding. (1972) “Immigration: A Neglected Source of American Economic Growth: 1790–1912,” Oxford Economic Papers 24: 68–88. Nicholas, S. and P.R. Shergold. (1987) “Human Capital and the Pre-Famine Irish Emigration to England,” Explorations in Economic History 24: 158–177. Ó Gráda, C. (1994) Ireland 1780–1939: A New Economic History, Oxford: Oxford University Press. Ó Gráda, C. and K.H. O’Rourke. (1997) “Migration as Disaster Relief: Lessons from the Great Irish Famine,” European Review of Economic History 1: 3–25. O’Rourke, K.H. (2002) “Globalization and Inequality: Historical Trends,” Annual World Bank Conference on Development Economics 2001, Washington, DC: World Bank, 39–67. O’Rourke, K.H. and R. Sinnott. (2001) “What Determines Attitudes Towards Protection? Some Cross-Country Evidence,” in Susan M. Collins and Dani Rodrik (eds) Brookings Trade Forum 2001, Washington, DC: Brookings Institute Press. —— (2006) “The Determinants of Individual Attitudes towards Immigration,” European Journal of Political Economy 22: 838–861. O’Rourke, K.H. and J.G. Williamson. (1995) “Open Economy Forces and Late 19th Century Scandinavian Catch-Up,” HIER Discussion Paper No. 1709. —— (1997) “Around the European Periphery 1870–1913: Globalization, Schooling and Growth,” European Review of Economic History 1: 153–191. —— (1999) Globalization and History: The Evolution of a Nineteenth Century Atlantic Economy, Cambridge, MA: MIT Press. O’Rourke, K.H., J.G. Williamson, and T.J. Hatton. (1994) “Mass Migration, Commodity Market Integration and Real Wage Convergence,” in T.J. Hatton and J.G. Williamson (eds) Migration and the International Labour Market, 1850–1939, London: Routledge. Rodrik, D. (1998) “Why Do More Open Economies Have Bigger Governments?” Journal of Political Economy 106: 997–1033. Scheve, K.F. and M.J. Slaughter. (2001) “Labor Market Competition and Individual Preferences Over Immigration Policy,” Review of Economics and Statistics 83: 133–145. Taylor, A.M. and J.G. Williamson. (1997) “Convergence in the Age of Mass Migration,” European Review of Economic History 1: 27–63. Timmer, A. and J.G. Williamson. (1998) “Immigration Policy Prior to the Thirties: Labor Markets, Policy Interactions and Globalization Backlash,” Population and Development Review 24: 739–71.

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Williamson, J.G. (1974) Late Nineteenth Century American Development: A General Equilibrium History, Cambridge: Cambridge University Press. —— (1997) “Globalization and Inequality, Past and Present,” World Bank Research Observer 12: 117–135. —— (2005) “Winners and Losers Over Two Centuries of Globalization,” in Wider Perspectives on Global Development, Hampshire: Palgrave Macmillan. UN (2002a) International Migration Report 2002, New York: United Nations. —— (2002b) International Migration 2002 (United Nations Publication, Sales No. E.03.XIII.3), New York: United Nations. Zlotnik, H. (1999) “Trends of International Migration Since 1965: What Existing Data Reveal,” International Migration 37: 21–61.

Chapter 5

Cultural communities in a global labor market Immigration restrictions as residential segregation Howard Chang 1

When economists refer to globalization, they have in mind first and foremost the dramatic moves the world has made toward a global common market, that is, our evolution toward a global economy that is integrated across national boundaries. Our progress in this direction has been especially dramatic in the liberalization of international trade in goods. Economists generally welcome this development, prescribing free trade as the regime that maximizes global economic welfare. Economists also recommend liberalized trade as a policy that is likely to produce welfare gains for each national economy. Gains from trade arise because different countries will produce goods at different costs. When countries restrict trade, the price of a good will be low in countries that can produce it at low cost but high in countries that can only produce it at high cost. Liberalized trade allows both countries to gain in terms of social welfare. The high-price country can gain by importing the good at a lower price than it would cost to produce it at home, while the low-price country can gain by exporting the good at a higher price than it would fetch at home. Economists also recognize that the same theory that applies to goods also applies to international trade in other markets. Nations can gain through not only the free movement of goods across national boundaries but also the free movement of services, capital, and labor across national boundaries.2 In particular, consider the economic effects of labor migration in world labor markets. We would expect labor to migrate from low-wage countries to highwage countries in pursuit of higher wages. As a result of this migration, world output rises. Higher wages in the host country imply that the marginal product of labor is higher there than in the source country. That is, higher wages for the same worker mean that the worker produces more value in the host country than in the source country. Labor migration generally leads to net gains in wealth for the world as a whole, because labor flows to the country where it has the higher-value use. An efficient global labor market would allow labor to move freely to the country where it earns the highest return. Market forces would thus direct labor to the market where its marginal product is highest. For this reason, economic theory raises a presumption in favor of the free movement of labor.

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Immigration barriers interfere with the free flow of labor internationally and thereby cause wage rates for the same class of labor to diverge widely among different countries. For any given class of labor, high-wage countries could gain by employing more immigrant labor, and residents of low-wage countries could gain by selling more of their labor to employers in high-wage countries. Immigration restrictions distort the global labor market, producing a misallocation of labor among countries, thereby wasting human resources and creating unnecessary poverty in labor-abundant countries. The larger the inequality in wages between countries, the larger the distortion of global labor markets caused by migration restrictions, and the larger the economic gains from liberalizing labor migration. Given the large international differences in wages, it should be apparent that the potential gains from liberalized labor migration (and the costs that the world bears as a result of immigration barriers) are huge. In fact, economists have attempted to estimate the gains in social welfare that the world could enjoy by liberalizing migration. These estimates (Hamilton and Whalley 1984; Moses and Letnes 2004; World Bank 2006: 25–41) suggest that the gains to the world economy from liberalizing migration barriers could be quite large. Furthermore, these studies (Hamilton and Whalley 1984: 73–4; Moses and Letnes 2004: 1620; World Bank 2006: 35) indicate that liberalized labor migration would greatly improve the global distribution of income by raising real wages dramatically for the world’s poorest workers. Similarly, in a study appearing in this volume, Kevin O’Rourke provides empirical evidence that international migration in the late nineteenth century was quite effective in raising living standards in poor countries. Despite the presumption that economic theory raises in favor of international labor mobility, the nations of the world maintain restrictions on immigration and show little inclination to liberalize these barriers significantly. To some degree, however, globalization proceeds in the labor market despite the immigration barriers that states raise. In the United States, for example, Jeffrey Passel (2006: 2) estimates that about 12 million unauthorized immigrants reside among us today, with the unauthorized population growing at a rate of more than 500,000 per year. Thus, the global labor market resists attempts by states to restrict the flow of labor across borders. Nevertheless, countries of immigration generally resist the extension of the case for free trade to the labor market. Even if we adopt the maximization of global social welfare as our policy objective, there may be many reasons to distinguish trade in goods from trade in the labor market and to take a more restrictive approach to the migration of workers than we take to the movement of goods. This chapter, however, will focus on only one set of objections to the free movement of workers, namely, concerns about the effect of labor mobility on cultural communities. In particular, this chapter offers a critique of the claims that the communitarian political theorist Michael Walzer makes in defense of immigration

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restrictions. Walzer (1983: 39) defends the power of “the sovereign state . . . to make its own admissions policy, to control and sometimes restrain the flow of immigrants,” because “[t]he distinctiveness of cultures and groups depends upon closure,” and “most people . . . seem to believe” that “this distinctiveness is a value.” Although Walzer expresses common intuitions, I draw on insights from the economic literature to question his claims: Must states impose restrictions on immigration in order to ensure the “distinctiveness of cultures and groups” in the world? If people value distinctive cultural communities, then why would we expect their free movement to undermine those communities? In the first part of this chapter, I begin with a critique from an economic perspective. I take the maximization of global social welfare to be the objective, then explore whether the value of distinctive cultural communities can justify immigration restrictions. A focus on global social welfare rather than the social welfare of the country of immigration is more consistent with the spirit of Walzer’s defense of immigration restrictions, as he argues that immigration restrictions are good for humankind in general, not merely that they are good for residents of countries of immigration. As Alan Sykes (1995: 162) notes, this “global” perspective has a “long and distinguished tradition” in economics and in utilitarianism. Many political theorists and philosophers, including Charles Beitz (1979), Thomas Pogge (1989: 240–80), Peter Singer (2002), and Joseph Carens (1987), have argued that normative analysis requires such a cosmopolitan perspective. My goal in this chapter is not to enter that debate or to defend the cosmopolitan perspective against its critics. Instead, I simply assume that we seek to maximize global social welfare, then explore the policy implications of that normative criterion. First, I assume that Walzer is right to value the segregation of people into distinctive cultural communities, but I suggest that immigration restrictions are not the optimal means for maintaining such communities. I argue that individuals with heterogeneous preferences would segregate themselves voluntarily into distinctive communities. This voluntary segregation would allow individuals to enjoy gains from trade in the labor market, whereas immigration restrictions would sacrifice these gains. Next, I turn to a moral critique from a liberal perspective. I argue that even if immigration restrictions satisfy the preferences of incumbent residents for more extensive or more stable segregation of cultural communities than voluntary segregation can provide, this effect cannot justify immigration restrictions in a society committed to liberal ideals. Just as we condemn segregation at the local level for undermining equality of opportunity in the domestic context, I suggest, we should condemn immigration restrictions for undermining global equality of opportunity. Concerns about the cultural effects of immigration in a liberal state can justify only more limited restrictions on immigration. Finally, I conclude with implications for immigration policies in liberal states.

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Global social welfare and cultural communities Suppose we assume that our goal is to maximize global social welfare, taking all preferences of all individuals as equally worthy of satisfaction. I will first draw on economic models of residential segregation to suggest that individuals are likely to sort themselves into distinctive cultural communities without any regulations mandating such segregation. Given the distortions that immigration restrictions introduce in the global labor market, I question whether we should expect immigration restrictions to increase global social welfare compared to the alternative of voluntary segregation. Heterogeneous preferences for public goods We would expect freely mobile individuals with heterogeneous preferences to segregate themselves voluntarily into distinctive communities. The economist Charles Tiebout (1956) suggested the classic model of this sorting process, in which individuals prefer different bundles of local public goods and move to communities that provide the bundles that they desire. If the set of available communities spans the full range of bundles desired by these individuals, Tiebout (1956: 421) argues, the result of free mobility is a Pareto efficient equilibrium in which each individual resides in a homogeneous community providing the ideal bundle of local public goods for its residents. If we think of a community as providing its culture as a local public good, then why not expect free movement to generate an equilibrium in which distinctive cultural communities thrive? In the Tiebout (1956: 419) model, far from being a threat to distinctive communities, “fully mobile” individuals are a necessary condition for the efficient segregation of residents into such communities. Restrictions on mobility only serve to trap individuals in communities that they would prefer to leave and to prevent them from joining communities more closely matching their preferences. Under conditions of free mobility, as Harvey Rosen (1992: 529) explains, people with similar tastes can “vote with their feet” and thus live together in communities tailored to satisfying their preferences for public goods, services, policies, and institutions. Those who prefer to have government services delivered in a particular language, for example, would form communities that can efficiently provide those services in their own language. Although the conditions necessary for Pareto efficiency in the Tiebout model are strong, even under more relaxed assumptions, one would expect segregation into distinctive communities. It should not be surprising that the empirical evidence is consistent with this hypothesis. As Rosen (1992: 532) observes, for example, a high degree of mobility is a “persistent pattern” in the United States. Studies testing the Tiebout hypothesis in major metropolitan areas in the United States, such as that conducted by Edward Gramlich and Daniel Rubinfeld (1982), reveal patterns of segregation in which a

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diverse population sorts itself into a diverse set of local communities with more homogeneous preferences. Walzer recognizes the alternative of segregation at the local level rather than at the national level. He rejects this alternative, however, based on two claims. First, Walzer (1983: 39) makes the empirical claim that in order to ensure distinctive communities, the “right to control immigration,” or “closure” as he puts it, “must be permitted somewhere,” that is, “[a]t some level of political organization.” Second, Walzer (1983: 39) asserts as a normative matter that we should prefer such “closure” at the national level rather than the local level, because “individual choice is most dependent upon local mobility.” The Tiebout model and the evidence of the Tiebout process in the real world, however, cast doubt on both of Walzer’s claims. First, the evidence of voluntary segregation into distinctive cultural communities within nation-states suggests that the type of immigration restriction practiced at the national level is not necessary to produce such communities. As Yael Tamir (1993: 166) notes: Cultural uniqueness is preserved in Quebec, in Belgium, and in many other places, without an actual geographical border. Scattered peoples like the Jews or Armenians, and immigrant groups such as Hispanics in Southern California, Cubans in Miami, Algerians in France, and Pakistanis in England, and religious sects like the Mormons in Utah, the Amish in Pennsylvania, or the ultra-Orthodox Jewish community in Jerusalem, also manage to preserve their identity without tangible boundaries. In the United States, we observe cities with large immigrant populations, in which different ethnic groups readily form their own communities without any migration regulations mandating such segregation. As George Borjas (1995: 365) notes, “[e]thnic neighborhoods have long been a dominant feature of American cities (and of cities in many other countries).” Using data for the United States, Borjas (1995: 388) documents “substantial residential segregation by ethnicity.” We also observe similar patterns of residential segregation in other countries receiving immigrants. This evidence of voluntary segregation based on ethnicity casts doubt on Walzer’s claim that communities need immigration restrictions to remain distinctive. Second, the Tiebout model suggests that we should prefer residential segregation at the local level. Residential segregation at the local level allows individuals to enjoy the benefits of living in a community matching their preferences while still enjoying access to labor markets in other communities nearby. One condition for the Tiebout (1956: 419) efficiency result is that individuals can choose their communities without sacrificing access to “employment opportunities.” Tiebout assumed that each person can choose where to reside without any impact on that person’s income. We are more

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likely to meet this condition within a small geographic area, where a resident can live in one community and commute to work in another community. Residential segregation within commuting distances allows residents to enjoy both the gains from trade in the labor market and the value of living in distinctive communities. The type of segregation that Walzer defends, enforced at the national level through immigration restrictions, cuts workers off from valuable employment opportunities and sacrifices gains from trade in the global labor market. To put it another way, to ensure an efficient outcome, Tiebout (1956: 419) assumes that individuals have a wide range of alternative communities from which to choose. The greater the menu of choices, the more closely individuals can match their chosen communities to their preferences. Segregation into cultural communities at the local level is more likely to provide a diverse set of options within each local labor market than segregation at the national level. This cultural diversity within local labor markets is especially likely if residential segregation is voluntary rather than mandated by immigration restrictions, because a regime of free mobility would allow immigrants attracted by the local labor market to form their own local communities. If we instead constrain residential options through immigration restrictions at the national level, so that individuals live in their own cultural communities only by forgoing valuable employment opportunities, then we obtain residential segregation by sacrificing efficiency in the labor market. Trade in the labor market may be possible among local communities, but even among these communities, commuting is not costless. Nevertheless, commuting costs among local communities are generally smaller than they are among nations or states. Thus, any significant wage inequality among local communities would induce workers to commute, thereby increasing the supply of labor where it is relatively scarce and decreasing its supply where it is relatively abundant, which in turn would prevent wages from becoming even more unequal. Therefore, there is a limit to how much wage inequality local residential segregation would permit in a local labor market, and thus a limit to how much such segregation would distort the local labor market away from an efficient allocation. A regime of free mobility would allow residential segregation at the local level while minimizing distortions in both the global labor market and the local labor markets. Residential segregation maintained through local immigration restrictions would minimize distortions in local labor markets but could introduce distortions in the global labor market by preventing the rise of new ethnic communities formed by new immigrant groups. To the extent that local immigration restrictions allow a diversity of cultural communities to flourish within local labor markets, however, this regime can allow migration between local labor markets while still ensuring residential segregation, thus maintaining distinctive cultural communities at the local level while minimizing distortions of the global labor market.

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Segregation into nation-states, enforced with immigration restrictions, on the other hand, has allowed much greater wage inequality to persist internationally than could persist in a local labor market. To achieve segregation into cultural communities at the national level, we must segregate people into larger geographic units, which inhibits trade among these communities in the global labor market. That is, we can mandate this more coarse segregation only by distorting the global labor market. Thus, the type of segregation Walzer defends creates much greater inequalities worldwide, much greater inefficiencies in the global labor market, and much greater losses in social welfare than local segregation would require. Walzer (1983: 39) suggests that because “individual choice is most dependent upon local mobility,” a regime of immigration restrictions at the national level, with free mobility limited to the local level, “would seem to be the preferred arrangement in a society like our own.” For the worker excluded by immigration restrictions from valuable employment opportunities in national labor markets, however, local mobility may be worth very little compared to the gains that international migration would produce. Immigration restrictions at the national level might “seem to be the preferred arrangement,” but only from the perspective of a worker who already lives in a wealthy “society like our own” and thus has little to gain from international migration. Culture and language in the private sector Given transportation costs, employment opportunities may influence a worker’s choice of residence, even among local communities. Once we introduce economic opportunities as a consideration in residential choices, can we count on voluntary segregation to maintain distinctive cultural communities? If economic opportunities lead some to migrate into communities with a culture different from the migrants’ native culture, then this migration would undermine the homogeneity of the community that becomes more diverse as a result of immigration. Insofar as residents value this homogeneity, immigration can impose costs on that community. Residents may prefer a monocultural community, for example, because markets may work most efficiently with a culturally homogeneous population. As Edward Lazear (1999: S97) explains: Trade between individuals is facilitated when all traders share a common culture and language. A common culture allows individuals to trade with one another without intermediaries. In the case of language, this is most clear. If two agents speak the same language, they can negotiate a contract without the use of a translator. A common culture allows the traders to have common expectations and customs, which enhances trust.

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Trade may be possible in the absence of a common culture or language, Lazear concedes (1999: S98), but it would entail greater transaction costs. By undermining cohesion, cultural diversity might undermine the efficient working of markets as well as other social and political institutions. “The existence of more than one culture or language imposes a cost on a society,” Lazear (1999: S113) argues, because “[i]n a multicultural society, individuals suffer when they cannot deal with differently cultured individuals.” These transaction costs arise not only in labor markets but also in markets for goods and services. Not only workers and employers but also merchants and consumers may bear costs when market participants are culturally diverse. On the other hand, because a migrant would bear some of these costs, we would expect people to anticipate them and take them into account in deciding where to live. Given transportation costs, people prefer to live near those with whom they expect to trade the most. “Individuals tend to cluster with others from their own culture,” Lazear (1999: S99) claims, “in large part because doing so enhances trade.” In the United States, for example, Lazear (1999: S103) suggests, those “who are not fluent in English are probably more likely to move to areas in which there are many others who speak their own language.” Individuals sort themselves geographically by language, Lazear (1999: S104) notes, “precisely because they cannot interact with others unless they do,” and he finds empirical evidence of this “sorting” in 1990 census data for the United States. Thus, transportation costs and the transaction costs that individuals bear in a multicultural marketplace provide more reasons, in addition to heterogeneous preferences for local public goods, for us to expect free mobility to lead to voluntary segregation into distinctive cultural communities. Even if purely voluntary residential choices would maintain distinctive cultural communities, however, they would not necessarily produce the socially optimal degree of segregation. If economic incentives are great enough, then immigrants will move into a community that does not share their culture. If wages prevailing in one community are higher than those in another, for example, workers may choose to migrate into the community with more lucrative employment opportunities. Migration may allow workers to enjoy greater access to those employment opportunities. Reducing the distance between home and work would reduce commuting costs. The migration of workers would produce gains from trade in the labor market and reduce social costs, including commuting costs. The worker would weigh these benefits as well as the costs of living as a member of a minority in a community in which the majority of the residents share a culture different from the worker’s. Given that the worker will weigh these costs and benefits in deciding whether to migrate, how would we expect the worker’s decision to deviate from the social optimum? What market failure would lead residents to undermine socially optimal segregation through their decentralized individual choices regarding where to live?

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One possibility is the presence of externalities from the migration of workers. If workers impose external costs on other residents when they migrate, then we cannot ensure that their private choices will be socially optimal. We can only infer that the private benefits from migration exceed the private costs. The worker may bear only a portion of the social cost from migration. Insofar as residents gain from living in a monocultural community, and immigrants undermine the homogeneous local culture when they enter the community, this effect may represent a negative externality. On the other hand, Lazear (1999: S113) notes that residents may also gain from living in a more diverse community “if different cultures bring enriched trading opportunities that would be absent in a single-culture society.” For example, as Gianmarco Ottaviano and Giovanni Peri (2005b: 333) observe, “cultural diversity may increase the variety of available goods and services.” Given “a taste for variety,” Ottaviano and Peri (2005a: 39) suggest, this effect “may increase the value of total production” in the local economy. Furthermore, Ottaviano and Peri (2005a: 10) also suggest, “the skills and abilities of foreign-born workers and thinkers may complement those of native workers and thus boost problem solving and efficiency in the workplace.” Indeed, Ottaviano and Peri (2005b: 305) argue, “by bringing together complementary skills, different abilities and alternative approaches to problem solving, diversity may . . . boost creativity, innovation, and ultimately growth.” Thus, Ottaviano and Peri (2005b: 307) claim, “complementarity between workers, in terms of skills, can more than offset the costs of cross-cultural interaction.” In fact, Ottaviano and Peri (2005b: 333) present empirical evidence that the net effect of local cultural diversity is to increase the productivity and wages of native workers in the United States. To the extent that the economic reward for migration internalizes these costs and benefits, the market would provide appropriate incentives to the worker contemplating a move. If the social value of trade is higher in the community receiving an immigrant worker, for example, then this value would imply a higher wage for the worker. Insofar as this wage reflects a higher marginal product of labor, the immigrant would internalize this social benefit of immigration in the form of the wage increase. Similarly, to the extent that cultural barriers reduce opportunities for trade in the labor market or increase the costs of trade, these would also reduce the expected wages and the economic reward for the migrating worker. What external cost does an immigrant worker impose on the community that becomes more diverse as a result of the migration? In the formal model developed by Lazear (1999: S97), market participants encounter one another at random, so that a multicultural community bears an opportunity cost in the form of lost trades when individuals from different cultures encounter one another. Each party bears an opportunity cost in such an encounter, but each bears only a portion of the total social cost. In the real world, however, one can reduce search costs through advertisements and marketing directed

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at those workers or consumers with whom one is most likely to trade. Nevertheless, an influx of those from another culture who speak a foreign language may increase search costs or otherwise reduce the efficiency of markets as they increase the cultural diversity in the community receiving the immigrants. Furthermore, Lazear (1999: S97) defines “trade” so broadly as “to include nonmarket interaction as well.” If we understand the social costs and benefits of cultural diversity to include its impact on “nonmarket” encounters, including social and political interactions, then economic incentives provided through markets would not internalize these costs and benefits. Here, Ottaviano and Peri (2005b: 333) suggest, cultural diversity may generate negative externalities, because “heterogeneous preferences or distaste for different groups may decrease utility or trigger social conflicts.” Ottaviano and Peri (2005b: 331–2) also suggest that “communities with a higher degree of ethnic fragmentation” may be “less willing to pool their resources for public goods provision” because “each ethnic group cares less about the provisions granted to other ethnic groups.” Do these various externalities imply a systematic tendency toward excessive immigration of members of cultural minorities? Do they suggest the need for immigration restrictions in order to preserve distinctive cultural communities, where residents have “some special commitment to one another and some special sense of their common life,” as Walzer (1983: 62) puts it? Externalities If residents enjoy any benefits or bear any costs that are a function of the population of cultural minorities—for example, because these minorities affect the local culture when they enter the community—then we can translate these costs and benefits into residents’ preferences regarding the minority population. Conversely, if residents have preferences regarding this population for any reason, we can model these preferences as either costs or benefits for residents that are a function of this population. Insofar as migrants do not internalize these costs or benefits, these effects represent externalities generated by migration. We can understand the classic model of residential segregation developed by Thomas Schelling (1978: 137–66) as a model of migration externalities. Suppose people are divided into two different types, and individuals have preferences regarding the composition of the population in their local neighborhood and are free to move to neighborhoods that are more attractive in light of these preferences. Suppose these types represent membership in different cultural groups. Do we expect people to hold preferences that will generate migration that undermines socially valuable distinctive communities? Suppose people of each type are averse to being in the minority. That is, people enjoy a benefit from being in the majority and bear a cost as a result of

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being in the minority. For example, if each resident generates a positive externality for other residents of the same type and a negative externality for other residents of the opposite type, then each would prefer to be in the majority. If the benefit of majority status is large enough, members may prefer to move if necessary to ensure this status. Schelling (1978: 141) notes that if members of each group insist on being in the majority in their own local communities, then only complete segregation would be an equilibrium. Thus, a strong preference for being in the majority would hardly undermine the stability of distinctive communities. Suppose instead that each type can tolerate minority status, but groups still place a limit on how small a minority they are willing to be. They may even prefer to live in integrated communities rather than homogeneous communities, but their aversion to minority status dominates once they find themselves in a sufficiently small minority. That is, as a minority shrinks, the costs of minority status eventually exceed the benefits that minority members derive from cultural diversity. As Schelling (1978: 143) observes, if we start from complete segregation, then we will remain there because no one will be willing to move into a neighborhood so overwhelmingly dominated by the other type. That neighborhood might even welcome their entry, because residents there would prefer some integration, but the prospective immigrant would not take this positive externality from immigration into account. Even if some neighborhoods begin with some minority members, those who find themselves in minorities too small to tolerate would move, and if they prefer to move to communities where they are in the majority, then they may increase those majorities and induce the minority there to leave. Here the migration may increase segregation, which would be a negative externality in the presence of preferences for more integration. Schelling (1978: 155–66) extends his model to allow individuals within each population to have varying degrees of toleration for integration in a local neighborhood. If the proportion of residents of the opposite type in this neighborhood exceeds a resident’s “tolerance” limit, Schelling (1978: 155–6) explains, then that resident will choose to move out of the neighborhood to an alternative location. Schelling (1978: 165) develops a dynamic model of segregation and presents examples in which the resulting equilibrium is complete segregation, even if virtually all residents “actually prefer mixed neighborhoods.” Schelling (1978: 164) shows that weak assumptions regarding preferences are sufficient to produce complete segregation as an equilibrium: “Surprisingly, the results generated by this analysis do not depend upon . . . a preference for living separately. They do not even depend on a preference for being in the majority!” Schelling (1978: 165) notes that as long as their preference for integration at some point is “outweighed” by their aversion to their “minority status (or to their inadequate-majority status),” the result is the same. Schelling (1972: 157) uses his model to explain the phenomenon of “tipping,” which occurs “when some recognizable minority group in a neigh-

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borhood reaches a size that motivates the other residents to begin leaving.” The least tolerant members of the majority leave first, moving to a more homogeneous neighborhood, and the vacancies they leave behind are filled with the minority members from the outside who are the most tolerant of living as a minority in that neighborhood. Assuming some pressing demand for housing for this minority group, the result of the departures is an increase in the minority population in the neighborhood, which in turn, causes more members of the majority to leave as they find that the minority population now exceeds their tolerance limits. The immigration of minority members and the emigration of majority members imposes a negative externality on the remaining residents of the majority type, which triggers another wave of migration. In extreme cases, the process continues until what was once the minority type occupies the entire neighborhood. Thus, if it is important to people to live with a significant number of their own type, then there will be a strong tendency toward segregation, and complete segregation will be a stable equilibrium. Indeed, such a segregated equilibrium can result even if almost everyone would prefer to live in more integrated neighborhoods. In these cases, the external effects of migration and free mobility lead to socially excessive segregation, not socially excessive integration. Schelling’s results are not merely theoretical possibilities. He begins by making plausible assumptions about people’s preferences and generates results that seem consistent with observed patterns of residential segregation in the United States. As David Cutler and Edward Glaeser (1997: 827) have observed, “[r]acial segregation is the norm in urban America.” What is striking if you look at our metropolitan areas is not the scarcity of racially homogeneous neighborhoods but the scarcity of neighborhoods that are close to being evenly divided between whites and racial minorities. Indeed, it is widely assumed that the degree of residential segregation that prevails is excessive and that our goal as a society should be to reduce this segregation, not to promote it. What’s wrong with free movement? Walzer is not blind to the possibility of distinctive local communities formed and maintained without local migration restrictions, but he finds that such communities are not permanent enough to satisfy him. Walzer (1983: 39) complains: “Neighborhoods might maintain some cohesive culture for a generation or two on a voluntary basis, but people would move in, people would move out; soon the cohesion would be gone.” For Walzer, it seems important that these communities not only remain distinct but also persist indefinitely in the same geographic space. Thus, Walzer (1983: 39) insists that cultural communities must erect immigration barriers to be “a stable feature of human life.”

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If residents value the stability of their cultural community in a particular geographic location, then why would we expect them to move away, thereby undermining this stability and introducing instability into their own lives? After all, we would generally expect those who are most attached to a particular place to outbid others for the privilege of living there. Incumbent residents would sell their homes only if offered enough to compensate them for the utility they derive from living in that community. If people choose to move, then why not infer that they value greater mobility over greater stability for their cultural community? Walzer (1983: 37) may defend “communal cohesion” as a moral value in “non-utilitarian terms.” Thus, he may attach moral value to “communal cohesion” even if the residents of a community themselves do not attach value to it. Nevertheless, readers concerned with social welfare may ask whether we should share Walzer’s concern. Why not allow people to form communities that disband when residents no longer find it in their interests to live together? Schelling’s “tipping” model may help illustrate how the dynamics of segregation may fail to produce socially optimal results. Minority members may migrate into communities dominated by the majority in order to gain access to valuable employment opportunities or to take advantage of attractive housing. Suppose that instead of preferences for integration, the incumbent residents strongly prefer that their cultural community remain intact in that particular geographic location. Some members of the majority, however, are either so intolerant of the minority or so drawn by economic opportunities elsewhere that they leave despite their preference for a stable community. Their choice may be privately optimal but socially costly, because their departure allows the minority population to rise, which in turn may cause more members of the majority to leave. Each member of the majority may desire that their cultural group remain in the majority, but each may depart when it becomes privately optimal to do so, hoping that other members of their group will stay. The continuation of that cultural community in that location may be a public good for members of the majority, with each emigrating resident hoping that those left behind will provide this public good. Given strong economic incentives to immigrate, minorities may eventually arrive in such numbers as to challenge the majority status of the previously dominant group. An entire cultural group may evacuate, despite a universal preference of its membership that the community remain in place. Perhaps it is this kind of scenario that Walzer envisions when he fears that free mobility will threaten the stability of valuable cultural communities. Even if the incumbent majority retains its majority status, the influx of minorities may be unwelcome. To the extent that incumbent residents find moving to be costly or are otherwise not entirely free to move, the tendency toward segregation that Schelling identifies may not produce complete segregation. If people are attached to their current location, for example, or need

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to stay close to where they work, then they might tolerate living in a community that is more diverse than they would prefer. The fact that they choose to stay does not mean that they are content with the increasing cultural diversity in their neighborhood. They may worry about the effect that the presence of minorities has on the local culture. They may find that this presence imposes significant costs on them. They may be so committed to their current location, however, that they choose to bear these costs rather than leave. “They experience a tension between love of place and the discomforts of a particular place,” Walzer (1983: 38) explains, so they “stay where they are and resent the foreigners in their own land.” Here we see that the objection to free mobility is not that it would fail to segregate residents into distinctive cultural communities, but that it would fail to tie these communities permanently to particular geographic locations, or that it would fail to maintain the desired degree of ethnic purity in all communities. If some communities are not satisfied by the degree of segregation that results from a regime of free mobility of labor, or if they want to preserve their cultural community in its current geographic location, then Walzer (1983: 38) warns that neighborhoods may seek to erect local immigration barriers “to defend their local politics and culture against strangers.” Why not deem local immigration barriers to be an appropriate response when externalities imply that free mobility is not socially optimal? Schelling, after all, only demonstrates that excessive segregation is likely under certain conditions. With a change in the assumptions, excessive integration may be the outcome instead. Why not allow local communities to respond to their specific circumstances as they see fit? Walzer (1983: 39) warns that the result may be “a thousand petty fortresses” instead of “a world without walls.” Although Walzer (1983: 39) concedes that these “fortresses, too, could be torn down,” he complains that “the result would be . . . a world of radically deracinated men and women,” without the stable communal cohesion that he considers so important. He concludes that immigration restrictions at the national level are an appropriate response to these concerns. The alternative of segregation at the local level, however, suggests two problems with this line of reasoning. One problem is a question of economics; the other problem is a moral question. First, to the extent that people can segregate at the local level into distinct communities within commuting distances, they can reside in a cultural community that matches their preferences with minimal interference with their access to employment opportunities. Voluntary segregation at the local level would distort the global labor market less than immigration restrictions at the national level would. If we really believe that it is important to preserve cultural communities in particular places and with specific degrees of ethnic purity, and that voluntary segregation would be inadequate for these purposes, then we could allow local communities to raise barriers to the immigration of cultural minorities. If we actually wanted to satisfy their segregationist

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preferences, we could allow them to use zoning ordinances or restrictive covenants, for example, much like those used by whites to exclude blacks in the recent history of racial segregation in the United States.3 If we are really concerned about the adverse effects of ethnic diversity on support for the funding of public goods, including public schools, then this residential segregation would have the benefit of segregating facilities such as public schools and allowing more homogeneous local communities to fund these public goods separately. Although a regime of de jure segregation would not ensure a diversity of cultural communities within any given labor market, insofar as it at least allows for this possibility, it can minimize distortions in the global labor market by allowing members of different cultural communities to gain from trade with one another in local markets. Immigration restrictions at the national level, however, would prevent the entry of a worker even if a local community would be willing to admit the worker and thus give that worker access to the local labor market. Given the alternative of segregation at the local level, immigration at the national level seems unlikely to undermine the ability of residents to live in a cultural community satisfying their preferences unless we understand those preferences to include preferences regarding the composition of the population of the entire country, not just of their local community. Through national immigration restrictions, residents in local communities can influence the migration of aliens into local communities other than their own. Insofar as local communities have heterogeneous preferences on these matters, however, many residents are likely to find that immigration restrictions imposed by outsiders to their own local community fail to satisfy local preferences, so that national immigration restrictions are likely to prove costly. Furthermore, once we turn to preferences regarding the cultural traits of the population on a national scale, the impact of those traits on one’s personal associational interests seems far more remote and attenuated, especially in a country as large as the United States. Not only do the social costs of immigration restrictions at the national level seem greater than residential segregation at the local level, but the social benefit produced by immigration restrictions at the national level seems much less weighty compared to segregation at the local level. Furthermore, there is no reason to assume that the nation raising an immigration barrier will do what is socially optimal from a global perspective. A nation may well decide that its residents attach enough value to maintaining the cultural status quo to make it worthwhile for that nation to forego the gains from trade that more immigration would yield. The nation’s decision to restrict immigration, however, is unlikely to give equal weight to the interests of outsiders. From the standpoint of global economic efficiency, for example, the question for the United States is whether those who favor our current immigration restrictions attach so much value to these restrictions, despite the option of voluntary segregation at the local level, that they would actually

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be willing to pay enough to compensate everyone in the world harmed by our exclusion of prospective immigrants. Furthermore, even if our policies were to pass this test of economic efficiency, they would not necessarily be optimal from the standpoint of global social welfare, assuming that our welfare objectives also include considerations of distributive justice. As Walzer (1983: 38) observes: “Human beings . . . move about a great deal, but not because they love to move. They are, most of them, inclined to stay where they are unless their life is very difficult there.” Given all the substantial benefits that an individual enjoys by remaining in a community that shares that individual’s culture, no one would choose to immigrate into a community with an alien culture unless there were something quite important to gain. The immigrant seeks a better life, with significantly better social and economic opportunities. Typically, the immigrant flees poverty, having been born into disadvantaged circumstances. Walzer (1983: 47) is prepared to recognize “the claims of necessitous strangers.” Yet Walzer (1983: 48) insists that “there must be some limit” and that communities “will still have a right” to exclude those outsiders seeking access to the same social and economic opportunities enjoyed by incumbent residents. For Walzer (1983: 48), “the claims of distributive justice” do not ensure full equality of opportunity: “Some places in the world will still be more desirable than others . . . Some places will still be uncomfortable for at least some of their inhabitants.” In the face of such inequality, however, why should we satisfy the preferences of those incumbent residents who are more advantaged at the expense of the needs of the less advantaged who seek to immigrate? This question brings us to the moral issue. Why should the preferences of incumbent residents who are intolerant of cultural diversity at the national level take precedence over the preferences of migrants for better employment opportunities? Given the disadvantaged circumstances that many immigrants seek to escape, considerations of distributive justice suggest that if we should favor anyone’s interests, it is the claim of the immigrant seeking equal access to valuable economic opportunities.

Equality of opportunity and liberal ideals To the extent that residential segregation at the local level and equal opportunity do prove to be inconsistent, we normally give equality priority. When it comes to racial segregation at the local level, we condemn segregation for keeping disadvantaged groups in an underclass cut off from valuable social and economic opportunities. We hold equality of opportunity to be more important than the preferences of the privileged for their racially homogeneous communities. Here I relax the assumption that all preferences are equally worthy of satisfaction through public policies and ask whether principles of liberal toleration may place moral constraints on the objectives that a society may pursue through the state and the enforcement of its laws.

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For example, we do not believe that the desire of residents to maintain a white neighborhood justifies the enforcement of zoning ordinances or racially restrictive covenants that exclude blacks. We would not consider such laws or covenants any more acceptable if they excluded aliens or cultural minorities rather than racial minorities from local communities. We normally reject associational preferences as a justification for such discrimination against minorities. If we would reject such exclusionary practices as violations of principles of equality and of liberal toleration, then why should the same impulse to exclude be any more legitimate when the exclusion occurs on a national scale rather than at the local level? Walzer (1983: 39) warns of the “rigidities that would be forced” on “sectional cultures and ethnic communities” by exclusionary practices at the local level, yet seems complacent regarding the “rigidities” that immigration restrictions impose at the national level. Why are these rigidities any more acceptable at the national level? Why should it be less troubling to exclude an alien from an entire country rather than from a single neighborhood? Expanding the geographic scope of the community from which we exclude the alien only broadens the range of opportunities that we thereby deny that alien. When segregation at the national level, enforced by immigration restrictions, keeps disadvantaged groups in conditions of poverty and cuts them off from valuable social and economic opportunities, why should we defend this segregation as necessary to preserve distinctive cultural communities? Immigration restrictions at the national level do not seem truly necessary to maintain distinctive cultural communities. Voluntary segregation at both the local and national level seems likely to ensure that such distinctive communities continue to thrive. Instead, immigration restrictions seem designed to preserve a particular cultural status quo in the countries that are most likely to be the destination of economic migrants seeking employment opportunities. This objective is difficult to justify, at least in liberal states like the United States, which Mark Tushnet (1995: 154) argues, “are constituted by commitments to liberal toleration.” In a society committed to liberal values, preferences for the cultural status quo cannot justify immigration restrictions. As Mark Tushnet (1995: 153) observes, “limitations on entry attempt to preserve the existing distribution of values in a society, in a way inconsistent with a liberal state’s commitment to the possibility of revising its own values as the values of its members change.” Tushnet (1995: 155) concludes that “[t]here is therefore no principled reason to object to the transformation of the polity that will occur when those with different values enter.” Consider, for example, the infamous “national origins” quota system that the United States used to regulate immigration from 1921 to 1965—a quota system heavily biased in favor of immigration from Northern and Western Europe and against immigration from elsewhere. Proponents defended this system as a rational policy designed to maintain the cultural status quo in the

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United States. It was our recognition of the illegitimacy of our preferences for some ethnic groups over others, however, that motivated Congress in 1965 to eliminate this quota system. If cultural concerns could not justify policies so closely tailored to maintaining the ethnic status quo, then how can they be any more acceptable as a reason to restrict immigration generally?4 Walzer (1983: 39) explains his preference for national immigration restrictions rather than segregation at the local level by asserting that “[t]he politics and the culture of a modern democracy probably require the kind of largeness, and also the kind of boundedness, that states provide.” Even if we concede the need for “largeness,” which is certainly not obvious, we may still ask why “a modern democracy” requires “boundedness” in the form of national immigration restrictions. On this question, Walzer (1983: 38) seems to allude to the empirical claim that “perfect mobility makes for authoritarianism” because “authoritarian regimes” are the “sorts of regimes” that “thrive in the absence of communal cohesion.” If the claim is that a democracy requires the cohesion that comes from cultural homogeneity, however, then as Stephen Perry (1995: 113) notes, this suggestion “is, empirically, an implausible claim.” Perry (1995: 113) observes that “there are enough examples of liberal, well-governed, and relatively harmonious multicultural states to make it difficult to maintain that cultural homogeneity is a prerequisite for either political stability or the preservation of liberal/democratic institutions.” Indeed, as Perry (1995: 111) notes, the “entrenchment of a particular culture within the political framework of a state,” if pursued “simply to serve and protect the shared culture,” would itself be “contrary to liberal thought.” Nevertheless, Perry identifies two concerns regarding the cultural effects of immigration that suggest reasons for a liberal state to restrict immigration. Each concern, however, provides only a limited justification for immigration restrictions. First, Perry (1995: 114) concedes, “a liberal state is presumably not bound to take in a large number of persons from groups espousing illiberal or undemocratic principles who might, if admitted on a sufficiently large scale, pose a real risk to the existence or character of a liberal democracy.” This observation, however, fails to justify the restrictions we currently impose on immigration. As Perry (1995: 114) suggests, “it would presumably take a manyfold increase in the levels of immigration to, say, the United States or Canada before such a risk could be regarded as anything more than a theoretical possibility.” Indeed, insofar as those who choose to migrate to liberal democratic states do so because they appreciate the benefits of living in a liberal democracy, these immigrants will not be inclined to change existing institutions in the host country. Immigrants, perhaps more than natives, appreciate the value of these institutions in their host countries, because they can compare these institutions with those that have produced the conditions that they are fleeing in their countries of origin. This self-selection process reduces the threat that

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any given level of immigration may pose to the character of our liberal democracy. Furthermore, immigrants exposed to liberal democratic values in the host country will tend to absorb these values, especially as advances in telecommunication technologies increasingly spread these values around the globe to reach many prospective migrants in countries of emigration before they migrate. Second, Perry (1995: 113–14) concedes, “a certain degree of cultural stability and cohesiveness is necessary to preserve either general social and political stability or the liberal/democratic character of existing political institutions,” and “immigration may be restricted accordingly.” Here, however, Perry (1995: 114) notes that “the core issue” is “the rate of cultural change, not the preservation of an existing culture or cultural mix.” Thus, Perry (1995: 114) argues, a liberal state may impose immigration restrictions “to ensure that cultural change within the state is not too rapid and present social forms are not simply overwhelmed,” but may not otherwise seek to prevent cultural change. This second rationale for immigration restrictions described by Perry (1995: 114–15), based on a “demand for cultural continuity,” seems especially limited once we recognize that “the character and the extent of the restrictions that might be necessary to maintain cultural and social stability” will depend on “a variety of factors, including . . . current cultural makeup” and “the existing degree of cultural heterogeneity.” As immigrants from foreign cultures enter, they will change the “cultural makeup” of the country of immigration by making its society more multicultural. As this society becomes more diverse, more immigrants from those cultures would pose less of a threat to cultural continuity and social stability, eventually allowing still higher levels of immigration. Ultimately, immigration policies may be liberal enough to allow the global labor market to reach an equilibrium in which the free movement of workers would no longer pose a threat to social stability. After all, the prospect of free movement may seem threatening under current circumstances only because we assume that existing immigration restrictions have distorted the global labor market so far from equilibrium that the elimination of these barriers would unleash a flood of migrants. If immigration policies were liberalized enough to allow the global labor market to equilibrate, then there would no longer be any pent-up demand for immigration for us to fear. Thus, the immigration restrictions that can be justified by the need for cultural continuity seem likely to be temporary, in place only to ensure an orderly transition from the status quo to a regime of generally free labor mobility. Both the justification based on social stability and the justification based on the preservation of a liberal democracy, however, may be abused to rationalize excessively restrictive and intolerant immigration policies. Given the ugly role that racism and xenophobia have played in the formulation of immigration policies in the past, we should be reluctant to endorse these cultural concerns as a justification for our immigration restrictions today.

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Our analysis of the cultural effects of immigration, even if conducted in good faith, seems likely to be tainted by a bias against foreigners. It is telling that we ordinarily reject the risk of social strife and instability as a justification for compulsory residential segregation in the domestic context. We refuse to allow intolerant residents to dictate public policies through the threat of social strife; we instead seek to promote liberal toleration. Similarly, in setting immigration policies, as Perry (1995: 115) argues, a liberal state should refuse to accept or to legitimize intolerance as part of “the social status quo” and instead seek “to encourage . . . the development of more tolerant public attitudes.”

Conclusion I have argued that the justifications for immigration restrictions based on cultural effects are more limited than commonly supposed. Immigration restrictions at the national level do not seem truly necessary to maintain distinctive cultural communities. Voluntary segregation at both the local and the national level seems likely to ensure that such distinctive communities continue to thrive while also allowing members of different communities to enjoy gains from trade in the labor market. Instead, national immigration restrictions seem to reflect the preferences of incumbent residents for the cultural status quo in their countries. It seems doubtful that such preferences can justify existing immigration restrictions as policies maximizing global economic welfare, at least in the face of significant inequalities in economic opportunity that give migrants an important interest in access to labor markets in countries of immigration. The preferences of incumbent residents who are intolerant of foreign cultures are especially unlikely to justify existing immigration restrictions in societies like our own that are committed to liberal principles. It is telling that we normally reject intolerant preferences as justifications for public policies mandating residential segregation at the local level. Instead, we choose to give equality of opportunity priority over the preferences of incumbent residents for the status quo in their communities. A liberal society should give equality the same priority when it comes to the question of immigration restrictions. This suggestion does not imply that liberal states must throw open their borders overnight. There may well be other reasons, such as concerns for social stability and for the preservation of liberal democratic institutions, to maintain some immigration restrictions under current circumstances and in the near future. I do mean to suggest, however, that liberal states should seek to liberalize their immigration policies, thereby reducing global inequalities in economic opportunity, and that these states should continue to liberalize their restrictions over time unless further liberalization would pose risks substantial enough to outweigh the interests of migrants in equal access to

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economic and social opportunities. It is incumbent upon liberal states to pursue such reforms if they are to remain faithful to the egalitarian ideals that they espouse.

Notes 1. Earle Hepburn Professor of Law, University of Pennsylvania Law School. Copyright © 2008 by Howard F. Chang. A more extended version of this chapter was previously published as Howard F. Chang, Cultural Communities in a Global Labor Market: Immigration Restrictions as Residential Segregation, 2007 University of Chicago Legal Forum 93. 2. This discussion draws on a previously published treatment of these issues by Chang (1997: 1148–50). 3. As explained in this chapter, it is appropriate that we reject these segregationist policies in the United States as violations of our principles of liberal toleration and equality. I will argue, however, that we should also regard our current immigration restrictions as violations of these same principles. 4. This discussion draws on a previously published treatment of this issue by Chang (1997: 1219).

Bibliography Beitz, Charles R. (1979) Political Theory and International Relations, Princeton, NJ: Princeton University Press. Borjas, George J. (1995) “Ethnicity, Neighborhoods, and Human-Capital Externalities,” American Economic Review 85: 365. Carens, Joseph H. (1987) “Aliens and Citizens: The Case for Open Borders,” Review of Politics 49: 251. Chang, Howard F. (1997) “Liberalized Immigration as Free Trade: Economic Welfare and the Optimal Immigration Policy,” University of Pennsylvania Law Review 147: 1147. Chang, Howard F. (2007) “Cultural Communities in a Global Labor Market: Immigration Restrictions as Residential Segregation,” University of Chicago Legal Forum 93. Cutler, David M. and Edward L. Glaeser. (1997) “Are Ghettos Good or Bad?” Quarterly Journal of Economics 112: 827. Gramlich, Edward M. and Daniel L. Rubinfeld. (1982) “Micro Estimates of Public Spending Demand Functions and Tests of the Tiebout and Median-Voter Hypotheses,” Journal of Political Economy 90: 536. Hamilton, Bob and John Whalley. (1984) “Efficiency and Distributional Implications of Global Restrictions on Labour Mobility,” Journal of Development Economics 14: 61. Lazear, Edward P. (1999) “Culture and Language,” Journal of Political Economy 107: S95. Moses, Jonathon W. and Bjørn Letnes. (2004) “The Economic Costs to International Labor Restrictions: Revisiting the Empirical Discussion,” World Development 32: 1609.

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Ottaviano, Gianmarco I.P. and Giovanni Peri. (2005a) “The Economic Value of Cultural Diversity: Evidence from U.S. Cities,” Journal of Economic Geography 6: 9. Ottaviano, Gianmarco I.P. and Giovanni Peri. (2005b) “Cities and Cultures,” Journal of Urban Economics 58: 304. Passel, Jeffrey S. (2006) The Size and Characteristics of the Unauthorized Migrants Population in the U.S.: Estimates Based on the March 2005 Current Population Survey, Washington, DC: Pew Hispanic Center. Perry, Stephen R. (1995) “Immigration, Justice, and Culture,” in Warren F. Schwartz (ed.) Justice in Immigration 94, Cambridge, UK: Cambridge University Press. Pogge, Thomas W. (1989) Realizing Rawls, Ithaca, NY: Cornell University Press. Rosen, Harvey S. (1992) Public Finance (3rd ed.), Homewood, IL: Irwin. Schelling, Thomas C. (1972) “A Process of Residential Segregation: Neighborhood Tipping,” in Anthony H. Pascal (ed.) Racial Discrimination in Economic Life 157, New Britain, CT: Lexington Books. Schelling, Thomas C. (1978) Micromotives and Macrobehavior, New York: W.W. Norton & Company. Singer, Peter. (2002) One World: The Ethics of Globalization, New Haven, CT: Yale University Press. Sykes, Alan O. (1995) “The Welfare Economics of Immigration Law: A Theoretical Survey with an Analysis of U.S. Policy,” in Warren F. Schwartz (ed.) Justice in Immigration 158, Cambridge, UK: Cambridge University Press. Tamir, Yael. (1993) Liberal Nationalism, Princeton, NJ: Princeton University Press. Tiebout, Charles M. (1956) “The Pure Theory of Local Expenditures,” Journal of Political Economy 64: 416. Tushnet, Mark. (1995) “Immigration Policy in Liberal Political Theory,” in Warren F. Schwartz (ed.) Justice in Immigration 147, Cambridge, UK: Cambridge University Press. Walzer, Michael. (1983) Spheres of Justice: A Defense of Pluralism and Equality, New York: Basic Books. World Bank (2006) Global Economic Prospects 2006: Economic Implications of Remittances and Migration, Washington, DC: International Bank for Reconstruction and Development.

Chapter 6

Economics versus identity Mass and elite attitudes toward trade, migration, and outsourcing * Mariana Medina and Andrew Sobel

Advancing globalization, combined with uncertainty and fears over economic futures, has led to a globalization backlash characterized by escalated political rhetoric and debates surrounding issues of trade, outsourcing, and migration. This backlash as been depicted as primarily driven by economic fears of job loss, underemployment, and declining competitiveness vis-à-vis workers and producers located abroad. Communities, industries, and individuals threatened by competitive producers abroad increasingly rail for trade protections. Those who fear the outsourcing of jobs seek to limit multinationals from moving jobs from one nation to another, or penalize those industries that do. Those worried about the influx of workers from another nation argue for greater restrictions on immigration regardless of labor shortages and needs. Together these amount to an anti-globalization backlash that threatens to undo part, if not all, of the gains produced by globalization. In this chapter we use survey data for both elites and general public for the United States to study individual attitudes toward the economic processes of trade, outsourcing, and migration. We use this data to first determine whether an economic dimension is sufficient to account for elite and mass preferences toward issues of trade, outsourcing, and migration. We find significant differences between mass and elite attitudes with elite responses more closely conforming to an economic dimension, but this dimension fails to fully account for mass or elite attitudes toward these economic processes—a sizable portion of responses fall outside expectations. We then employ attitudes toward these economic processes to help uncover a non-economic dimension. This dimension could be politely labeled an identity dimension, or, more crassly, a xenophobic or even a racist dimension. This second dimension is more important among mass attitudes, perhaps partly accounting for the dilemma of elected officials in a democratic society as they are pushed and pulled between policies that make good long-run economic sense in an increasingly global economy and policies that might enhance their electoral prospects in the short-term. Another possibility for the disconnect between masses and leaders is that the latter have higher levels of education and thus

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understand the economic trade-offs better than the mass public (Hiscox and Hainmueller 2007). In economics, the mechanism of comparative advantage closely links trade, outsourcing and migration. Specifically, in relatively open political economies with significant factor mobility, economic theory treats trade, migration, and outsourcing as policy substitutes, meaning they generate the same effects, good or bad, and can be interchanged either intentionally via policy choice or by market response. If individuals are purely rational economic actors, who make their choices guided solely by an underlying economic dimension, then their attitudes toward the mechanisms of economic globalization should be for all purposes identical, be it trade, outsourcing, or migration. We anticipate little to no variation in attitudes toward these processes if individuals are guided purely by an economic rationale. If individuals feel their economic circumstances are threatened by globalization, then we should anticipate a consistent and coherent negative reaction to the issues of trade, outsourcing, and migration. If individuals feel their economic circumstances are advanced by globalization, then we should anticipate a consistent and coherent positive reaction to the issues of trade, outsourcing, and migration. But, if humans are systematically something more than simply economic actors, then we expect to observe variations in attitudes toward the issues of trade, outsourcing, and migration and should be able to use that variation to help uncover the non-economic dimension or dimensions. We anticipate some variation due simply to error or lack of economic sophistication on the part of individuals to understand the substitutability of trade, outsourcing, and migration. After all, most individuals are not well trained in economics. They do not know the meaning of comparative advantage, factor endowment, Stolper–Samuelson, Ricardo–Viner, Heckscher–Ohlin, or Mundell–Fleming. Yet we do think that even without explicit sophisticated economic knowledge and deep grasp of economic theory, many individuals have implicit and intuitive grasps of their economic context—better or worse—and can rightly or wrongly lump causes for their circumstances into broad categories such as globalization, government, or private business practices. This suggests that even if individuals do not explicitly recognize the substitutability of trade, outsourcing, and migration, their attitudes toward such processes would either reflect an implicit understanding of their substitutability as components of globalization—no variation in attitudes across these processes—or be randomly variable. If we observe non-random, systematic variation in attitudes toward these processes, then we can leverage such variation to help determine if another dimension, aside from the economic, shapes preferences toward trade, outsourcing, and migration, and the nature of that dimension. Attitudes toward migration reflect the largest and most consistent divergence from economic logic. We use this as a starting point to explore the foundations of such systematic variation. We begin with a discussion of the theoretical connections between trade,

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outsourcing, and migration. We first focus upon their ability to serve as substitutes for one another. Then we consider their ability to serve as complements for employment opportunities in a domestic economy in an open global economy. The distinction between substitutes and complements could provide leverage and a plausible micro foundation to understand differences in attitudes toward these processes. Whether they are substitutes or complements for jobs in a domestic economy will not affect the economic logic linking these processes, but will influence whether an economically rational individual is expected to accept or resist these processes. A rational individual, whose preferences are shaped primarily by a self-interested economic dimension, will be either positively or negatively inclined toward these processes depending upon whether she views these as substitutes or complements to her employment. If individuals are negatively affected, these processes threaten to substitute jobs overseas for their jobs at home and force costly adjustments in spirit of Schumpeter’s creative destruction, then we would expect consistent and coherent negative attitudes toward these processes. If these processes positively affect them, these processes complement their jobs at home and lead to greater economic gains, and then we would expect consistent and coherent positive attitudes toward these processes.

Theory Trade, outsourcing, and migration are intricately linked by their economic underpinnings. Despite their economic interconnectedness, political scientists who investigate international relations and globalization have tended to treat these issues as independent and with different intensities. Trade receives the most intense scrutiny by political scientists followed next by outsourcing as reflected in the literature on cross-border investment and the operations of multinational corporations. Yet with a few exceptions (Hiscox and Hainmueller 2007; Leblang, Fitzgerald, and Teets 2007; Scheve and Slaughter 2001; Hanson, Scheve, and Slaughter 2007) political scientists specializing in world politics have relatively neglected immigration. The specific neglect of migration and the more general separation of trade, outsourcing, and migration are surprising given (1) the virulent and robust attention given to migration by pundits and politicians that reflects deep divides in political economies toward the issue of migration, (2) the central role migration plays in globalization as detailed by economists, legal scholars, and historians, and (3) the processes that underpin economic globalization intricately link them. Economists, legal scholars, and historians have paid significant attention to the issue of migration (Borjas 1994, 1995, 2002, and 2003; Chiswick and Hatton 2003; Clark, Hatton, and Williamson 2002; Hamilton and Whalley 1984; Hatton and Williamson 1998, 2002; Martin 1993; Martin and Midgley 2003; Mokyr and Ó Gráda 1982; Ó Gráda and O’Rourke 1997; O’Rourke, Williamson, and Hatton 1994; Smith and

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Edmonston 1997; Taylor and Williamson 1997). Migration, the movement of a particular commodity, labor, from one nation to another, sits at the heart of modern globalization. O’Rourke and Williamson (1999) show that migration did more to link markets and spur wage and commodity price convergence across national boundaries than the flow of goods, services or capital in the 1800s and early 1900s. Using the Heckscher–Ohlin model of international trade, and consequently Stolper–Samuelson (1941), economists suggest that trade and factor mobility such as capital flows via outsourcing or labor flows via migration can serve as economic substitutes for one another.1 Mundell argued that trade and the movement of factors across borders are policy substitutes as “an increase in trade impediments stimulates factor movements and that an increase in restrictions to factor movements stimulates trade” (1957: 321). In a world of relatively high factor mobility, restricting one would lead to an increase in another to garner the efficiencies offered by relatively open political economies. Treating labor and capital as commodities, then migration is trade in labor and outsourcing is trade in capital. This may look different than trade in goods and services, but at their foundations they are similar. Trade in goods and services simply embed labor and capital in the goods and services being exchanged across borders. Using a two country, two commodity, and two factor model, Mundell demonstrated that if country A imposes a prohibitive tariff but allows a relatively free flow of capital, then capital will flow from country A to country B, until the point where country A can produce enough of the two goods for consumption equilibrium without trade, and at the same time make the required interest payment abroad. Since marginal products are equalized, the tariff becomes unnecessary and the capital movement slows or is reversed (Mundell 1957: 325–8). The same argument holds for movement of another factor of production, labor. In a country with scarce labor, if a country puts up a tariff to protect the scarce factor in the absence of immigration, wages will increase. But if labor is mobile and can move across borders, then immigration will limit the tariff-induced wage increase (in other words, the price of labor will be equalized). By the same logic, an immigration policy designed to protect domestic labor will be undone by free trade and/or capital movements abroad seeking lower cost labor inputs-outsourcing. Absent a prohibitive tariff, the relationship and trade-offs across trade, and the mobility of the factors of capital and labor still hold (Rybczynski 1955). All this is consistent with the Heckscher–Ohlin model of international trade (Heckscher 1919; Ohlin 1967), and consequently Stolper–Samuelson (1941) where the economic rationale for trade arises from differences in factor endowments and the relative efficiencies such differences produce. If these processes are relatively perfect substitutes, then we can use Stolper–Samuelson and Mundell to systematically derive expectations about the impact of trade, outsourcing, and migration upon different segments of

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society. Stolper–Samuelson shows that trade liberalization rewards abundant factors and penalizes scarce factors of production. As policy substitutes, we can use Mundell to extend the implications of Stolper–Samuelson for trade to outsourcing and migration. As perfect substitutes for one another, trade, outsourcing, and migration should have similar influence upon employment opportunities in a domestic economy. Abundant factors of production should gain from increased liberalization and globalization, be it trade, migration, or the flow of capital. Where trade produces positive benefits to abundant factors of production in society so should outsourcing and migration. Scarce factors of production should be more wary of such processes of liberalization and globalization. Where trade imposes negative costs in society so should outsourcing and migration. Here, we can take advantage of another type of substitutability to refine our theoretical expectations about individual attitudes. Are these processes substitutes or complements to an individual’s current employment in the domestic economy? The difference between policy substitutes and complements amounts to the difference between a zero-sum trade-off and a positivesum effect. A complement reinforces the gains to an individual’s employment and creates additional pressures for more trade, more factor mobility, and greater specialization and global openness.2 A substitute transfers gains due to specialization and global openness from workers or producers in a domestic economy abroad to workers or producers in another economy, creating dislocations and prompting costly adjustments at least in the short-run even if beneficial in the longer term. Whether the different processes of globalization—trade, migration or capital mobility—act as substitutes or complements for one another should make little difference in terms of the basic fault lines between pro- and anti-globalization perspectives, and who falls into each camp.3 Translating such effects into preferences over policy is relatively simple. Abundant factors of production should prefer trade liberalization and scarce factors of production should resist such liberalization (Rogowski 1989). The same should hold for policy substitutes or complements of trade that produce similar economic effects. As policy complements, abundant factors of production that favor trade should also favor outsourcing and migration as this leads to even more gains from specialization for the more abundant factors. Scarce factors of production that resist trade liberalization should also resist the outsourcing and migration that enhances gains from trade, which penalizes scarce factors of production. If the divide between pro- and anti-globalization forces is grounded in the economic underpinnings of who wins and who loses by increased liberalization and globalization, then we would anticipate that trade, outsourcing, and migration should have similar effects upon the different factors of production in society based on being relative winners or losers under globalization, whether they be policy substitutes or complements.

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We now have a systematic structure for anticipating responses to such issues of openness, can apply this structure to examining elite and mass attitudes through public opinion surveys, and evaluate the consistency of such responses with an economic dimension. We do not focus upon what policies eventually emerge. Stolper–Samuelson and Mundell framework simply points out who gains and loses relatively by expanding or contracting trade, and consequently by expanding or contracting exposure to globalization regardless of the choice of policy instrument. This tells us about the potential structure of divisions in society over policies, but not who is going to win or lose those conflicts.

Hypotheses We confine our hypotheses in this section to those motivated by economic theory and to test whether an economic dimension is sufficient to account for survey responses. In the next section we add another hypothesis related to a non-economic dimension. As trade, outsourcing, and migration are policy substitutes, fundamentally connected on an economic spectrum by globalization, we can use surveys that include questions that apply to each of these processes to assess attitudes and search for consistency in responses across these attitudes. If, as economic theory suggests, trade, outsourcing, and migration represent the same or fairly similar processes in terms of their influence upon individuals’ economic well-being, then we should expect these to be interchangeable in question design and still elicit the same response if individuals view the world primarily through an economic lens.

Hypothesis 1: Given the comparable economic effects of trade, outsourcing and migration, either as substitutes or complements, we expect rational individuals, if they form their preferences based solely on an economic dimension, to be equally supportive or opposed across these processes. Hypothesis 2: Based on the Stolper–Samuelson theorem, we anticipate support to be strongest among those who constitute abundant factors of production and opposition to be strongest among those who constitute scarce factors of production. We expect that abundant factors would be equally supportive—no statistically significant differences—in favor of these policy alternatives and scarce factors to be far less supportive than abundant factors of these alternatives, but without any statistically significant preference for one alternative over another. Hypothesis 3: Stolper–Samuelson suggests that scarce factors of production face the greatest dislocation and greatest risk with increasing

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openness. Not all scarce factors of production work in the tradable sector. For example, public service employees in the United States as labor are scarce factors of production, but the processes of globalization do not directly threaten their employment (substitutes). They may even be rewarded by increasing globalization as the safety net becomes more important and their consumption costs fall (complements). We anticipate a difference in attitudes toward trade, outsourcing, and migration, either as substitutes or complements, among scarce factors of production in the tradable sector and the non-tradable sector.

Potential threats to economic explanation Despite the elegance of economic theory, several problems could limit the ability of individuals to view trade, capital investment across borders in the form of outsourcing, and migration as policy substitutes or complements. First, we will briefly discuss four potential threats that are still consistent with an explanation that emphasizes an underlying economic dimension: complete information, collective action, country specific sticky institutions, and country specific differences in redistribution programs that could induce preferences for a particular type of policy regardless of their substitutability or complementarity. Then, we consider a threat that challenges the dominance of an economic dimension, identity, and generate a hypothesis related to this threat. First, we have implicitly assumed that individuals are well informed and understand the substitutability or complementarity across these policy choices. Well-informed winners from expanding exposure to the global economy should prefer openness in any and all of these policy areas, but how strongly they adhere to such a preference is also a function of the degree of opposition to openness from the losers of such policy choices. Given sufficient opposition by the losers to expanding openness, the winners should be willing to make trade-offs across policies related to trade, migration, and outsourcing since they produce relatively equivalent outcomes. They should be willing to sacrifice openness in one policy area as long as they can obtain openness in another (Hatton and Williamson’s “policy paradox” 2005). Well-informed losers from expanding exposure to the global economy should understand that constraining one form of openness but not the others amounts to undercutting their objective. Well-informed losers should be unwilling to accept a constraint in one area of openness, but not another as this amounts to a “bait and switch” strategy that a well-informed policy consumer should understand. What if policymakers or the members of their societies are ill informed about the substitutability or complementarity across these policy choices? What if members, or some members, of societies are poorly informed about

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whom they are as factors of production (e.g. have a false consciousness)? These information problems could lead individuals and groups to favor policies or trade-offs that are not consistent with their narrowly defined “true” economic self-interest. Second, translating Stolper–Samuelson predictions about who wins and who loses from expanded openness directly into political divisions in the tradition of Rogowski assumes that individuals and groups will be equally motivated by their position as economic winners or losers. They will equally desire to protect their gains or avoid more loses, and equally willing to invest in political action to protect such gains or avoid such losses. This assumes away problems of collective action, the difficulties latent groups face in overcoming barriers to such action, and temptations to free ride on a potentially positive externality. Even if a society’s political fault lines fall along a divide between scarce and abundant factors of production, a potential long-term equilibrium based on a systematic aggregation of economic self-interests, the ability of some latent groups in society to organize and overcome barriers to collective action whereas other latent groups fail to surmount such barriers can obscure such an equilibrium. This problem is compounded if we think group members might weigh particular policy issues differentially and, consequently, be likely to contribute to collective action for some policy objectives and not others despite their being connected by some underlying political divide grounded in economic self-interest. The problem of incomplete information interacts with this dilemma. Even if individuals of these latent groups overcome barriers to collective action, as implicitly assumed by Rogowski, we do not have a good sense about whether winners and losers are equally motivated by a dollar gained versus a dollar lost, or whether individuals might have other wants upon which to expend their gains. Third, the presence of country-specific institutions could affect the substitutability or complementarity of trade, outsourcing, and migration. Treating trade, outsourcing, and migration as relatively perfect substitutes or complements assumes the ability of economic actors to quickly shift forms of production to adapt to changes in economic inputs. Yet country-specific institutions can affect these trade-offs and induce persistent labor or capital market distortions that limit policy substitutability or complementarity. For example, Vandenbussche (2000) finds that if country-specific institutions like trade unions can restrict the employability of immigrants, then the effects of trade and migration in the labor market would be different. Cronyistic capital market practices or informal institutions that act as capital controls could have similar effects. We cannot test for this threat as we examine only one country, hence no variation in country-specific institutions. But by focusing on the United States, which has weak labor institutions and relatively high factor mobility, we try to constrain the influence of such market-distorting institutions.

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Fourth, country-specific differences in the cost of redistribution programs could induce preferences for a particular type of policy regardless of their substitutability or complementarity. Wellisch and Walz (1998: 1597) conclude that rich countries that are scarce in labor will prefer open trade to open migration. In these countries, trade will not change the allocation of unskilled individuals who have the least durable labor contracts and benefit disproportionately from redistributive safety net programs. But migration will increase the proportion of unskilled labor in these political economies, raising the costs of redistribution programs. In these cases, migration is likely to result in higher social welfare expenditures. In a similar vein, Hanson, Scheve, and Slaughter (2007) argue that the fiscal exposure of each state affects attitudes toward immigration and trade. Trade, immigration, and outsourcing may place different demands upon public services and consequently influence the political coalitions that organize. In states that are fiscally more generous, they suggest that taxpayers are likely to be more upset about their taxes going to immigrants. This problem of redistribution assumes that migration is dominated by low-skilled labor, which increases the likelihood, or at least the belief, that immigration acts as a net redistributive drain. It ignores that migrants may have high skills and be fiscally positive. For years the developing political economies have complained of a “brain drain” where the best, most skilled, labor in their countries traveled to the developed political economies for education and then stayed for employment. This trend has been accentuated by policies that filter migration based on skills, the point systems described by Martin in an earlier chapter in this volume. Higher revenues from an expanded tax base that includes high-skilled migrants might offset redistributive costs. Storesletten (2000: 300) notes that “the fiscal implications of immigration to the United States are, potentially, very large, not only because the inflow of immigrants is strong—about 1.1 million per year—but also because immigrants are wider than Americans and have a higher distribution of skills.” He shows that a growth in public revenue from a tax increase of 4.4 percent in the United States could be substituted by admitting 1.6 million immigrants annually (Storesletten, 2000: 302). The prospect of high-skilled migration and fiscal contribution should outweigh redistributive costs, perhaps even favoring migration over trade and outsourcing as governments search for fiscal resources to meet their obligations, which are expanding in advanced industrialized nations with the graying of their populations. This should be especially true among the elite respondents that Hanson, Scheve, and Slaughter (2007) consider if they are well informed about the contributions from migrants, particularly highskilled migrants, to redistribution. On economic grounds, one should expect the gains from such migration to reinforce proclivities toward greater openness among abundant assets of production and also work to constrain opposition to openness among scarce factors of production if increased migration

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offers greater fiscal resources for safety net programs such as unemployment, welfare, food assistance, health care, and worker retraining. Again, we cannot really test for this threat as we examine only one country, hence no variation in country-specific redistribution programs. But by focusing on the United States, which has the weakest safety net programs of the advanced industrial states, we try to constrain the influence of such programs. The potential threats discussed above are still consistent with an explanation that highlights an underlying economic dimension linking attitudes on trade, migration, and outsourcing, but fall short due to some problem of information, organization, or institutional structure that intermediates attitudes toward these issues. But what if individuals view part or all of these processes as non-economic issues? This effectively adds another dimension to the policy space. The potential for a non-economic dimension to influence attitudes constitutes a different type of threat, which generates expectations of systematic variation in attitudes that are consistent with the proposed non-economic dimension. We use survey responses to questions about trade, migration, and outsourcing to search for such systematic variation in attitudes. Regular viewing of CNN, MSNBC, and Fox News or listening to talk radio suggests that a dimension grounded in identity, nationalism, cosmopolitanism, or xenophobia is a worthy second dimension to consider. Vitriolic comments about trade, migration, and outsourcing pepper the airwaves. Much of this commentary connects to an economic dimension as talking heads deplore the loss of American jobs, but a significant portion mobilizes feelings of identity by decrying the changing face of the United States and raising threats about what it means to be an American. If some notion of identity—us versus them—acts as second dimension and independently affects individual attitudes toward the processes of trade, migration, and outsourcing, then we can anticipate that identity will influence attitudes unequally across these issues. Unlike economic theory that treats these processes as identical, substitutes, in terms of their effects, no such underpinnings exist that suggest they are equivalent policy substitutes on a dimension depicted as cosmopolitanism versus parochialism, or in other words, identity. If identity is a prevalent second dimension influencing individual attitudes, then we should be able to rank order trade, migration, and outsourcing in terms of their effect on notions of identity. We think migration causes the greatest strain on notions of identity. Losing jobs to workers and producers abroad via a comparative advantage enabled by trade or by investment that generates outsourcing may influence individuals or community economic well-being, but does not significantly alter who lives in the neighborhood, what one’s neighbors look like, how they worship, the languages one hears in neighborhood supermarkets or on neighborhood playgrounds. Migration can and does. Consequently, we think migration is far more likely to mobilize

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an identity dimension than either trade or outsourcing, and will do so with greater intensity. We are less comfortable with how, or if, trade and outsourcing tap into an underlying dimension of identity. Given the longer debate surrounding trade, one could argue that individuals are more aware of trade than outsourcing and consequently trade is presumably more likely to activate identity than outsourcing, but we are agnostic about a prediction here. This leads to our fourth hypothesis. Hypothesis 4: If the second dimension is grounded in identity, then we expect to observe systematic variation in attitudes toward the issues of trade, migration, and outsourcing with the largest variation in attitudes related to migration.

An urban–rural divide could temper this dimension of identity. Urban areas are likely to have a greater history of exposure to immigration, cultural heterogeneity, and social networks that span diverse communities, as well as a greater diversity of employment opportunities that increase the flexibility of labor and reduce the costs of economic dislocation. Both could influence attitudes toward migration. Ethnic heterogeneity and its contribution to a community’s social capital might make individuals more likely to oppose immigration controls. Putnam defines social capital as social networks and the associated norms of reciprocity and trustworthiness (Putnam 2007: 137). He argues that in the short run a trade-off exists between diversity and community, but in the long run successful immigrant societies create new, crosscutting forms of social solidarity and more encompassing identities. They are more likely to have interacted with different ethnic groups and have created social networks with them through long periods of time, which imply more reciprocity and trust among different ethnic groups, contributing to a more “cosmopolitan” identity. Urban areas also tend to be more economically diverse and robust than rural areas. The emergence of a semi-skilled industrialized manufacturing sector in the nineteenth century influenced the development of U.S. cities. Cities, urban areas, became centers of diverse employment opportunities that took advantage of labor mobility. Workers had greater opportunities to move from job to job and to find new employment when displaced. Labor in such areas is better able to deal with the economic effect of labor flows than in rural areas. Moreover, immigrant laborers made up a significant portion of this urban factory labor force and were important to the evolution and economic success of U.S. urban areas (Kim 2007: 5). During the immigration waves in the United States from 1820 to World War I, firms in counties with a higher share of foreign born were much more likely to be organized as factories and were generally larger. In additions, firms in these counties were more

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likely to pay higher average wages to their workers (Kim 2007: 9). Ottaviano and Peri (2006) find that “cultural diversity”4 has a net positive effect on the productivity of U.S.-born citizens, or in other terms, cosmopolitan communities are more productive. Ceteris paribus, U.S.-born workers living in cities with higher diversity are paid, on average, higher wages and pay higher rents than those living in cities with lower diversity (Ottaviano and Peri 2006: 18). This leads to our fifth hypothesis. Given potential urban/rural differences in exposure to immigration and employment mobility, we expect that individuals who live in urban areas that have had greater experience with immigration to be less likely to favor migration restrictions than individuals living in rural areas. Hypothesis 5: If there is a second dimension grounded in identity, we would expect individuals from urban areas to be less likely to have an anti-migration position, even controlling for their economic situation, because their coexistence with immigrants for a long period of time allows them to adjust to the labor market changes and to create social networks with individuals from different national origins.

Data and domain Comparing public attitudes toward migration, trade, and outsourcing is difficult due to data limitations. Many surveys that study individual attitudes on globalization issues omit immigration and outsourcing. The Chicago Council on Foreign Affairs, however, conducted in 2004 a survey on American Public Opinion on World Affairs, which besides surveying the general population (N = 1195) asks some of the same questions to “opinion leaders,” such as legislators, academics, senior business executives, and labor union leaders (N = 450). For the general public the number of respondents was 1195, with non-response ranging between 55 and 58 by question. For elites, N = 450 with non-response varying between 30 and 58 depending on question. This offers an opportunity to compare elites with the general public. Even with such data, some inferential concerns exist. Wording of questions and how they frame issues can influence responses (Hiscox 2006). See the Appendix for specific questions used in this study and the response frequencies.

Data analysis Our first and second hypotheses are that individuals who support or oppose one of the economic phenomena studied here should support or oppose the others consistently. We created two-way contingency tables with responses to

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the relevant questions as a first, and simple, test of these hypotheses. If individuals understand the economic trade-offs across these policy choices and formed their preferences based on an economic dimension, then we expect to find respondents either in favor of greater liberalization regardless of policy tool or against liberalization regardless of policy tool. If individuals fully understand the substitutability or complementarity of these policies and view them on the same dimension, then we anticipate the vast bulk of responses to fall on the main diagonal based upon their identity as a scarce or abundant factor of production, and the categories on the off-diagonal to be empty or statistically indistinguishable from zero (Table 6.1). We begin by examining mass attitudes. Table 6.2 displays respondents’ views toward trade and immigration. The cells on the main diagonal contain respondents with consistent negative or positive views toward liberalization regardless of policy area. Respondents in the first cell—negative view of trade and immigration—are expected to be owners of a scarce factor of production according to the Heckscher–Ohlin model, whose returns are expected to diminish with liberalization. Respondents in the fourth cell—positive view of trade and immigration—are predicted to be the owners of an abundant factor, whose returns are expected to increase with liberalization. The remaining Table 6.1 Predictions Issue 2 Issue 1

Anti-liberalization Anti-liberalization

Pro-liberalization

Scarce factor/Substitutes

Pro-liberalization

Abundant factor/ Complements

Table 6.2 Immigration and trade Decrease legal immigration

Keep at present level/ Increase

Total

Trade is bad for the U.S. economy

29.41

12.99

42.39

Trade is good for the U.S. economy

28.66

28.94

57.61

Total

58.07

41.93

100%

Sensitivity = 0.690197949 Chi-squared test: 41.5657 P = 1.000

Specificity: 0.506457723

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cells include respondents who are economically “confused” about the tradeoffs, or whose views are influenced by some factor/dimension other than the economic fundamentals. Contrary to expectations, individuals who support trade do not necessarily support immigration. Individuals with consistent views of trade and immigration (either negative or positive) account for less than 60 percent of the survey respondents. Around 58 percent of the respondents think legal immigration should be decreased, but approximately the same percentage of respondents think trade is good for the U.S. economy. The off-diagonal categories contain sizable responses, far more than anticipated according to the Heckscher–Ohlin model. Ranking the combination of responses, we find practically a tie between “trade is bad/decrease legal immigration, trade is good/keep at present level, and trade is good/decrease legal immigration.” A chi-squared test of independence shows a lack of dependence between the answers to the two questions—almost a random distribution. Although this challenges our hypotheses—encouraging us to reject our hypotheses—we should be cautious. The chi-square test does not directly test for the hypothesized form of dependence, where most responses should fall along the main diagonal and few along the off-diagonal. To help address this shortcoming, we estimate sensitivity and specificity of responses to evaluate whether an individual’s view on international trade can predict attitudes toward immigration.5 The conditional probability that a respondent who supports trade also supports immigration is 0.69. If we know that an individual has a negative opinion toward trade, we only have a marginally better than random probability than a coin toss of predicting her position on immigration policy. Apparently contrary to the hypotheses, individual attitudes toward trade fall short of serving as a reliable predictor of their attitudes toward immigration. The story changes somewhat for outsourcing and immigration. The proportion of people with negative views on outsourcing is larger than the proportion of those holding negative views toward either immigration or trade (77.46 to 58.07 to 42.39 respectively). By itself, this difference in proportions signals a problem with respondents’ understanding of the economic substitutability or complementarity of these policies, or perhaps they view these policies on different dimensions despite their substitutability or complementarity in economic terms. We find the greater negative view toward outsourcing interesting given it receives less attention than trade or immigration. Nevertheless, we do find some dependence. Table 6.3 shows some economic consistency among the respondents. The most frequent combination of answers is “outsourcing is bad/decrease legal immigration.” The most common joint response is consistent, but negative toward two processes of globalization. This is somewhat problematic for arguments that assert individual opinions are driven by individual economic circumstance, pocketbooks, as the majority of individuals in society benefit from the processes of economic globalization. A chi-squared test finds significant dependence between

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Table 6.3 Outsourcing and immigration

Outsourcing is bad

Decrease legal immigration

Keep at present level/ Increase

Total

49.35

28.11

77.46

8.72

13.82

22.54

58.07

41.93

100%

Outsourcing is good Total Sensitivity: 0.329596947

Specificity: 0.849836404

Chi-squared test: 42.4885 P = 0.000

answers, but arguably not a dependence based solely upon being a scarce or abundant factor of production as the scarce factor joint category garners the greatest support, which far outweighs the distribution of this factor in the general population. Moreover, more than a third of the joint responses fall in the off-diagonal categories—categories where respondents are economically confused about the trade-offs or whose views are influenced by non-economic factor(s). One off-diagonal cell (outsourcing bad/keep immigration at present level or increase) has twice the number of respondents than the main diagonal category (outsourcing good/keep immigration at present level or increase) where we expected to observe the overwhelming majority of responses based upon abundant factors being the majority of society. The conditional probability of a pro-immigration opinion given a positive attitude toward outsourcing is quite low (0.33). However, a clear dependence appears on negative opinions toward these phenomena with a conditional probability that if someone opposes outsourcing she would prefer lower legal immigration levels being 0.85. Table 6.4 compares views toward trade and outsourcing. Attitudes are statistically dependent, but we observe more than 40 percent of the respondents falling in the off-diagonal categories—categories where respondents are either economically confused about trade-offs or whose views are influenced by some non-economic factor(s). The most frequent combination of responses falls in the cell consistent with those who are scarce factors of production— trade is bad/outsourcing is bad, but this far exceeds the proportion of individuals who are scarce factors of production in society. The next largest cell—trade is good/outsourcing is bad—has almost as large a joint response, which is inconsistent with expectations based on a dominant economic dimension. Having a negative view on outsourcing provides almost no insight on attitudes toward trade. The probability that an individual opposed to outsourcing is also anti-trade is tantamount to a coin toss. The story is different for those favoring outsourcing. The likelihood that an individual in favor of outsourcing is also pro-trade is 0.87.

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Table 6.4 Trade and outsourcing Outsourcing is bad

Outsourcing is good

Total

Trade is bad for the U.S. economy

39.42

2.97

42.39

Trade is good for the U.S. economy

38.03

19.57

57.61

Total

77.46

22.54

100%

Sensitivity: 0.86823425

Specificity: 0.508973531

Chi-squared test: 109.7148 P = 0.0403

The survey includes responses to the same, or similar, set of questions by elites. Their responses differ from those of their broader society. Table 6.5 suggests that elites are generally either far more aware than the general public about the economic trade-offs between trade and immigration, or far more motivated by economic factors. By a very wide margin, the most frequent joint combination of responses is pro-trade and pro-immigration. Approximately 75 percent of the respondents fall in that cell. The cells in the off-diagonal— those with inconsistent economic views toward liberalization—contain only about 22 percent of the total respondents, a far lower degree of inconsistency than we found in the general population. The least frequent combination is a negative view on both. This is expected, and consistent with the hypotheses, given that leaders tend to be high-skilled and mobile assets of production, and consequently less exposed to the dislocations of liberalization. The conditional probability that a respondent from this group of elites who supports migration also supports trade is 0.84. Interestingly, this relationship does not Table 6.5 Trade and immigration for elites Decrease legal immigration

Keep at present level/ Increase

Total

Trade is bad for the U.S. economy

3.5

14.29

17.78

Trade is good for the U.S. economy

7.29

74.93

82.22

10.79

89.21

100%

Total Sensitivity: 0.839928259 Chi-squared test: 6.0863 P = 1.000

Specificity: 0.324374421

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carry over to those having an anti-immigration position, which is a poor predictor of anti-trade attitudes, worse than a coin toss. Results with immigration and outsourcing are similar. Table 6.6 suggests that elites’ responses are consistent with perceiving these policies as substitutes or complements, but the cells in the off-diagonal—those with views toward liberalization inconsistent on an economic dimension—contain a sizable 35 percent of the total respondents. This is comparable to the inconsistency that we saw in the general population. In terms of conditional probabilities, the result is similar to that for immigration and trade: A favorable attitude toward immigration serves as a good predictor of a favorable view toward outsourcing (0.76). Again, an anti-immigration position does worse than a coin toss at predicting anti-outsourcing attitudes. For trade and outsourcing, the situation is similar to the other two cases for elites. Table 6.7 shows the most common combination of responses is a positive view on both—consistent with an underlying economic logic. The second most common, but far smaller, joint category is a positive opinion toward trade and negative on outsourcing—a combination inconsistent with our economic logic. Together, cells in the off-diagonal—those with inconsistent Table 6.6 Immigration and outsourcing for elites Decrease legal immigration

Keep at present level/ Increase

Total

Outsourcing is bad

4.37

28.28

32.65

Outsourcing is good

6.41

60.93

67.35

10.79

89.21

100%

Total Sensitivity: 0.759630969

Specificity: 0.400917431

Chi-squared test: 1.1733 P = 0.000

Table 6.7 Trade and outsourcing for elites Outsourcing is bad

Outsourcing is good

Total

Trade is bad for the U.S. economy

14.87

2.92

17.78

Trade is good for the U.S. economy

17.78

64.43

82.22

Total

32.65

67.35

100%

Sensitivity: 0.956644395 Chi-squared test: 87.5954 P = 0.0017

Specificity: 0.544563553

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economic views toward liberalization—contain only about 21 percent of the total respondents, a far lower degree of inconsistency than found in the general population. Favorable opinions on outsourcing and trade are statistically dependent for elites. If an individual has a positive opinion on outsourcing, we can infer with high levels of confidence (0.96) that she also has a positive opinion on trade. But this falls off dramatically for those who hold outsourcing in disregard. Knowing this provides only slightly better than a coin toss for predicting if a respondent thinks trade is bad. The contingency tables reveal some dependence, but also a lot of inconsistent views in the data given our theoretical set-up concerning substitutability or complementarity of policies. We find some evidence that masses and elites may view trade and outsourcing, and immigration and outsourcing, as policy substitutes or complements. But we find no support in the case of immigration and trade. We cannot conclude that we uncovered solid support for hypotheses 1 and 2. The proportion of respondents falling in the off-diagonal categories is a minimum of a third of the respondents and more often exceeds 40 percent of the sample. This conflicts with an expectation that these cells would be empty or contain a small number. Responses by the general public fail to support the notion that trade, migration, and outsourcing are policy substitutes or complements. Respondents either do not understand the substitutability or complementarity of these policies, or they might understand their substitutability or complementarity, but some non-economic dynamic colors their views. Elite responses appear to reflect a better understanding of the economic trade-offs of these issues. More joint responses are consistent with less falling in the “confused” categories—positive opinion on one, negative on the other. These could be a consequence of higher levels of education that lead to better understanding of the economic effects of globalization, more expertise on political and economic issues, or greater insulation from the negative consequences of liberalization due to skills and mobility. To test hypotheses 3 and 4 we ran binary probit regressions using trade, immigration and outsourcing as dependent variables. We included several covariates, some at the state level, as controls and proxies: education, income, manufacture, urban, proximity to the U.S.–Mexico border, and party identification. These are discussed below and summarized in Table 6.8. We think we avoid the risk of ecological fallacy, as we do not assume every individual from a state reflects the characteristics of the state aggregate. Instead we assume the environment in which individuals live influences their behavior. Ideally, we would prefer to have more questions about employment to differentiate between tradable and non-tradable sectors, but they were not included in this particular survey, so we used the aggregate as a proxy. Level of education and training has been proven relevant for understanding attitudes toward globalization. Hiscox and Hainmueller (2007) find that education is a significant determinant of immigration preferences in the

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European Union. We expect scarce factors of production to be more likely to oppose globalization. In the United States, low-skill and lesser-educated labor is the scarce factor. Consequently, we expect individuals with lower levels of education/skills to be less likely to have a positive opinion toward globalization issues. We use a nine-level ordinal response set included in the survey for a measure for skill level—going from less than elementary school to graduate degree. We expect that the sign of the regression coefficient be positive for each policy issue. This is consistent with a finding by Scheve and Slaughter (2001) where less-skilled U.S. workers are significantly more likely to prefer limiting immigrant inflows. By including income, we are attempting by another measure to take into account Hiscox and Hainmueller’s findings about the effect of education (2007). Household income affords an approximate measure of members of the scarce factor (low-skill labor) that is only partially correlated with education—0.36. We use a categorical response set included in the survey for household income, spanning seven levels. We expect individuals from lowincome households to be more likely to oppose the three policy issues. We expect the sign of the coefficient to be positive. We anticipate that individuals working in the tradable sector will be affected differently than those in the non-tradable sector, although this could vary across policy issues. Those employed in export industries receive an increase in returns due to trade, whereas those employed in import-competing industries can lose in real terms (Hiscox 2002: 8). We can generalize this to globalization in general. Workers in economic endeavors where an immigrant can substitute for their job, or in which their jobs can be outsourced, are probably more likely to have more restrictive preferences toward globalization. Unfortunately, the survey does not ask about the specific industry in which respondents work. Using data from the 2002 Economic Census, we employ share of state GDP due to manufacture as a loose proxy for the tradable sector. Manufacture is not the only sector competing with imports, but because manufacturing tends to rely on low- and semi-skilled labor it is a sector where immigrants are likely to work and where jobs are likely to be outsourced. The earlier contingency tables suggest something other than economics might systematically influence attitudes on globalization issues, what we call a second dimension perhaps related to identity, cosmopolitanism or xenophobia. Low-skill workers in other countries are not visible to Americans, but immigrants might live next door to a respondent and practice other religions, speak other languages, or just look different. At the same time, living next to an immigrant might make an individual more understanding about immigrants and their effects on society, precisely because they have the face of a friend or neighbor to represent the concept. Putnam (2007) suggests that social capital is more limited in communities that are recently confronted with diversity, but higher in societies that have been heterogeneous for a

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longer period of time, as interaction across groups can create new social norms and tolerance. Cosmopolitanism, xenophobia, or identity are difficult to assess. As a loose indicator of this other dimension, we include a measure of urbanization for the state where the respondent lives. This measures the percentage of the state’s population that lives in an urban setting and is derived from the American Community Survey 2006 of the U.S. Census. Kim (2007) found societies that received large flows of immigrants between 1820 and 1920 were more likely to develop industrially and become urban areas. Immigrants congregated disproportionately in cities. Consequently, we expect that those areas have had more time to create social capital, to become more cosmopolitan or integrated culturally. We also think that members of such communities think of themselves as more worldly or engaged by globalization. This in conjunction with the underlying economic similarity across trade, outsourcing, and migration suggests that we extend our positive expectation beyond migration to trade and outsourcing. As controls, we measured how many state lines an individual crosses to get to the U.S.–Mexico border. We assume that states closer to the border are likely to encounter more economic, political, and social tensions related to globalization stemming from a higher inflow of labor, the maquiladoras across the border, and even violence from anti-immigrant groups like the Minutemen. We included respondents’ party identification as a dichotomous variable. Individuals identified either as strongly, weakly, or leaning Republican are given a value of one, zero otherwise. Previous work on trade policy suggests that Republicans are more likely to favor free trade and tolerate outsourcing, but some of the legislative proposals to restrict labor flows have come from the same party. We temper our expectations with this knowledge. Table 6.9 displays the expected signs for each variable. The results are weak, but interesting and are displayed in Table 6.10. Those working in states where a larger share of state GDP derives from manufacturing—our proxy for tradable sectors with significant low- or semi-skilled labor—are less likely to support trade and outsourcing as expected, but the Table 6.8 Statistical summary of variables Variable

Observations

Mean

Std. Dev.

Minimum

Republican Education

1078

0.55

0.49

0

1

1078

4.072

1.717

1

9

Manufacture

1077

0.121

0.59

Urban

1078

78.2037

12.8626

38.2

Border

1078

3.24

2.19

0

9

Income

1078

3.704

1.57

1

7

0.0026

Maximum

0.28 100

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Mariana Medina and Andrew Sobel Table 6.9 Expected signs Immigration

Trade

Outsourcing

Republican

−

+

+

Education

+

+

+

Manufacture

−

−

−

Urban

+

+

+

Border

+

+

+

Income

+

+

+

Table 6.10 Binary probit regression analysis Immigration

Trade

Outsourcing

Republican

−0.0535 (0.0817)

0.1788 (0.0792)*

0.2506 (0.0893)*

Education

0.1358 (0.0266)*

0.1332 (0.0252)*

0.1496 (0.0271)*

Manufacture

0.1066 (0.7584)

−0.2938 (0.7365)

−0.9612 (0.8332)

Urban

0.0059 (0.0035)*

0.0061 (0.0034)

0.0011 (0.0039)

Border

0.0210 (0.0190)

−0.0402 (0.0183)*

−0.0417 (0.0204)*

Income

0.0081 (0.0111)

0.0116 (0.0107)

0.0268 (0.0120)*

−0.6603 (0.3566)*

−0.8697 (0.3468)*

−1.6518 (0.3969)*

Constant Pseudo R2

0.0311

0.0385

0.0587

* P ≤ 0.10

results are not significant. Interestingly and contrary to our initial expectations, the relationship becomes positive with immigration as the dependent variable, but again the results are not significant. No statistically significant difference exists between states with large as opposed to small tradable sectors. Proximity to the U.S.–Mexico border is statistically significant for trade and outsourcing, but the signs are inverted from our expectations. We anticipated the more state lines one crosses to get to the border, the more likely one is to think that the economic effects of these two policies are positive, or less likely to think of the effects as negative, due to lack of exposure. Based upon our expectations, the coefficient for proximity to the border is signed correctly with immigration as the dependent variable, but it is not statistically significant. The results are stranger for trade and outsourcing with an unanticipated negative coefficient and both being statistically significant. Consistent with the results from the contingency tables, this suggests that many individuals

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view trade, outsourcing and migration as quite different despite substitutability or complementarity in economic terms. The results may be confounded with domestic low- and semi-skilled manufacturing that competes with industries abroad via trade and outsourcing, as the preponderance of states with greater share of state GDP due to manufacturing tend to be located farther from the U.S.–Mexico border. Results on party identification are consistent with expectations. Positive and significant coefficients on party identification for trade and outsourcing reflect that Republicans are more likely to favor trade and outsourcing than Democrats, more likely to think that trade and outsourcing are good for the economy of the United States. For immigration the coefficient is signed as expected with Republicans less likely to view immigration as positively as Democrats, but not statistically significant. Our proxy for cosmopolitanism or identity, percentage of state population living in urban areas, is signed as expected across all three dependent variables. Those living in states with larger urban settings are more likely to view trade, outsourcing, and migration positively than individuals in less urban states, but only immigration is statistically significant. This gives some support to hypotheses 4 and 5. There is systematic variation in tolerance for immigration, and other processes of globalization, as one moves from areas with greater to less urbanization, with greater to less acceptance respectively. This may be due to Putnam’s conjecture that areas of greater urbanization have had exposure and time to adjust to diversity, create social bonds and social capital that bridges communities, and develop a more cosmopolitan identity.

Conclusions In this chapter we show that both economics and identity can systematically influence individual attitudes toward processes of globalization such as trade, migration, and outsourcing. Trade, migration, and outsourcing enjoy an underlying logic on an economic dimension, but a second dimension exists that produces non-random, systematic variation toward the processes of globalization, sometimes in conflict with economic logic. This appears most strongly on questions pertaining to migration. We politely label this second dimension identity, but could easily call it xenophobic given how it reveals itself in society through violence, derogatory labels and stereotyping, and discrimination across community boundaries. The relationships we examined were neither as strong, clear, and evident on either the economic or identity dimension as anticipated. Perhaps this is a consequence of complicated psyches where individuals confound these dimensions, or reflects the structure of how we organize two important components of our lives. Much of the virulence in public debate highlights this tension in a conflict between political and economic

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geography. Our economic geography increasingly operates across political boundaries due heavily to the mechanisms of globalization. In economics, trade, migration, and outsourcing can substitute for one another, or complement each other. According to this logic, if you benefit from one of these processes, then you benefit from all, and the same is true if one of these processes imposes costs or dislocations. Political space is organized around the nation-state where conceptions of distinct national identity, us versus them, can play a significant role in affecting attitudes and preferences. Do individuals suffer from a false consciousness that obscures or misinterprets economic processes, are they motivated primarily by identity heavily dominated by the organization of political space, or are individuals sometimes motivated primarily by an economic dimension at some times, primarily by an identity dimension at other times, and at times confounded by both dimensions? In this chapter we demonstrated a difference between mass and elite attitudes toward trade, outsourcing, and migration. The general public has a less clear understanding of the gains from globalization and the substitutability of the movement of labor, goods, and capital across borders, than elites. Mass attitudes reveal a greater globalization backlash and less consistency across these policy substitutes than elite attitudes. Perhaps a function of their education, their employment, or their economic positions in society, elites appear more aware of the substitutability or complementarity of these policy choices and favor globalization to a greater extent than the general public. But elites also tend to have a more cosmopolitan view of the world, a more encompassing or global notion of identity, and are less threatened by those in other countries although at times they do not seem at all reluctant to use such fears for strategic purposes. The separation between mass and elite attitudes creates a difficult tension for politicians to navigate, which is consistent with the differences between the campaign rhetoric that politicians use to gain office and their policy behavior once in office.

Appendix The questions from the 2004 Chicago Council on Foreign Affairs survey on American Public Opinion used in this paper are: 176. Currently there is a debate about outsourcing U.S. jobs, that is, moving jobs to countries where the wages are lower. Which position is closer to yours? 1.

2.

Outsourcing is mostly a good thing because it results in lower prices in the United States, which helps stimulate the economy and create new jobs. Outsourcing is mostly a bad thing because American workers lose their jobs to people in other countries.

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155. Overall, do you think international trade is good or bad for the U.S. economy? 260. Should legal immigration to the United States be kept at its present level, increased or decreased? Very similar questions were put to elites or opinion leaders: 176. Currently there is a debate about outsourcing U.S. jobs, that is, moving jobs to countries where the wages are lower. Which position is closer to yours? 1.

2.

Outsourcing is mostly a good thing because it results in lower prices in the U.S. which helps stimulate the economy and create new jobs. Outsourcing is mostly a bad thing because American workers lose their jobs to people in other countries.

265.1 Overall, do you think the North American Free Trade Agreement, also known as NAFTA, is good or bad for the U.S. economy? 260. Should legal immigration to the United States be kept at its present level, increased or decreased?

Notes * A previous version of this paper was presented at the 2008 Annual Meeting of the American Political Science Association and the 2008 Annual Meeting of the Midwest Political Science Association. The authors would like to thank Kenneth Scheve, Nate Jensen, and Rafaela Dancygier for comments and suggestions on a previous version of the paper. 1. Bennett and Nordstrom (2000) explain foreign policy substitution as the possibility that the leader of some country who is motivated to achieve a certain goal has several policy options that will help the leader attain her goal. If there are several paths to success, they call the policies substitutable. 2. One of the reasons why these policies might complement each other is that the distributive consequences of trade might be offset by the change in the regional output mix caused by labor flows, as would be predicted by the Rybczynski Theorem (Hanson and Slaughter 1999). 3. The degree of gains and loses are likely to vary, but not who gains and loses. This could influence the political economy of policy deliberations and outcomes if the size of gains or losses affects the prospects for political conflict, compromise, or redistributive outcomes. 4. They define it as the diversity on the workers’ countries of birth, rather than ethnicity (Ottaviano and Peri 2006: 10). 5. These measures are commonly used in biomedical studies, where in the columns we have the test diagnostics (Positive or Negative) and in the rows we have whether or not the individual has the disease. Given that the subject has the disease, the conditional probability that the diagnostic test is positive is called the sensitivity; given

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that the subject does not have the disease, the conditional probability that the test is negative is called specificity (Agresti 2002: 38).

Bibliography Agresti, Alan. (2002) Categorical Data Analysis, Second Edition, Hoboken, NJ: Wiley-Interscience. Bennett, Scott D. and Timothy Nordstrom. (2000) “Foreign Policy Substitutability and Internal Economic Problems in Enduring Rivalries,” Journal of Conflict Resolution 44 (1): 33–61. Borjas, George J. (1994) “The Economics of Immigration,” Journal of Economic Literature 32 (4): 1167–1717. Borjas, George J. (1995) “The Economic Benefits from Immigration,” Journal of Economic Perspectives 9: 3–22. Borjas, George J. (2002) “An Evaluation of the Foreign Student Program,” Center for Immigration Studies Backgrounder. Borjas, George J. (2003) “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market,” NBER Working Paper No. 9755. Chiswick, Barry and Timothy J. Hatton. (2003) “International Migration and the Integration of Labor Markets,” in Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson (eds) Globalization in Historical Perspective, Chicago: University of Chicago Press. Clark, Ximena, Timothy J. Hatton, and Jeffrey G. Williamson. (2002) “Where Do U.S. Immigrants Come From, and Why?” NBER Working Paper No. 8998. Hamilton, Bob and John Whalley. (1984) “Efficiency and Distributional Implications of Global Restrictions on Labour Mobility: Calculations and Policy Implications,” Journal of Development Economics 14: 61–75. Hanson, Gordon J. and Matthew J. Slaughter (1999) “The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States,” NBER Working Paper No. 7074. Hanson, Gordon J., Kenneth Scheve, and Matthew Slaughter. (2007) “Public Finance and Individual Preferences Over Globalization Strategies,” Economics and Politics 19 (1): 1–32. Hatton, Timothy J. and Jeffrey G. Williamson. (1998) The Age of Mass Migration: Causes and Economic Impact, Oxford: Oxford University Press. Hatton, Timothy J. and Jeffrey G. Williamson. (2002) “What Fundamentals Drive World Migration?” NBER Working Paper No. 9159. Hatton, Timothy J. and Jeffrey G. Williamson. (2005) “A Dual Policy Paradox: Why have trade and immigration policies always differed in labor-scarce economies?” NBER Working Paper No. 11866. Hecksher, Eli. (1919) “The Effect of Foreign Trade on the Distribution of Income,” Ekonomisk Tidskrift 21 (2): 1–32. Hiscox, Michael J. (2002) International Trade & Political Conflict. Commerce, Coalitions, and Mobility, Princeton: Princeton University Press. Hiscox, Michael J. (2006) “Through a Glass and Darkly: Attitudes Toward International Trade and the Curious Effect of Issue Framing,” International Organization 60: 755–780.

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Hiscox, Michael J. and Jens Hainmueller. (2007) “Educated Preferences: Explaining Attitudes Toward Immigration in Europe,” International Organization 61: 399–442. Kim, Sukoo. (2007) “Immigration, Industrial Revolution and Urban Growth in the United States, 1820–1920: Factor Endowments, Technology and Geography,” NBER Working Paper No. 12900. Leblang, David, Jennifer Fitzgerald, and Jessica Teets. (2007) “Defying the Law of Gravity: Political Economy of International Migration,” University of Colorado. Martin, Philip. (1993) Trade and Migration: NAFTA and Agriculture, Washington: Institute for International Economics. Martin, Philip L. and Elizabeth Midgley. (2003) “Immigration to the United States,” Population Reference Bureau 58(2). Mokyr, Joel and Cormac Ó Gráda. (1982) “Emigration and Poverty in Prefamine Ireland,” Explorations in Economic History 19: 360–384. Mundell, Robert A. (1957) “International Trade and Factor Mobility,” American Economic Review 47(3): 321–335. Ó Gráda, Cormac and Kevin H. O’Rourke. (1997) “Migration as Disaster Relief: Lessons from the Great Irish Famine,” European Review of Economic History 1: 3–25. Ohlin, Bertil. (1967) Interregional and International Trade, Cambridge, MA: Harvard University Press. O’Rourke, Kevin H. and Jeffrey G. Williamson. (1999) Globalization and History: The Evolution of a Nineteenth Century Atlantic Economy, Cambridge, MA: MIT Press. O’Rourke, Kevin H., Jeffrey G. Williamson, and Timothy J. Hatton. (1994) “Mass Migration, Commodity Market Integration and Real Wage Convergence,” in Timothy J. Hatton and Jeffrey G. Williamson (eds) Migration and the International Labour Market, 1850–1939, London: Routledge. Ottaviano, Gianmarco I.P. and Giovanni Peri. (2006) “The Economic Value of Cultural Diversity: Evidence from U.S. Cities,” Journal of Economic Geography 6 (1): 9–44. Putnam, Robert D. (2007) “E Pluribus Unum: Diversity and Community in the Twenty-First Century, The 2006 Johan Skytte Prize Lecture,” Scandinavian Political Studies 30 (2): 137–174. Rogowski, Ronald. (1989) Commerce and Coalitions. Princeton, NJ: Princeton University Press. Rybczynski, T.M. (1955) “Factor Endowment and Relative Commodity Prices,” Economica 88: 336–341. Scheve, Kenneth F. and Matthew J. Slaughter. (2001) “Labor Market Competition and Individual Preferences Over Immigration Policy,” Review of Economics and Statistics 83: 133–145. Smith, James and Barry Edmonston (eds). (1997) The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, Washington: National Research Council. Stolper, Wolfgang S. and Paul Samuelson. (1941) “Protection and Real Wages,” The Review of Economic Studies 9 (1): 58–73. Storesletten, Kjetil. (2000) “Sustaining Fiscal Policy through Immigration,” Journal of Political Economy 108 (April): 300–323. Taylor, Alan M. and Jeffrey G. Williamson. (1997) “Convergence in the Age of Mass Migration,” European Review of Economic History 1: 27–63.

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Vandenbussche, Hylke. (2000) “Trade Policy versus Competition Policy: Substitutes or Complements?” De Economist 148 (December): 625–642. Wellisch, Dietmar and Uwe Walz. (1998) “Why Do Rich Countries Prefer Free Trade Over Free Migration? The Role of the Modern Welfare State,” European Economic Review 42:1595–1612. Williamson, Jeffrey G. (1988) “Migration and Urbanization,” in Hollis Chenery and T.N. Srinivasan (eds) Handbook of Economic Development Vol. I, New York: Elsevier Science Publishers. Williamson, Jeffrey G. (2006) “Poverty Traps, Distance, and Diversity: The Migration Connection,” National Bureau of Economic Research No. 12549.

Chapter 7

Globalization and inequality in Latin America and the Caribbean 1 Evelyne Huber and John Stephens

Latin America is the region of the world with the highest degree of inequality. This inequality has deep historical roots and has shown little improvement with economic growth. Inequality is most commonly measured as income inequality, both because income is an excellent indicator of the capacity to satisfy human needs, and because income can be measured more easily than other dimensions of inequality. However, there are many other important dimensions of inequality, such as inequality in assets (physical and financial as well as human capital) and in access to political power, all of which together have severe implications for inequality in the chances of individuals to fully develop their human capacities. The data available on income distribution indicate that despite the transitions to democracy and the return of economic growth in the 1990s, inequality is somewhat higher now than in the two previous decades (see Table 7.1; see also IDB 1998). Averages, of course, hide significant variation between Latin American countries. In a previous study (Huber et al. 2006) we focused on this variation and demonstrated that politics and policies matter for inequality. Specifically, we found that a strong record of democracy and a left-leaning legislative partisan balance are associated with lower levels of inequality, as is social security and welfare spending under democratic regimes. However, this leaves one with somewhat of a riddle as these political and policy variables increase through time, which should lead to lower, not higher, levels of inequality. The literature on development suggests that globalization is an obvious candidate for an explanation of the rise in inequality. There is no question that, temporally, increasing globalization is associated with increasing and sustained high levels of inequality in Latin America. The question is whether the two trends are causally linked and also, more precisely, whether globalization has caused higher levels of inequality. Our answer is that they are indeed causally linked, but in a complex manner that poses challenges to conventional conceptions of globalization and to linear and additive models of its effects. In brief, our argument is as follows: If we conceptualize and measure globalization as greater integration of national economies into world markets

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through higher levels of openness to trade and capital flows, greater presence of foreign investment, and greater IMF involvement, we find only partial effects on levels of inequality in Latin America, once we control for other variables that have been shown to determine levels of income inequality. Politics and policies make a significant difference, as do ethnic heterogeneity and sector dualism, demonstrating that more open economies do not necessarily produce uniformly high levels of inequality and that there is still room for choice for governments to pursue redistributive policies. However, if we think more broadly about the momentous changes in the Latin American economies triggered by the debt crisis and by subsequent pressures from international financial institutions (IFIs) for structural adjustment, we need to conceptualize globalization as the transition to a new model of insertion into the world economy, from the import substitution industrialization (ISI) model to the neoliberal model. This transition entailed deindustrialization and informalization, as industrial jobs were lost due to import competition, privatization, and loss of a wide variety of state support for industrial enterprises. Accordingly, we need to use indicators such as level of industrial employment and size of the informal sector, which indeed have significant and strong effects.

Development models and inequality The initial integration of Latin America and the Caribbean into the modern industrial world economy at the end of the nineteenth century took the form of raw material exports—agricultural products and minerals—and imports of finished goods. The economic policy model followed liberal principles of minimal state regulation and ownership. Investment in the dynamic economic sectors and in infrastructure supporting these sectors was heavily foreign. The bulk of the population remained in agriculture, where landholding was extremely concentrated. Inequality in landholding and political power is at the center of the deep historical structural roots of inequality, originating in the colonial order. It not only cemented stark income inequality in the rural sector but also greatly contributed to the massive rural–urban migrations in the twentieth century and thus to the swelling of the reserve army of unemployed that depressed

Table 7.1 Inequality by period

End of ISI (1970–1981) Debt crisis (1982–1989) Neoliberal era (1990–2001)

Gini

N

48.2 51.0 52.4

36 48 115

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wages for urban unskilled workers (Morley 2001: 63–65). Inequality in access to education and infrastructure perpetuated and reinforced income inequality in both the rural and the urban sectors. Inequality in assets and income was conditioned by and reinforced by inequality in political influence and thus in political institutions and policies, which in turn perpetuated the vicious cycle of inequality. As in all societies, including those outside of Latin America, such as Italy, Spain, and Prussia, where large landholders dependent on a large, cheap labor force played an important role in the national economy, they were determined and effective enemies of democracy (Moore 1966; Rueschemeyer, Stephens, and Stephens 1992). Restrictive labor legislation combined with the comparatively small size of the urban industrial sector hampered the formation of broad-based unions with sufficient independence to challenge existing institutions and acquire economic and political clout. Weakness of democracy obstructed the formation of strong political parties in general, and combined with weakness of labor it hampered the development of parties to the left of center in particular and thus of forces capable of building the redistributive capacity of the state and shaping a model of political economy that would produce growth with equity. Accordingly, inequality remained extremely high. Beginning in the 1930s, Latin American countries led by Brazil, Mexico, and Chile embarked upon a new economic model, the ISI model. The state assumed a crucial role as promoter of industrialization through preferential tariffs, credit, exchange and tax rates, state contracts, and other subsidies. The state also took on the role of owner and manager of enterprises in strategic sectors. Argentina followed this path under Perón in the 1940s, and other countries later, such that by the 1960s ISI was the dominant economic model. In the vast majority of countries, weakness of democracy, unions, and left-leaning political parties persisted. This meant that the main driving forces of redistributive welfare policy remained weak, and therefore state action did little to mitigate inequality. However, there were exceptions, such as Argentina with strong unions, and Uruguay and Costa Rica with strong records of democracy and parties committed to redistributive state action and investment in human capital. Inequality in these countries became lower than in the rest, where the benefits from growth remained concentrated in the urban formal sector that was unable to absorb the bulk of the labor force. The ISI model began to exhaust itself in the 1950s essentially because of chronic balance of payments problems and recurring balance of payments crises, caused by the inability of raw material exports to pay for the rapidly increasing import needs in intermediate and capital goods and for the payments to foreign capital. The easy availability of recycled petro-dollars in the 1970s kept the model alive but also led to the debt crisis of 1982 and thereafter. The debt crisis gave unprecedented leverage to the International Monetary Fund and the World Bank, whose agenda was to prevent default

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and promote the free flow of goods and capital in the world economy by pressing Latin American countries for economic austerity and structural adjustment. Structural adjustment meant dismantling the ISI model by lowering tariffs and removing other import restrictions, along with capital controls and many other regulations, and privatizing state companies, the complex of policies amounting to a general retreat of the state in favor of market allocation of resources and captured by the shorthand description of neoliberalism. The debt crisis and ensuing need for austerity greatly constrained state capacity to counteract rising levels of poverty caused by the recession, even in those countries where the political balance of forces would have been favorable toward such action. Accordingly, poverty and inequality increased during the 1980s. In the 1990s, capital flows to Latin America and economic growth resumed, and poverty could be reduced slightly in most countries (and dramatically in some countries, such as Chile), but inequality continued to rise or persist at high levels. Among the causes for this state of affairs is the fact that the transition from ISI to the neoliberal model caused deindustrialization, and the shrinking of the public sector further contributed to a decline of formal sector employment. This put downward pressure on wages for low-skilled workers. At the other end of the educational scale, returns to higher education increased (IDB 1998: 5). The transition to the neoliberal model also increased economic concentration and thus further concentration of capital income. Many countries also introduced market principles into social policy. Moreover, established social policy schemes, which had only reached a majority of the population in the countries with the strongest ISI thrust to begin with, further lost effectiveness. The comparatively small proportion of formal sector employment meant that social security schemes modeled after those in advanced industrial countries had very different effects, covering a much smaller proportion of the population and thus being regressive instead of progressive (Lindert et al. 2005). It took massive political efforts to expand non-contributory conditional cash transfers to make a major difference in poverty levels and to begin to reduce inequality. In some countries, such as Brazil and Chile, these efforts were successful under left-wing governments in the first decade of the twenty-first century. However, toward the end of this decade, rising food and fuel prices are threatening these gains. None of the Latin American countries have managed to impose an effective system of taxation that could capture income and property taxes from the top group and use them to finance transfers and investment in human capital at the bottom, along with job creation programs. Arguably, globalization has made tax evasion and avoidance for these groups easier and thus has hampered political efforts to reduce inequality.

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Literature and hypotheses Our main focus is on the impact of the various measures of globalization on income inequality. We treat the variables from our 2006 American Sociological Review article on politics and inequality (Huber et al. 2006) as control variables (see Table 7.2).

Globalization Capital Market Openness: Free movement of capital should attract more capital to developing countries, thus increasing the demand for labor and lowering the cost of capital, both of which should reduce inequality—unless, of course, capital is substituted for labor. Morley (2001) found a progressive effect of capital account opening in Latin America. However, higher openness of capital markets has also been associated with higher volatility, and in downturns those with more assets can protect themselves better, which should increase inequality. Because it gives capital an exit option that labor does not have, capital mobility also increases the power of capital over labor, both in wage bargaining and in the political arena. Thus, we adopt a non-directional hypothesis. Trade Openness: Openness of the economy to trade theoretically should favor the abundant factor of production—unskilled labor—in developing countries. However, since more open economies in Latin America have also been exposed to competition from countries with even lower labor costs, such as China, this effect may be neutralized. Moreover, in more open economies in the information age there is a premium on higher education, such that the returns to higher education may rise and inequality increase. Accordingly, we adopt a non-directional hypothesis. Foreign Direct Investment: Previous studies have found that stock of foreign direct investment has a positive effect on inequality (Bornschier and Chase-Dunn 1985; Evans and Timberlake 1980). Tsai (1995) found that this effect is region-specific and that foreign direct investment has no significant distributional effect for Latin American countries. Reuveny and Li (2003) found that inflows of foreign direct investment have a positive effect on inequality in a worldwide sample of countries. We found that stock of foreign direct investment had a consistent positive effect on inequality in our models with politics and policy (Huber et al. 2006). We expect that stock and flows of foreign direct investment will continue to show a positive effect on inequality in Latin America and the Caribbean because foreign investment usually brings capital-intensive production that creates comparatively few but well paying jobs. IMF Conditionality: IMF-prescribed austerity programs depress real wages, raise interest rates, and cut public expenditures, particularly on subsidies for popular consumption items and public services such as health and education.

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All of these measures hit lower income groups particularly hard and thus can be expected to increase inequality. Over the long run, the cuts in expenditures on health and education result in lower human capital at the bottom, a further factor accounting for inequality. Relationships between the IMF and debtor countries are mostly tense, and agreements on austerity programs are frequently broken. Therefore, we measure the number of years during which countries have been under IMF programs, and we expect more years of IMF presence to result in higher levels of inequality. Transition from ISI to liberal market capitalism Industrial Employment: Industrial jobs in Latin America on average have paid higher wages than jobs in agriculture or services. In addition to higher productivity, this is also a result of the fact that industry, along with mining, has traditionally been the sector with the highest levels of unionization. The higher the proportion of the labor force employed in industry, the greater was the share of wage income. Thus, we expect higher levels of industrial employment to be associated with lower levels of inequality. Informal Sector: The informal sector in Latin America is very heterogeneous, but low productivity activities dominate. Accordingly, workers employed in small enterprises in the informal sector earn less than workers in the formal sector, even controlling for experience and years of schooling. The same is true for self-employed workers, the vast majority of whom are in the informal sector. Moreover, the difference between male and female earnings is larger among workers in the informal than in the formal sector and among the self-employed than among formal sector workers (IDB 1998: 40). Thus, we expect a larger informal sector to be associated with greater overall income inequality. Market Liberalization: The transformation of ISI into liberal market economies in Latin America has been driven by policy changes in markets for goods and capital and in tax structures, as well as by privatization of state enterprises. We discussed the expected effects of trade and capital market liberalization above. The essence of tax reform was to lower marginal tax rates on income and corporate tax rates, and rely more on indirect taxes, which are generally regressive. Privatization tended to produce windfall gains for private investors and rationalization and job losses for employees, thus increasing inequality. On balance, then, we would expect the whole package of market liberalizing reforms to have regressive effects, and higher levels of market liberalization to be associated with higher levels of inequality. Controls Democracy: We have shown in our earlier study (Huber et al. 2006) that length of a country’s democratic experience is associated with lower inequality.

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There are strong theoretical arguments to explain this association (Rueschemeyer, Stephens, and Stephens 1992: 10). Democracy gives the powerless and underprivileged the chance to organize and use organization as a power base to gain entry into the political decision-making process. The most effective channels for underprivileged groups into the political decisionmaking process are political parties, as the poor lack the connections and funds to influence decision-makers directly. However, it takes time for parties to gain coherence and establish roots in social bases, as well as for legislatures to pass major pieces of legislation and for that legislation to be implemented. In particular, it takes time for parties representing the interests of less privileged groups to consolidate and gain representation in competition with parties representing privileged groups and enjoying a financial advantage. Therefore, we look at the whole democratic record in the second half of the twentieth century. Repressive Authoritarianism: We also examined the impact of different kinds of authoritarianism. Not all alternatives to democracy are equal. Indeed some non-democracies, such as the Peruvian military regime under Velasco in 1968–75, introduced redistributive reforms and allowed few human rights violations. Under the Velasco regime, popular organizations flourished. Others, such as the bureaucratic-authoritarian regimes in Argentina and Chile, redistributed income upwards and killed, tortured, and incarcerated thousands of their citizens, particularly targeting leaders of the left, organized labor, and other social movements. In the former case, forces promoting redistribution emerged strengthened from the regime, while in the latter case they emerged greatly weakened. We, therefore, expected extended rule by repressive authoritarian regimes to increase inequality. Yet, we expected this effect to begin to fade after the replacement of the repressive regime with a democratic one. In other words, we expected that the effect of 10 years of repressive authoritarian rule in the 1960s on inequality in the 1990s would be weaker than the effect of 10 years of repressive authoritarian rule in the 1980s. Partisanship: In democratic settings, the prime carriers of political worldviews and corresponding policy orientations are political parties, and therefore we would expect the partisan balance of power in the legislature and the partisan affiliation of the executive to shape a variety of policies that affect inequality over the medium and long run. Parties classified as left of center are those that have favored redistributive policies, whereas right of center parties have favored growth without regard to its distributive consequences. Accordingly, we would expect to see some impact of differences in the strength of left of center parties and in frequency of incumbency of left of center executives relative to that of right of center parties and executives on income distribution. Centrist parties in Latin America and the Caribbean are those that base their appeals not primarily on a socio-economic agenda but rather on non-contested values such as commitment to the rule of law,

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honest government, and competent leadership. Accordingly, we would not expect any effects on inequality from legislative strength of centrist parties and frequent incumbency of centrist executives. Right of center parties, in contrast, are those that have generally based their appeals on growth, prosperity, and order and have protected the interests of business and of upper income earners, so we would expect long-term legislative strength of right of center parties and frequent incumbency of right-leaning executives to increase inequality. Social Security and Welfare Spending: The prime policy instruments for shaping the distribution of income are taxes and social expenditures. In Latin America and the Caribbean, the distributive impact of social spending is mixed and tends to be different for different kinds of expenditures. Social security spending, particularly the largest share that goes to pensions, is generally regressive (de Ferranti et al. 2004; Lindert et al. 2005). Social security schemes are typically tied to the formal sector and thus exclude the sizable informal sector. Moreover, social security benefits are very unequally distributed among those covered because they are earnings-related and because of the existence of different schemes for different groups, with particular privileges for some, such as the military, police, upper-level civil servants, judges, etc. Social security and welfare spending is generally reported in one category by the IMF; where disaggregated figures are available, they show that over 80 percent of the expenditures in this category go to social security. Thus, higher social security and welfare spending should increase inequality. Health and Education Spending: Spending on health and education is an investment in human capital, and there is a considerable lag between the moment of expenditure and returns (in the form of decreased inequality levels). The distributive effect of health and education expenditure depends on its allocation. For example, spending on primary education is more redistributive than spending on university education. We do not have breakdowns for these different allocations available, but evidence from case studies cited by de Ferranti et al. (2004: 263–5) and from analyses by the IDB (1998: 190–7) and by Lindert et al. (2005) indicates that the bulk of education spending is progressive and health spending is slightly progressive or neutral. We found no effect of health and education spending in our earlier study and do not expect to find one here. Social Security and Welfare Spending in a Democratic Context: In a pooled time series analysis of income inequality in a worldwide sample, Lee (2005) showed that the impact of government spending on inequality is dependent on regime type. In authoritarian regimes, greater government spending is associated with greater inequality. In democracies, greater government spending is associated with less inequality. This is a very plausible hypothesis for social spending in Latin America, where the main alternative to democracy has been right-wing authoritarianism, not communism. Indeed, we did find such an effect in our earlier study and we expect to find it here again.

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Education: The spread of education in the population, or the improvement of human capital, is regarded as a positive factor, not only for the promotion of economic development, but also for the reduction of inequality. In some sense, we can see average years of education in the population as an indicator of successful education policy, that is, education spending that keeps more students in school for longer. In Huber et al. (2006), we found a strong negative effect of average years of education on poverty in Latin America. Thus, we expect higher levels of average education in the population to have a depressing effect on inequality in Latin America and the Caribbean as well. Economic Development: Theories linking economic development and inequality have been profoundly shaped by Kuznets’s (1955) inverted U conjecture. Most of the Latin American and Caribbean countries are at medium levels of development; several of them are near the peak of the curve and a few have passed the peak (IDB 1998: 89). Thus, for the whole sample we would expect the relationship between economic development and inequality to be mildly negative, which is what we found in our earlier study. Sector Dualism: Much statistical research has been devoted to establishing and explaining the U-curve relationship between economic development and inequality (e.g. Bollen and Jackman 1985; Crenshaw 1992; Muller 1985, 1988, 1989; Nielsen 1994; Nielsen and Alderson 1995; Simpson 1990). Alderson and Nielsen (1999) emphasize the role of labor force shifts and sectoral dualism, along with the demographic transition and the spread of education. Sectoral dualism refers to the coexistence of a low productivity traditional sector and a high productivity modern sector, and it is expected to contribute positively to overall inequality in a society (Alderson and Nielsen 1999: 610). Employment in Agriculture: Alderson and Nielsen (1999: 610), based on Kuznets (1955), hypothesize that the shift of the labor force out of the agricultural sector is associated with increasing inequality, because the degree of inequality within the agricultural sector is assumed to be lower. However, the assumption of lower inequality within the agricultural sector for Latin America is questionable. Indeed, a comparison of Gini indices based on urban and rural surveys contained in the full UNU-WIDER (2007) database (described in the Data section) shows that inequality in the rural samples in Latin America is generally higher than at the national level. Therefore, we would expect the opposite in our set of countries; the larger the proportion of the labor force in agriculture, the higher the degree of inequality. Inflation: Morley (2001: 72) argues that during periods of high inflation labor markets adjust only with a lag, which leads to a decrease in real wages, and this decrease is particularly steep for the minimum wage. Thus, high inflation drives up inequality. The IDB (1998: 100–2) and World Bank studies (de Ferranti et al. 2004: 11, 231–9) agree that macroeconomic shocks, which are typically accompanied by high inflation, have a detrimental impact on inequality.

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Demography: Previous studies have shown a strong association between population growth and the size of the young population, and a positive impact of population growth on inequality (Bollen and Jackman 1985; Simpson 1990). Alderson and Nielsen (1999) explain this impact with the oversupply of young unskilled workers that further depresses lower incomes and increases wage differentials. We, therefore, expect a percentage of the population under 15 years of age to push up the level of inequality. Ethnic Composition: Scholars agree that indigenous people and people of African descent have generally lower incomes and lower educational attainment. On the other hand, studies have shown that national inequality is mostly explained by inequality within racial, ethnic, and gender groups and not by the differences between demographic groups (de Ferranti et al. 2004: 85–96). Nevertheless, we include ethnic diversity among our control variables and expect a positive relationship to inequality, which is what we found in our earlier study.

Data 2 Our dependent variable is the Gini index of income inequality from the United Nations’ University World Income Inequality Database, WIID, version 2b (UNU-WIDER 2007) and SEDLAC (2007), a Latin American partner of WIID. WIID/SEDLAC were compiled using several national sources and represent a major improvement in quality over the previously most frequently used data of Deininger and Squire (1996a, b), which they subsume. Each observation in WIID/SECLAC is coded for its quality, area of coverage, income sharing unit, unit of analysis, and the use of a household size equivalence scale. We deleted observations with the lowest quality rating and those with expenditure or consumption as the income concept, as well as those without coverage of the entire population.3 In case of multiple observations for the same year we kept observations which (a) have the individual as the unit of analysis and (b) use an equivalence scale adjusted for household size. If there were still multiple observations, we took the average of the Gini values for the year in question. We used indicator variables to control for three remaining hypothesized sources of variation due to survey methodology: no adjustment for household size, earnings as an income concept, use of gross (vs. net) income, and absence of information on the use of gross vs. net income. In preliminary analyses we found that absence of information on the use of gross vs. net income did not have a significant impact on inequality, so we dropped it from the analyses.4 The measure of democratic history is derived from Rueschemeyer, Stephens, and Stephens (1992). Yearly democracy scores were coded: colony = zero, authoritarian regime = one, bureaucratic authoritarian regime = two, restricted democracy = three, and full democracy = four. These categories were collapsed into non-democracy = zero, restricted democracy = .5, and

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Table 7.2 Variable descriptions, data sources, and hypothesized effects for the analyses of income inequality Variable

Description

Dependent Variables Gini Coefficient

The Gini coefficient.a

Hypothesis

Independent Variables Methodological Controls No Adjustment Indicator

Coded 1 for Gini observations that are calculated based on household income not adjusted for household size.a

−

Gross Income Indicator

Coded 1 for Gini observations that are calculated using gross income or monetary gross income.a

+

Earnings Indicator

Coded 1 for Gini observations that are calculated using earnings.a

−

Debt Crisis Period Indicator

Coded 1 for all observations falling in 1982–1989.b

+

1990s Period Indicator

Coded 1 for all observations falling in 1990–2000.b

−/+

Controls Repressive Authoritarianism

Regime type: repressive authoritarian regimes = 1 and all other = 0, score is cumulated for the 15 years preceding the year of observation.b

+

Executive Partisanship

Left-right partisan position of the executive. See text for calculation. The variable is cumulated for the 15 years preceding the year of observation.b

−

Democracy

Regime type: non democracy = 0, restricted democracy = .5, and full democracy = 1, score cumulative from 1945 to date of observation.b,i

−

GDP Per Capita

Gross domestic product per capita in 1000s of constant purchasing power parity dollars.c,d

−

Sector Dualism

The absolute difference between the percent of the labor force in agriculture and agriculture as a share of GDP.c,e,f,g

+

Employment in Agriculture

Employment in agriculture as a percent of total employment.c,e,f,g

+

Inflation

Annual percentage change in consumer prices.k

+

Youth Population

+ Population aged 0 to 14 as a percentage of total population.c (Continued Overleaf )

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Table 7.2 Continued Variable

Description

Hypothesis

Ethnic Diversity

Dummy variable coded 1 when at least 20 percent, but not more than 80 percent of the population is ethnically diverse.l

Health and Education (cumulative average)

Cumulative average of government spending on health and education as a percent of GDP.j

Social Security and Welfare

Government spending on social security and welfare as a percent of GDP.j

+

Democracy and Social Security and Welfare Spending Interaction Term

Democracy (centered) *Social Security and Welfare

−

Average Years of Education

Average years of total education for the population aged 25 and older.c

−

Globalization Stock of FDI

+

−/+

Stock of FDI in as a percent of GDP.h

+

Index of capital market openness.m

−/+

Trade Openness

Exports plus imports as a percent of GDP

−/+

IMF

Cumulative years of IMF programs since 1970

+

Inflows of FDI

Inflows of FDI as a percent of GDP.c

+

Percentage of workers classified as informal of non-agricultural labor force.c

+

Percentage of the labor force in industry.c

−

Capital Market Openness

Production Regime Informal Employment Industrial Employment Market Liberalization (Morley)

n

General economic liberalization index.

+

Sources: a. United Nations University World Income Inequality Database, Volume 2.0a (June 2005); b. author codings; c. World Bank World Development Indicators CD (2007); d. Penn World Table Version 6.1; e. International Labor Organization’s Online Labor Statistics (http://laborsta.ilo.org); f. ECLAC’s Statistical yearbook on Latin America and the Caribbean (various years); g. Alderson and Nielson (1999); h. UNCTAD Handbook of Statistics, CD version (2002) and United Nations Centre on Transnational Corporations (1985); i. Rueschemeyer et al. (1992); j. Huber et al. (2008); k. IMF’s International Financial Statistics CD and Blyde and Fernandez-Arlas (2004); l. Coding based on data presented in de Ferranti et al. (2004); m. Chinn and Ito (2008); n. Morley et al. (1999), Lora (2001).

full democracy = one. To measure democratic history we cumulate the yearly scores beginning in 1945. Legislative partisan balance is derived from Coppedge (1997), who consulted country experts to classify political parties in 11 countries of Latin America into two primary dimensions and several residual categories. The left-right dimension reflects a political party’s ideology and class appeal, and relative prioritization of growth and redistribution. His experts classified

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parties along this dimension into five categories: left, center-left, center, center-right, and right. For example, parties of the right presented themselves as, or appealed to, heirs of traditional elites, fascists or neofascists, or the military, with a conservative message. Experts classified parties as center-right that “targeted middle- or lower-class voters in addition to elite voters, by stressing cooperation with the private sector, public order, clean government, morality, or the priority of growth over distribution.” They classified parties as centrist that “stressed classic political liberalism, the rule of law, human rights, or democracy, without a salient social or economic agenda.” Also included in this category are “governing parties whose policies are so divided between positions both to the left and to the right of center that no orientation that is mostly consistent between elections is discernible.” Experts classified as center-left parties that “stress justice, equality, social mobility, or the complementarity of distribution and accumulation in a way intended not to alienate middle- or upper-class voters.” Finally, they classified as left parties that “employ Marxist ideology or rhetoric and stress the priority of distribution over accumulation and/or the exploitation of the working class by capitalists and imperialists and advocate a strong role for the state to correct social and economic injustices” (see Coppedge 1997 for more details).5 We adopted Coppedge’s (1997) classification of parties for the countryyears that fall within our sample, with the exception of the Peronists in Argentina,6 and used his classification scheme to expand the coverage to the full range of countries and years in our data set, but using primary and reference materials instead of expert surveys. On parties for which there was a disagreement, we did seek external expert advice, and finally the entire research team convened to make a decision. After classifying each party, we summed the proportion of the seats in the lower house or constituent assembly held by each category of parties for each country-year, resulting in five annual series (left, center-left, center, center-right, and right) for each country. During years that are non-democratic, as defined by our democracy variable, all categories are scored as zero. We then calculated legislative partisan balance of power (or simply legislative partisan balance) by weighting the seat share in a given year of each category of parties by −1 for right, −0.5 for center-right, 0 for center, 0.5 for center-left, and 1 for left parties, and cumulating seat shares from 1945 to the year of observation, following Cusack and Fuchs (2002), who call the measure ideological center of gravity. For the executive, we developed a parallel measure with identical weights for the five right-left categories. Since the executive is a single office occupied by a single representative of one ideological tendency, we call this variable executive partisanship. We coded repressive authoritarian regime as a separate category, coded one for every year where the country had a repressive authoritarian regime and zero for every year without such a regime, based on the extent of human rights violations committed or tolerated by the authoritarian government.

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Yearly scores were cumulated over the 15 years prior to the year of observation.7 Our sources were country studies. Measures of social spending as a percentage of GDP are derived from several sources. The series for social security and welfare spending comes from the IMF Government Finance Statistics Yearbook and the International Financial Statistics Yearbook (see also Kaufman and Segura-Ubiergo 2001). Both spending and GDP are reported in current local currency units. The fact that these figures include only outlays by the central government is not a problem for social security and welfare expenditures, as these programs in general are uniform across the nation and centrally financed. This is confirmed by the fact that the data series from the IMF and our other sources (see below) are very highly correlated (.92 to .96). The bulk of spending in this combined category goes to social security. The IMF sources report the two types of expenditures separately for 179 country-years only; in these observations, social security accounts for 83 percent of the spending. For health and education expenditures, however, the exclusion of state and local spending is a major problem. To deal with this problem, we compared data series from four different sources: ECLAC (http://www.eclac.cl/ badeinso/SistemasDisponibles.asp), Cominetti (1996), ECLAC’s Social Panorama (various years), and the IMF sources cited above. Huber et al. (2008: 6) provides a detailed account of the procedure used to construct the health and education expenditure variable, which is available at our website. As noted, successful investment in human capital requires a sustained effort in the form of expenditure on health and education. In addition, improvements of the human capital base only have an impact on income inequality over the medium and longer run. Therefore, we measure health and education spending as the cumulative average from the first data point to the year of observation. To test Lee’s (2005) hypothesis that the effect of social spending depends on the political regime, we created an interaction term between the social security and welfare spending variable and the democratic record variable. To reduce colinearity between interaction and main terms we centered the democracy variable. Our indicator of the effectiveness of educational policy (average years of education) is compiled from the Barro and Lee (2000) dataset and provides the average years of total schooling for the adult population aged 25 and older. Where values were missing, we interpolated and extrapolated observations. Reasonably good data on ethnic divisions in Latin America are only available as cross sectional data for circa 2000 on the percentage of the population that is indigenous and the percentage of the population that is of African descent (de Ferranti et al. 2004: 78). We reasoned that there would be a threshold effect, so we created a dichotomous variable in which total population of indigenous and African descent of less than 20 percent or over 80 percent (as in the case of some of the English-speaking Caribbean

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countries) were coded as non-diverse and between 20 percent and 80 percent were coded as diverse.8 Gross Domestic Product in 1996 purchasing power parity dollars is taken from the Penn World Tables supplemented by the World Bank’s (2007) World Development Indicators. Employment in agriculture as a percent of total employment is compiled from four sources (ILO 2003, ECLAC various years, World Bank 2007, and Alderson and Nielsen 1999). Some of the 1970s observations for employment in agriculture are estimated by interpolation. World Bank (2007) is also the source for our measures of employment in industry and inflation. Twenty-six data points for industrial employment are interpolated. Sector dualism measures the absolute difference between employment in agriculture as a percent of total employment and agriculture as a percent of GDP (also from World Bank 2007). The measure of inward investment stock is taken from two sources, UNCTAD’s (2002) Handbook of Statistics and from the United Nations Centre on Transnational Corporations (1985). The source for our measure of trade openness, exports plus imports as a percentage of GDP is the World Bank (2007). Our measure of capital market openness is taken from a new dataset developed by Chinn and Ito (2008). Like the Quinn measure, it is drawn from information in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions and it is highly correlated to the Quinn measure for the country years in the Quinn dataset (r = .92). To measure IMF influence, we develop several alternative measures. The first is a simple dichotomy to tap whether or not a country has repurchase obligations to the IMF in a given year. Our second, and primary, measure is a cumulative version of the dichotomy from 1970 to the year of the observation. A third measure is repurchasing obligations to the IMF as a percent of GDP. World Bank (2007) is the source for our measure of employment in industry. The data on informal sector employment are compiled from several ILO publications. The observations are primarily taken from the Panorama Laboral and include all non-agricultural informal workers. Where values were missing for these variables, we interpolated and extrapolated observations. Our measure of market liberalizing reforms is taken from datasets on Latin America by Morley, Machado, and Pettinato (1999) and Lora (2001). The Morley data build on an earlier version of the Lora data. Both contain overall measures of market liberalization, Morley for 1970–1995 and Lora for 1985–1999, as well as a number of sub indices measuring reforms in particular areas. The measures reflect government legislation, such as tariffs or tax rates, rather than outcomes of policies, such as trade flows or budget deficits. The Morley data contain indices of liberalization of trade, finance, and capital account, along with tax reform and privatization. The overall index is an average of these five sub indices. Our measure is based on the Morley data for 1970–1995. To estimate the Morley measure for 1996–1999, we regressed the Morley index on the Lora index and used

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the regression equation to estimate the Morley measure for 1996–1999 with the Lora data.

Analytic techniques We use an unbalanced panel dataset with 199 observations from 21 Latin American and Caribbean countries: Argentina, Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. The inequality data were available for varying numbers of time points for the countries. The data span the period 1970 to 2000. A central problem in estimating regression models from panel data is that the assumption of independence of errors across observations is unlikely to be satisfied. As a result, OLS produces incorrect standard errors for the regression coefficients (Greene 1993). One approach to deal with correlated errors in panel data assumes serially correlated errors within each unit (country) obeying a unit specific autoregressive process (which may optionally be constrained to be the same across units). This approach requires what Stimson (1985) calls temporally dominated time-series of cross-sections, i.e., data structures consisting of relatively few units observed over many equally spaced time points (Beck and Katz 1995: 635–47; Beck 2001). Since the average number of time points (nine) is much smaller than the number of units (21), and our observations are not equally spaced, our dataset precludes this approach. We adopt an alternative estimation strategy, combining OLS estimation of the regression coefficients, which provides consistent estimates of the regression coefficients, with the use of a robust-cluster estimator of the standard errors. The standard (i.e., non-cluster) Huber–White or “sandwich” robust estimator of the variance matrix of parameter estimates provides correct standard errors in the presence of any pattern of heteroskedasticity (i.e., unequal variances of the error terms) but not in the presence of correlated errors (i.e., non-zero off-diagonal elements in the covariance matrix of the errors) (Long and Ervin 2000). The robust-cluster variance estimator is a variant of the Huber–White robust estimator that remains valid (i.e., provides correct coverage) in the presence of any pattern of correlations among errors within units, including serial correlation and correlation due to unitspecific components (Sribney 1998; StataCorp 1999: 256–260). Thus, the robust-cluster standard errors are unaffected by the presence of unmeasured stable country-specific factors causing correlation among errors of observations for the same country, or for that matter any other form of within-unit error correlation. The robust-cluster estimator of the standard errors is only impervious to correlations of errors within clusters. It requires errors to be uncorrelated

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between clusters. The latter assumption might be violated if unmeasured factors affect the dependent variable in all units at the same point in time. Global economic fluctuations, such as the debt crisis period in Latin America in the 1980s, could produce such contemporaneous effects. To evaluate the potential impact of such unmeasured period specific factors we estimated the models with indicator variables for the debt crisis (1982–89) and for the 1990s (1990–2000), the period of recovery; the baseline category corresponds to 1968–82. Table 7.1 shows that inequality increased over these three periods, and thus we expect positive effects from the debt crisis and the recovery variables. In order to check for robustness, we also estimated the models with OLS panel corrected standard errors and GLS random effects estimation. All of the significant coefficients in the robust-cluster estimations were also significant in the panel corrected standard error estimations and random effects estimations. The robust-cluster estimates proved to be more conservative. The partisan legislative balance and executive partisanship are highly correlated, so we entered these variables separately in our preliminary analyses. Since legislative balance was not significant in any of our models, we do not present it in the analysis in this chapter in order to keep the number of tables manageable. Employment in agriculture and youth percent of the population created multicollinearity problems. Since they were not significant, they were dropped from the analysis. We have missing data for all of our variables measuring the shift in economic models, even after interpolating observations for industrial employment and informal employment and estimating data for 1996–99 for market liberalization. The number of missing observations for industrial employment, informal employment, and market liberalization are 24, 14, and 62 respectively. When entered in the same analysis we lose 73 cases, 37 percent of our total cases. Thus, we enter these three variables in separate models to avoid substantial reductions in the sample size. The means of the dependent variable and selected independent variables are displayed in Table 7.3.

Results Table 7.4 displays the results of our analysis. Model 1 represents the variables (other than inward stock of FDI) in our previous analysis of the determinants of inequality in Latin America (Huber et al. 2006). Model 2 adds the five globalization variables. Models 3–5 add the three variables tapping the shift in economic models one at a time to the model 2 baseline. As expected, model 1 shows that social security and welfare spending, sector dualism, and ethnic heterogeneity are positively related to inequality, and average years of education, executive partisanship, and the democracy/social security spending interaction term are negatively related to inequality. If the interaction term is dropped from the model (or any of the models in the table), democracy becomes highly significant and social security and welfare spending drops

54.6 54.6 59.2 56.2 52.7 52.2 47.8

58.7

48.8 51.4 54.0 54.2 56.3 56.0

52.6

Mexico Bolivia Brazil Colombia Peru Paraguay Venezuela

Barbados Jamaica Trinidad & Tobago

Dominican Republic El Salvador Guatemala Honduras Nicaragua Panama

Mean

17.9

16.4 6.4 11.0 8.8 4.5 11.2

33.7

.8 15.7 18.0 19.8 14.2 3.0 33.5

21.5 19.1 39.6 44.5

Years of Democracy cumulative

4.9 4.0 3.0 3.8 3.8 7.7 5.5

−1.6 −9.4 −6.0 2.7 2.5 −1.0 −1.0

6.3 5.1 4.2 4.6 6.9 5.7 5.3

−.8 .3 .9 −2.0 .7 −6.0 3.5 5.0

8.1 7.5 6.9 5.8

−2.8 .0 −2.3 2.1

.9

Average Years of Education

Executive Partisanship

4.2

.7 .6 .9 .4 4.5 5.1

.5

3.2 4.1 10.2 2.1 2.2 2.2 2.4

7.3 6.9 17.6 3.8

Social Security & Welfare Expenditure

11.4

4.7 14.2 14.2 16.7 9.3 12.6

14.4

18.1 20.1 16.9 4.6 24.0 10.0 6.8

.6 7.7 .0 9.5

Sector Dualism

.499

.367 .498 .499 .628

.400

.565 .525 .522 .517 .433 .471 .437

.534 .528 .522 .539

Market Liberalization 1970s

.781

.716

.787 .795

.741

.805 .805 .756 .736 .800 .806 .581

.871 .812 .882 .825

Market Liberalization 1990s

Note that these are means for the years of observation we have in the 1990s. The one exception is market liberalization for the 1970s, which are the means for all years in that decade. No data means we have no observations for the 1990s.

47.0 54.5 42.8 46.0

Argentina Chile Uruguay Costa Rica

Gini Coefficient

Table 7.3 Means of selected independent variables for the 1990s

41.932

Constant

***

* **

*** *** ** ** ***

** *** ** *** **

.74 195

41.416

2.247 3.588 −3.112 −2.754 2.563 .513 .000 .231 4.150 .483 .850 −1.427 −.058 .019 −.272 −.032 −.002 −.007 .036 .034 .303

Model 2

***

*

* **

***

** *** *

* *** ** ** ** ^

.76 184

37.067

1.641 1.595 −2.845 −2.905 2.701 .868 .000 .188 4.920 .501 .778 −1.424 −.112 −.035 −.222 −.026 .029 −.195 .058 −.024 .344 .099

Model 3

***

* *

*

* **

***

** *** ***

** ** *** ^

***p≤.001, **p≤.01, *p≤.05, ^p≤.05 significant but sign of coefficient opposite of directional hypothesis.

.72 199

2.305 4.580 −2.881 −3.372 2.467 .297 .000 .229 4.094 .386 1.226 −1.161 −.058 .058 −.267 −.029

Debt crisis Recovery No Adjustment Earning Gross income GDP per capita Inflation Sector Dualism Ethnic Heterogeneity Social Security and Welfare Health and Education Average Years of Education Democracy Repressive Authoritarianism Executive Partisanship Democracy*Social Security Welfare Stock of FDI Capital market openness Trade openness IMF Inflows of FDI Informal employment Industrial employment Market liberalization

R2 N

Model 1

Independent Variables

Table 7.4 OLS estimates of determinants of income inequality with robust-cluster standard errors

.75 175

50.093

−.347

1.692 2.475 −2.657 −2.089 2.507 .812 .001 .186 3.444 .424 .511 −1.486 −.038 .043 −.284 −.033 .022 −.048 .048 .089 .312

Model 4

***

*

*

**

***

** ** *

* * ** * ** ^

.75 178

35.237

4.831

2.401 2.587 −2.506 −3.541 2.768 .949 .001 .208 6.054 .422 .906 −1.393 −.107 −.016 −.150 −.028 −.061 −.059 .086 −.023 .488

Model 5

***

*

***

**

***

** *** **

* ** *** ^

*

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to insignificance. This indicates the contingent nature of the effect of social security spending; high spending is associated with high inequality in authoritarian contexts but with low inequality in democratic contexts. The effect of democracy is also contingent; it results in larger decreases in inequality if it is coupled with high spending. An examination of Table 7.3 suggests that this finding might be a result of two outliers, Uruguay and Costa Rica, which are very high on democracy and social security spending and low on inequality. However, when these two countries are dropped from the analysis, the interaction term remains negative and highly significant, which indicates that these two countries are not driving the result. In model 1, education and health spending is positively related to inequality and statistically significant, but the finding is not robust as it is not significant in the other models in the table. The other results are more robust. Model 2 adds the five globalization variables to model 1. Inflow of FDI is the only one of the five that is significant in model 2. However, trade openness becomes significant in models 3–5, essentially because of the loss of the 11 or more cases without observations for the variables added in. Moreover, the period indicators show that most differences between the time periods shown in Table 7.1 remain when the globalization variables are added to the analysis in model 2. If the other two IMF measures are substituted for the cumulative measure, the IMF variable remains insignificant. Model 3 adds informal employment to model 2. It is positive and significant, and the period dummies are now not significant, which indicates that the increasing informal sector employment is part of the reason for increasing inequality through time. Model 4 adds industrial employment. It is significant and the coefficients for the period indicators are reduced in size as compared to model 2, though they are still statistically significant. Thus, the decline in industrial employment may be another reason for the increase in inequality. Model 5 adds the market liberalization measure to model 2. It falls just short of significance (p = .07). However, the indicator for the recovery period loses significance, which indicates that market liberalization is in part responsible for the higher inequality in the 1990s. The trade liberalization component of the overall liberalization index is significant when it replaces the overall index in model 5 (not shown). If all three production regime variables in Table 7.4 are added to model 2 (not shown), the debt crisis coefficient falls to 1.439 and the recovery coefficient falls to .587 which indicates that together the production regime variables account for most of the period differences. Given the dependence of significance tests on sample size, they do little to tell one about the size of the effects of different variables. Given the different metrics of the independent variables, the effects of unit changes in the variables are not good indicators of the relative effects. The most convenient way to compare the effects of independent variables is to compare the effect of a two standard deviation increase in the independent variable on the value (increase or decrease) of dependent variable, as we do in Table 7.5. We also

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Table 7.5 Impact of selected independent variables

Average Years of Education Sector Dualism Democracy*Social Security Welfare Executive Partisanship Inflows of FDI Trade openness Industrial employment Informal employment Market liberalization Trade liberalization

Impact on Gini*

Correlation with time

−4.1 3.5 −4.7 −1.8 1.5 1.9 −3.2 2.1 1.3 2.4

.34 −.17 .27 −.27 .50 .27 −.24 .69 .62 .66

* Effect of a two standard deviation change in the independent variable on the dependent variable

include the correlation of the independent variable with time to elucidate the probable effect of a given independent variable on the time trends in the Gini.9 One can see that average years of education, sector dualism, and the democracy/social security interaction term have very large effects on the Gini. However, they are correlated with time, if only modestly, in a direction which predicts less inequality through time, which is why the period dummies in model 1 show no difference from the overall period averages in the Gini in Table 7.1. Executive partisanship has a moderate effect on the Gini and the time trend in these data does predict more inequality through time, but this is an artifact of the particular data points in the sample and not a long-term trend in Latin America and the Caribbean, a point which we will return to in the conclusion. Inflows of FDI are moderately strongly related to inequality and trends moderately strongly with time, so part of the trend toward greater inequality is probably due to the increase in FDI inflows. The remaining variables, those measuring production regime change, are yet stronger candidates for explaining the increase in inequality as they either are highly correlated with time and have a moderate impact on inequality or moderately correlated with time and have a high impact on inequality.

Conclusion Our central finding, then, is that inequality in Latin America and the Caribbean has risen through time since the 1970s, and that this rise is a result of the transformations of the Latin American economies from ISI to liberal market economies. Inequality increased during the debt crisis of the 1980s and kept increasing during the recovery of the 1990s, when economic growth resumed and foreign direct investment started flowing into Latin America at a rapid rate. Indeed, we found higher levels of inflow of FDI to be related to inequality, as are the higher levels of trade openness that characterized Latin

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America and the Caribbean in the 1990s. In contrast, we found three conventional indicators of globalization—capital market openness, stock of FDI, and presence of the IMF—to have insignificant effects on inequality. Taken together, these findings suggest that there is no mechanistic, linear, and additive relationship between conventional indicators of globalization and inequality. The higher levels of exports and imports are a symptom of the momentous underlying transformation of the Latin American economies from highly protected economies with heavy state intervention to open economies with a predominant role of market forces. This transformation destroyed industrial jobs through import competition and thereby caused a shrinking of the formal sector. The shrinking of the formal sector was aggravated by lay-offs in privatized public enterprises. Both deindustrialization and informalization increased inequality because they destroyed jobs with relatively decent pay for workers with low skills. At the other end of the income spectrum, privatization and rationalization increased returns to capital and to higher education (Morley 2001). Inflows of direct foreign investment at a rate much higher than in the 1970s fueled this process by providing technology and thus creating comparatively few but well paying jobs in the formal sector. One might argue that the transformation of the Latin American economies itself is simply a consequence of globalization, that is, of the inexorable expansion of capitalism around the globe. This view is only partially correct, in so far as the ISI model had exhausted itself before globalization took a quantum leap in the 1980s, and insofar as political decisions played a major role. Persistent balance of payments problems had plagued the ISI economies since the 1950s, and the model was kept alive in the 1970s through easy borrowing on world capital markets flush with petrodollars. The debt crisis of the 1980s made the further pursuit of the model impossible, because the model was driven by the state and the state was in a fiscal crisis. At that point, political decisions became crucial, the political decisions about what to liberalize, how far and how fast. These decisions, of course, were not taken autonomously by Latin American governments but rather under heavy pressures from the International Financial Institutions for liberalization. To the extent that governments took the decision to liberalize fast and fully, they contributed to the advance of globalization and they inflicted costs on their own countries. It is worth noting here that it is not at all clear that the decisions to liberalize were always optimal. Particularly where the process of liberalization was radical (fast and far-reaching), the costs in terms of growth, poverty, and inequality were high (Huber and Solt 2004). Comparisons with the East Asian development model suggest that radical state retrenchment in favor of free markets was not the only alternative to ISI. The point is that globalization is in large part a political creation rather than a process driven exclusively by the logic of capitalism, and that expanding world markets leave room for choice for governments as to how they want to

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insert their economies into these markets. The room for political action becomes even stronger when it comes to domestic policies to deal with the distributive effects of integration into world markets. In fact, our analysis shows that the combined effects of the political and policy variables are quite large, which holds some hope that the trend toward inequality in Latin America and the Caribbean could be reversed in the future under the proper political conditions. Our findings indicate that if countries remain democratic, if the left is in government for extended periods and governments increase social spending and raise educational levels, inequality could decline substantially. Moreover, the transition from ISI to a liberal market economy is an accomplished fact, and while it is not correct to say that the economies of the region now conform to the neo-liberal ideal, it is almost certainly true that the bulk of the transformation is in the past and the future will not see such momentous changes. In addition, it is not clear that further neoliberal reforms would make most of the Latin American economies more competitive in export markets. On the contrary, the “new Washington consensus” is that inequality is bad for growth, democracy, and absolute poverty, and that investments in human capital at the bottom are necessary not simply to reduce poverty but also to reach an optimal growth model and to protect and deepen democracy (de Ferranti et al. 2004). Thus, the factors that we have shown to have increased inequality over the three decade period from 1970 to 2000 need not do so in the future. Even further increases in FDI inflows, which increase inequality because they accrue to formal sector workers, might have offsetting effects by increasing formal sector employment in industry and well paid services. For most Latin American countries, the destruction of the old ISI protected jobs is a largely completed process. If higher education becomes more widespread in these societies, the high skill premiums and thus one of the factors driving inequality will decline also.

Notes 1. We would like to acknowledge the support of National Science Foundation Grant # SES-0241389 for collection of the data and the Hanse Institute for Advanced Study in Delmenhorst, Germany, for support and a stimulating environment to work on this study. 2. A more detailed explanation of measurement of the control variables can be found in our codebook at the following website: http://www.unc.edu/~jdsteph/index.html. 3. Following Londoño and Székely (1997), we used urban data for Uruguay since (1) it was the only data available; (2) Uruguay is heavily urban; and (3) for the few years in which rural data for Uruguay are available, there are small differences between the Ginis for the urban and rural samples. 4. As household size in Latin America and the Caribbean varies inversely with income, we expected no adjustment for household size to result in lower inequality. By contrast, we did not expect use of gross (vs. net) income to greatly affect the inequality measure in Latin America and the Caribbean, where direct taxes represent a small percentage of GDP (contra Deininger and Squire 1996a). Even in

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the OECD countries, direct taxes do not affect much redistribution (Mahler and Jesuit 2005). Likewise we did not expect the absence of information about gross vs. net income to make much difference. 5. The second primary dimension in Coppedge’s (1997) classification is the religious one, with two categories: Christian and secular. Since we found that the religious dimension made no difference for our dependent variable, we combined the Christian and secular categories, resulting in five categories on the left-right dimension. The three residual categories (personalist, other, and unknown) were coded but not used in constructing the party balance score. 6. Which he classifies as “other” and we classify as a center-left party in the early decades, a centrist party in the 1970s and 1980s, and a center-right party in the 1990s under Menem. Since we only have one observation for Argentina, in 1972 (all later surveys are for urban areas only), our coding of the Peronists from the 1970s onward does not affect our results. 7. For the three political variables we developed, and experimented with, measures cumulated over four periods: 1945 to year of observations, and the 15, 10, and 5 years preceding the year of observation. We selected the measure used in the final analyses for theoretical reasons (democratic history expected to have longer term effect) as well as empirical ones (better performance in regression models). 8. Analyses conducted support the threshold hypothesis: the dichotomous indicator was significant while percent indigenous and percent African descent (entered individually or together) and total percent indigenous or African were not significant. 9. The ethnic diversity variable is not in Table 7.5 because it does not vary through time and because the interpretation of the strength of its coefficients in Table 7.4 is transparent since it is a dichotomy.

Bibliography Alderson, Arthur and François Nielsen. (1999) “Income Inequality, Development, and Dependence: A Reconsideration,” American Sociological Review 64: 606–631. Alderson, Arthur and François Nielsen. (2002) “Globalization and the Great U-Turn: Income Inequality Trends in 16 OECD Countries,” American Journal of Sociology 107: 1244–1299. Barro, Robert J. and Jong-Wha Lee. (2000) “International Data on Educational Attainment: Updates and Implications,” CID Working Paper no. 42. Available online at http://www.cid.harvard.edu/ciddata/ciddata.html. Beck, Nathaniel. (2001) “Time-Series Cross-Section Data: What Have We Learned in the Past Few Years?” Annual Review of Political Science 4: 271–293. Beck, Nathaniel and Jonathan N. Katz. (1995) “What to do (and Not to Do) with Time-Series-Cross-Section Data in Comparative Politics,” American Political Science Review 89(3): 634–647. Bollen, Kenneth A. and Robert W. Jackman. (1985) “Political Democracy and the Size Distribution of Income,” American Sociological Review 58: 283–301. Bornschier, Volker and Christopher Chase-Dunn. (1985) Transnational Corporations and Underdevelopment, New York: Praeger. Bradley, David, Evelyne Huber, Stephanie Moller, François Nielsen, and John Stephens. (2003) “Distribution and Redistribution in Post-industrial Democracies,” World Politics 55(2): 193–228. Bradley, David, Evelyne Huber, Stephanie Moller, François Nielsen, John D.

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Stephens. (2003) “Determination of Relative Poverty in Advanced Capitalist Democracies,” American Sociological Review 68: 22–51. Chinn, Menzie and Hiro Ito. (2008) “A New Measure of Financial Openness,” Journal of Comparative Policy Analysis 10(3): 309–322. Cominetti, Rossella. (1996) Social Expenditure in Latin America: An Update, Santiago, Chile: CEPAL Technical Department. Coppedge, Michael. (1997) “A Classification of Latin American Political Parties,” Working Paper Series #244, The Helen Kellogg Institute for International Studies, University of Notre Dame. Crenshaw, Edward. (1992) “Cross-National Determinants of Income Inequality: A Replication and Extension Using Ecological-Evolutionary Theory,” Social Forces 71: 339–363. Cusack, Thomas R. and Susanne Fuchs. (2002) “Documentation Notes for Parties, Governments, and Legislatures Data Set,” Wissenschaftszentrum Berlin für Sozialforschung. De Ferranti, David, Guillermo E. Perry, Fancisco H.G. Ferreira, and Michael Walton. (2004) Inequality in Latin America: Breaking with History? Washington, DC: The World Bank. Deininger, Klaus and Lyn Squire. (1996a) “A New Data Set Measuring Income Inequality,” The World Bank Economic Review 10: 565–591. Deininger, Klaus and Lyn Squire. (1996b) “Income Inequality Dataset.” Available online at http://www.worldbank.org/research/growth/dddeisqu.htm. ECLAC (Economic Commission on Latin America and the Caribbean).Various Years. Statistical Yearbook on Latin America and the Caribbean, Santiago: United Nations Economic Commission on Latin American and the Caribbean. ECLAC. (2002) Social Panorama of Latin America, Santiago, Chile: United Nations Economic Commission for Latin America and the Caribbean. ECLAC. (2004) Social Panorama of Latin America, Santiago, Chile: United Nations Economic Commission for Latin America and the Caribbean. Evans, Peter B. and Michael Timberlake. (1980) “Dependence, Inequality, and the Growth of the Tertiary: A Comparative Analysis of Less Developed Countries,” American Sociological Review 45: 531–551. Greene, William H. (1993) Econometric Analysis, 2nd ed., Englewood Cliffs, NJ: Prentice Hall. Huber, Evelyne, and Fred Solt. (2004) “Successes and Failures of Neoliberalism,” Latin American Research Review 39(3). Huber, Evelyne, and John D. Stephens. (2001) Development and Crisis of the Welfare State: Parties and Policies in Global Markets, Chicago: University of Chicago Press. Huber, Evelyne, and John D. Stephens. (2005) “Successful Social Policy Regimes? Political Economy, Politics, and the Structure of Social Policy in Argentina, Chile, Uruguay, and Costa Rica,” Paper delivered at the Conference on Democratic Governability, Kellogg Institute, University of Notre Dame, October 7–8. Huber, Evelyne, Francois Nielsen, Jenny Pribble, and John Stephens. (2006) “Politics and Inequality in Latin America and the Caribbean,” American Sociological Review 71: 943–963. Huber, Evelyne, John D. Stephens, Thomas Mustillo, and Jennifer Pribble. (2008) Social Policy in Latin America and the Caribbean Dataset, 1960–2006, University

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of North Carolina. Available online at http://www.unc.edu/~jdsteph/common/ data-common.html. IDB (Inter-American Development Bank). (1998) Facing Up to Inequality in Latin America, Washington, DC: Johns Hopkins. ILO (International Labor Organization). (2003) Online Labor Statistics. Available online at http://laborsta.ilo.org. Kaufman, Robert R. and Alex Segura-Ubiergo. (2001) “Globalization, Domestic Politics, and Social Spending in Latin America,” World Politics 53(4): 553–588. Kuznets, Simon. (1955) “Economic Growth and Income Inequality,” American Economic Review 45: 1–28. Lee, Cheol-Sung. (2005) “Income Inequality, Democracy, and Public Sector Size,” American Sociological Review 70(1). Lindert, Kathy, Emmanuel Skoufias, and Joseph Shapiro. (2005) “Redistributing Income to the Poor and the Rich: Public Transfers in Latin America and the Caribbean,” World Bank, Discussion Draft, October 24. Londoño, Juan Luis, and Miguel Székely. (1997) “Persistent Poverty and Excess Inequality: Latin America, 1970–1995,” Inter-American Development Bank Working Paper #357. Long, J. Scott and Laurie H. Ervin. (2000) “Using Heteroskedasticity Consistent Standard Errors in the Linear Regression Model,” The American Statistician 54: 217–224. Lora, Eduardo. (2001) “Structural Reforms in Latin America: What Has Been Reformed and How to Measure It,” Inter-American Development Bank Working Paper #348. Mahler, Vincent and David Jesuit. (2005) “Fiscal Redistribution in the Developed Countries: New Insights from the Luxembourg Income Study,” Luxembourg Income Study Working Paper 392. Moore, Barrington. (1966) The Social Origins of Dictatorship and Democracy, Boston: Beacon Press. Morley, Samuel. (2001) The Income Distribution Problem in Latin America and the Caribbean, Santiago: United Nations Press. Morley, Samuel, Roberto Machado, and Stefano Pettinato. (1999) “Indexes of Structural Reform in Latin America,” Serie Reformas Económicas 12, Santiago: United Nations Press. Muller, Edward N. (1985) “Income Inequality, Regime Repressiveness, and Political Violence,” American Sociological Review 50: 47–61. Muller, Edward N. (1988) “Democracy, Economic Development, and Inequality,” American Sociological Review 53: 50–68. Muller, Edward N. (1989) “Democracy and Inequality,” American Sociological Review 54: 868–871. Nielsen, François. (1994) “Income Inequality and Industrial Development: Dualism Revisited,” American Sociological Review 59: 654–677. Nielsen, François and Arthur Alderson. (1995) “Income Inequality, Development and Dualism: Results From and Unbalanced Cross-National Panel,” American Sociological Review 60: 674–701. Reuveny, Rafael and Quan Li. (2003) “Economic Openness, Democracy, and Income Inequality, an Empirical Analysis,” Comparative Political Studies 36(5): 575–601.

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Rueschemeyer, Dietrich, Evelyne Huber Stephens and John Stephens. (1992) Capitalist Development and Democracy, Chicago: University of Chicago Press. SEDLAC. (2007) “Socio-Economic Database for Latin America and the Caribbean,” Centro de Estudios Distributivos Laborales y Sociales (CEDLAS) of the University of La Plata in partnership with the World Bank’s Latin America and the Caribbean Poverty and Gender Group (LCSPP). Available online at http://www.depeco.econo. unlp.edu.ar/cedlas/sedlac/. Simpson, Miles. (1990) “Political Rights and Income Inequality: A Cross National Test,” American Sociological Review 55: 682–693. Sribney, William. (1998) “Comparison of Standard Errors for Robust, Cluster, and Standard Estimators,” Retrieved January 21, 2003, Stata FAQ Statistics, Stata Corporation. Available online at http://www.stata.com/support/faqs/stat/ cluster.html. StataCorp. (1999) Stata Statistical Software: Release 6.0. College Station, TX: Stata Corporation. Stimson, James A. (1985) “Regression in Time and Space: A Statistical Essay,” American Journal of Political Science 29: 914–947. Tsai, Pan-Long. (1995) “Foreign Direct Investment and Income Inequality: Further Evidence,” World Development 23: 469–483. United Nations Centre on Transnational Corporations. (1985) Transnational Corporations in World Development, Cambridge: Graham & Trotman. UNCTAD. (2002) Handbook of Statistics, New York: United Nations Publications. UNU-WIDER. (2007) World Income Inequality Database, Version 2b. Available online at http://www.wider.unu.edu/research/Database/en_GB/wiid/. World Bank. (2007) The World Development Indicators, CD Rom Version.

Chapter 8

Capital mobility and state social welfare provisions in the late 1800s Zahra Egal and Andrew Sobel

In this chapter we use history to gain perspective on the relationship between globalization and the social welfare state. In the late 1900s and early 2000s, the increasing exposure of national economies to global economic relations prompted much academic examination and punditry. The postWorld War II era witnessed a tremendous expansion of global exchange in goods and services—connecting consumers in one country with producers in other countries. Since the 1970s, the demise of many barriers to capital mobility and the resurgence of global finance led to massive increases in cross-border capital flows (currency trading, portfolio investment, and direct investment). The pace of these changes, particularly on the financial side, has since accelerated. The growing density of cross-national economic relations raises questions about the changing role of markets and states, the limits of national and sub-national governance under globalization, the shifting risks that individuals face in this changing state of affairs, and the efficacy of the social welfare state by which many of those risks might be managed. Despite the many praises of globalization, which invoke the spirit of Ricardo’s and Mill’s enhanced social welfare, universal harmony, and common interest, many worry that globalization limits national policy autonomy and erodes the ability of the state to provide social welfare goods. The increasing mobility of capital vis-à-vis other assets of production has become a focal point for many of those concerned about globalization. Such concerns have been captured in a capital mobility hypothesis, where many speculate that highly mobile capital leads to a race-to-the-bottom or contraction of governmental services and a convergence of regulation upon the lowest common denominator across national boundaries. If so, then this undermines the sovereignty and policy autonomy of the state (Andrews 1994; Cerny 1995; Friedman 2000; Garrett 1998a; Germain 1997; Kurzer 1993; Oatley 1999; Obstfeld 1998; Rodrik 2001; Sassen 1996; Sinclair 1994). Why does the prospect of such a convergence raise such concern? The post-war social welfare state redistributed costs away from those disadvantaged in society to the broader society, but the capital mobility hypothesis raises concerns that differences in the mobility of assets of production leads

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to a rollback in state policy autonomy and places the costs of adjustment to globalization more squarely upon those disadvantaged or put at risk by openness.1 Here the ability of more mobile assets of production to move geographically or across economic enterprise empowers Hirschman’s threat of exit or the ability of such assets to exercise voice (1970). Those with mobile resources gain bargaining power at the expense of government and less mobile economic actors. They are able to extract concessions by playing governments off against governments, and less mobile assets against less mobile assets. In their narrow and time-constrained self-interest they increasingly reject the redistributive burdens of the social welfare state. The results of empirical studies are ambiguous about the influence of globalization upon state policy autonomy and the ability of governments to maintain social welfare policies in the face of greater capital mobility. Pierson (1994) and Clayton and Pontusson (1998) cite the rise of neoliberal policies in the OECD as evidence supporting the race-to-the-bottom conjecture. Boix (1998), Garrett (1998b), and Swank (2002) find weak to little evidence to support expectations about the rollback of the state in OECD economies. Rodrik (1997) suggests that those most likely to be negatively affected by globalization are likely to carry an increasing burden of funding the social welfare state, but he also notes that size of government sectors has not shrunk with globalization. Instead, he finds that more open economies actually have bigger governments than less open economies. Other research suggests that effective, not small, state sectors are foundational to attracting capital critical to growth, development, and constructive engagement with the global economy (Henisz 2000; Knack and Keefer 1995; Leblang 1997; Sobel 1999). Moreover the patterns of capital flows and cross-border investment show that capital flows predominantly from one advanced social welfare state to another, and not to nations with smaller and less extractive social welfare states. The discontinuities between such elegant, theoretically derived propositions and empirical findings highlight the difficulty of exploring the complex processes that link international and domestic political economies, and understanding the influence of globalization and capital mobility upon states and markets in the late 1900s. Perhaps the theoretical framework is false, but we cannot comfortably reject this framework given the inconclusiveness of the empirical evidence. Limited observations and a degree of freedom problem contributes to our analytic dilemma—too many potential confounding causes and not enough observations and variation to confidently eliminate some plausible explanations and converge on a few candidates. We can examine data on numerous nations, which helps address the degree of freedom problem, but we have only one systemic case of globalization in our analyses. In such a difficult empirical environment we tend to place greater faith in the coherence of a theoretical framework despite empirical ambiguities. Expanding the number of observations by exploring another period of

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comparable dynamics, the mid- to late-1800s, offers a strategy to address this analytical barrier and may provide some extra leverage for evaluating theoretical claims. By exploring another period, we adopt a strategy similar to the O’Rourke contribution earlier in this volume. Adding another period may not seem like much given the severity of the degree of freedom problem, but an additional period constitutes a doubling of the periods under observation. If we think the theoretical mechanism underpinning the capital mobility hypothesis and the race-to-the-bottom are internally coherent and plausible, and good theory in the social sciences should generalize, be cumulative, and be testable from setting-to-setting, then we should be able to test the reliability and validity of such theory by exploiting multiple settings. Adding more settings increases the prospects for variation in the independent and dependent variables—in both qualitative and quantitative analyses—and increases the ability of researchers to gain analytical leverage. Investigators increase the number of settings by a variety of strategies: increasing the number of intensive case studies, expanding the number of cases within a cross-sectional analysis, or by adding years or cases in a cross-temporal analysis. In this chapter, looking to another historical period to test a theoretical argument combines the first strategy of adding another case study with the latter strategy of cross-temporal analysis. We first need to ask whether the current situation is really a new world, a distinct period, or can we use other periods in history to test claims about globalization, state policy autonomy, the social welfare state, and the ability of mobile factors to avoid redistributive burdens. International exchange, capital flows, and migration may have created similar connections by the late 1800s. If so, then examining the nineteenth century increases the number of observations and provides additional variation that may allow greater leverage for exploring the causal connections between the processes of globalization and the social welfare state. Much research has demonstrated that the mid- to late-1800s are comparable to today in terms of globalization, its degree and processes. O’Rourke and Williamson detail the transformations that led to more globally integrated factor and commodity markets during the latter half of the nineteenth century (1999). They show that prices across far distant factor and commodity markets were influenced by one another as technological, policy and intellectual innovations lowered the barriers to global exchange. Trade expanded, immigration connected labor markets, and flows of foreign capital financed economic and infrastructure development. Living standards improved and converged across the Atlantic political economies with this rapid globalization. Real wages converged from mid-century until the end of the century (Williamson 1995). Exports as a share of GDP grew dramatically over this period (O’Rourke and Williamson 1999: 30). More important than the degree of commodity market integration, considering the extent of capital market integration is essential if we are going to

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test the race-to-the-bottom conjecture in the context of the capital mobility hypothesis. Bordo, Eichengreen, and Kim (1998) compare this earlier era to today. They show that very significant amounts of foreign securities actively traded in the London capital markets in proportions comparable to today but with fewer types of securities. Obstfeld and Taylor (2003 and 2004) show that the level of international financial integration in the late 1800s was unmatched until the 1990s. Stone (1999) shows that capital exports from the London markets expanded over the late 1800s and were used to finance governments, infrastructure, and private enterprise around the world and especially in the emerging markets. Ferguson (2002: 202–3) notes: By 1914 the gross nominal value of Britain’s stock of capital invested abroad was £3.8 billion, between two-fifths and a half of all foreign owned assets. . . . Between 1870 and 1913 capital flows averaged around 4.5 percent of (British) gross domestic product. . . . More British capital was invested in the Americas than in Britain itself between 1865 and 1914. . . . between 1870 and 1913 total overseas earnings amounted to 5.3 percent of GDP. Mauro, Sussman, and Yafeh (2006) compare sovereign debt markets today and in the late 1800s. They show that the liquidity, size, complexity, and responsiveness to shocks and crises of the global financial market for sovereign debt in the late 1800s merits comparison with such markets today. The overwhelming evidence suggests that financial market integration of the late 1800s is sufficiently comparable to the late 1900s to use history to gain perspective on the relationship between globalization and the social welfare state, specifically to test the capital mobility and race-to-the-bottom framework.

The social welfare state in the 1800s In the late 1800s, during a period of expanding globalization, the extent of cross-border capital mobility appears comparable to the current period of financial globalization, which took off in the 1970s and continues today. If the underlying dynamics of the capital mobility and race-to-the-bottom conjectures are correct, then we should anticipate bargaining advantages accruing to holders of capital at the expense of others in societies. We would predict constraints on the expansion of the state and, more important, limitations on social redistribution and transfers. Yet we do not observe these outcomes at all in the latter half of the 1800s. Paradoxically, during this earlier period of globalization, replete with high capital mobility, states’ budgets expanded dramatically and the modern social welfare state took root. The evidence suggests that state–society bargains shifted as the warfare state evolved into a welfare state. Below we discuss the emergence and

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expansion of this welfare state at the very time that capital gained greater mobility across and within borders. We begin with a discussion of poor relief systems in the early- to mid-1800s and then move on to examine changes in poor relief, the emergence of public health systems, and developments in public education following increasing globalization of economic affairs from mid-century forward. We focus our attention on the core and dominant political economies in the Atlantic economy as we anticipate that these are the most competitive political economies of the time and should demonstrate trends in state–society relations that might influence competitive stature. The technological evolution of warfare, emergence of mass citizen armies, and demands of colonial governance contributed to the expansion of state sectors, but the expansion in government spending cannot be attributed solely to these causes. Total government spending increases during this period cannot be explained primarily by expansions in military or overseas colonial operations. They represented far smaller expenses for these economies than commonly assumed. England, which had emerged as the global hegemon— dominating the rules of the game in the global political economy—and the leading colonial power in the mid-late nineteenth century, devoted only 0.55–1.7 percent of its budget to maintaining colonial possessions, less than half of what the government spent on public works and buildings.2 During this same period, spending on social insurance and welfare programs increased dramatically. From 1860 to 1900, total expenditure on poor relief doubled in England and nearly doubled in France during the same time period (Mitchell 1991: 296). The shift toward social insurance was initially posed as an improvement over earlier social assistance schemes. Prior to industrialization in the Atlantic economies, these societies relied primarily upon decentralized private and religious sources of aid to meet the demands for social assistance. Outdoor relief and then later poorhouses were the characteristic forms of social assistance in the majority of nations in Western Europe and in the United States. Yet, outdoor relief became viewed as encouraging pauperism. New social assistance programs in the form of poorhouses responded to this critique. They were punitive in nature, and consequently deterred the poor from seeking aid and encouraged self-reliance (Cunningham et al. 2002: 6). The poorhouses required inhabitants to work without wages—often at tasks such as digging ditches, breaking rocks or walking on treadmills—to instill a work ethic and moral values. Most industrializing economies began to institute poorhouses and formally structured poor relief programs to deter growing populations of unemployed or underemployed from seeking government aid. Early social insurance programs In England, the Poor Law Commission of 1834 concluded that the Poor Law was ineffective because it promoted dependence, kept the able-bodied from

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working, and encouraged employers to keep wages low despite rising food prices. The Law was amended in 1834 to include poorhouses in which the poor would be employed and housed during recessions. The 1834 Poor Law cut costs significantly from 6.7 million pounds in 1831 to 4.8 million pounds in 1841, but was extremely unpopular with the lower classes (Kidd 1999: 10). Nevertheless, the centralization of the Poor Law, and later amendments that included pensions and public health provisions, were the first steps in England’s development of the social welfare state. In the United States, the demand for poorhouses increased during the same period. The Yates Report of 1834 argued that a centralized poorhouse system would be more efficient and encourage individual responsibility more than previous government charity programs. The poorhouses were organized on the county level to spread the financial burden of poor relief to rural areas, as urban areas often paid three times as much in poor relief as rural areas in states like New York. Poorhouses actually reduced the annual cost of caring for the average person from 33–65 dollars to 20–35 dollars in New York State, but the institutions ultimately proved unsuccessful due to chronic under-funding (Katz 1996). The settlement house system—another state-level reform effort in the United States—emerged and expanded toward the end of the nineteenth century. This system responded to the demand for aid created by increasing immigration, deteriorating urban conditions, and high unemployment. These houses, such as Jane Adams’ Hull House created in 1899 in Chicago’s 19th Ward, were an early form of social work. They were influential in helping workers locate jobs, creating social networks for workers, and advocating for labor reforms. All residents of a settlement house’s neighborhood were eligible for services. Few settlement houses proved successful, primarily due to under-funding by state governments, but they brought the issues of urban poverty, health-care reform, a national minimum wage, and mothers’ or widows’ pensions to the forefront. The limited successes of the poorhouse and settlement house programs led policy makers and Progressive reformers to focus on more specific efforts such as establishing child labor laws and improving industrial-labor relations. Social assistance programs in France had a long history. In 1544, the Grand Bureau des Pauvres established outdoor relief, as opposed to indoor relief in the form of poorhouses. The Bureau focused on aiding the Roman Catholic “deserving poor”—namely the elderly, children, and vulnerable workers. The Bureau raised poor taxes to distribute monetary assistance, but the benefits were neither uniform nor fixed. The government did not directly feed the poor, but it carefully regulated the prices of grain and flour in urban areas. The Revolution of 1848 brought new demands for expansion and centralization of the welfare state. In the years following, a voluntary national pension fund and the Conseil Consultatif d’Hygiene Publique to support local health councils were established.

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Germany followed a similar pattern. Early forms of poor relief in preunification German states emerged as early as the Reformation in the sixteenth century. Concentrated in community and church organizations, poor relief became a municipal obligation only after the failure of independent organizations. Prussia, which essentially led the way in social assistance programs in Germany, established the Allgemeines landrecht in 1794, which enumerated the responsibilities of municipalities in the provision of benefits (Dross 2002: 80). However, by the early 1800s, it was clear that older forms of poor relief failed to meet changing economic conditions and would have to adapt. Under the German industrial code, Gewerbeordnung (1845), local and commercial support organizations were permitted to provide collective benefits and stipulated mandatory membership among specified occupations (Dross 2002: 80). Seeking to limit rapidly urbanizing areas from bearing enormous costs for the poor, the new Poor Laws of 1855 established that poor relief benefits could not start until a person had been in residence of a community for a year. Italy, a political economy on the periphery, offered less extensive early poor relief systems than the core Atlantic economies. Less urbanized and industrial than the core Atlantic economies—over 60 percent of the labor force was engaged in a form of farming that was essentially feudalistic through the mid-nineteenth century—poor relief aid remained relatively informal. It was based within the feudal relationship or in voluntary or church organizations. Nevertheless, reforms in England and France during the mid-nineteenth century influenced leaders such as Count Camillio Benso di Cavour of Piedmont to develop new administrative models for poor relief (Quine 2002). The emergence of modern social welfare programs By the mid-1800s, expanding globalization of economic relations exposed individuals, classes, and sectors to risks and dislocations arising from the processes and competition of a global economy. As the “character” of the poor transformed from the seasonally jobless, unemployable elderly, and the mentally ill to the “able-bodied,” it became apparent that private, decentralized social assistance was not satisfying the threateningly large number of urban poor. These unmet needs took place within a context of expanding political franchise. Public rioting and demands on politicians in several countries sparked debates over the efficiency of poor laws. Policymakers began to shift their approach from the early social assistance programs of poorhouses and settlement houses in the early- to mid-century to more centralized and organized social insurance programs such as pensions and public health efforts. German Chancellor Otto Von Bismarck introduced the first formal social insurance programs in the form of industrial accident, sickness, and public health insurance in the 1880s after German unification. The Law on Health

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Insurance of Workers (1883), the Law on Accident Insurance (1884), and the Law on Disability and Old-Age Insurance (1889) provided the foundations for the German social insurance system. The 1883 Law on Health Insurance of Workers created benefits for all unemployment beneficiaries, apprentices, and salaried employees earning up to 42,300 deutschmarks a year. Under this program, employers and workers contributed 9 percent of payroll and earnings respectively, with the government providing approximately 14 percent of total cost in most cases (Kunin 1990: 432). The 1871 Employer’s Liability Act made employers responsible for accidents at work unless the worker could be proven negligent. The Law on Accident Insurance of 1884 formalized the compensation of accident victims to two-thirds of their wage, or slightly less according to the severity of the accident (De Swaan 1988: 191). It covered most employed citizens, students, and the self-employed, with 1.5 percent contributions from payrolls and the remaining from the government funds. The Law on Disability and Old-Age Insurance of 1889 required workers to contribute 3.5–7.5 percent from their earnings while the employer provided 3.5–8 percent based upon payroll. All wage earners, apprentices, unemployment beneficiaries, and disabled were eligible to receive benefits under the program (Kunin 1990: 432). In the early stages of the programs, coverage was provided to skilled laborers and their widows and orphans, but eventually the insurance was extended to domestic servants, agricultural workers, and apprentices. These programs expanded rapidly. By 1895, 53 percent of workers in the labor force participated in the pension insurance system. By 1898, England, France, and Italy had also developed industrial accident insurance and began developing public health and forms of unemployment insurance. By the 1860s, English leaders such as Prime Minister William Gladstone saw social reform as one of the highest duties of modern government (Evans 1996: 193). Nevertheless, national systems grew more slowly in England than in Germany. Formal pension systems came to England with the 1908 Pension Act, which was financed by government taxes, not by the contributions of employers and employees. The benefit was paid at post offices to every person over 70 and earning an income below £26 per year. The law was proposed on the grounds that offering non-contributory pensions to the elderly would relieve strain on the Poor Law (Sullivan 1996: 5). The pension system expanded rapidly and by 1910, 55 percent of members of the British labor force were active members of public pension insurance (Flora and Heidenheimer 1990: 76). France’s pension system was initially linked to private mutual aid societies. In 1902, representatives of the 79 mutual unions joined to create the Fédération Nationale de la Mutualité Française (FNMF). This established an institutional framework that led to combining mutual aid networks with a national pension plan (Horne 2002: 212). In April 1910, France passed the first National Pension Law, which allowed citizens to select among private insurance agents, mutual societies, and direct deposits for pensions. The

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system remained relatively small in comparison to the German and English systems, covering only 6–9 percent of the population from 1885 to 1915 and providing benefits to only those 65 or older (Flora and Heidenheimer 1990: 76). Italy’s pension system was also initially linked to mutual aid societies. During state consolidation in the 1860s and 1870s, the national government was slow to introduce any major programs of social reform. During much of the period, the right-leaning government championed financial austerity and introduced cuts in public spending in efforts to reach a balanced budget (Quine 2002: 41). Despite the gradual growth of welfare mechanisms by the public sector, private aid schemes continued to expand throughout the period. By the mid-1880s, mutual aid societies claimed over 804,000 members (Clark 1996: 76). In 1898, Italy made accident insurance compulsory in industrial sectors and required employers to bear the entirety of the cost (Clark 1996: 137). The federal pension system remained small, with only 1–2 percent of the population participating during the first decade of the twentieth century (Flora and Heidenheimer 1990: 76). The United States lagged behind Europe and did not establish a pension insurance system until much later. The American system remained largely private, relatively unorganized, and decentralized until the New Deal legislation in the 1930s. The federal government created early public forms of pensions for Civil War union veterans and their families in 1862, but these were short-lived, lasting until only until the early 1900s. The Social Security Act of 1935, which was comprised of a retirement fund, established the foundation for government expansion into pension insurance, unemployment insurance, and welfare grants. Early redistributive policies predating the New Deal laid the groundwork for the expansion of social welfare provisions by the federal government. The Sixteenth Amendment in 1913 introduced a federal graduated income tax. The tax was part of a progressive movement to regulate corporate and financial excess. It was passed within a year of the Federal Reserve Act, the Clayton Anti-Trust Act, and the Federal Trade Commission—other Progressive-influenced legislation. Taxation based on income created a larger pool of federal funds that could be redistributed and allocated into programs to aid the poor. Public health During the nineteenth century several European governments introduced measures to improve public health conditions, increase the health and productivity of workers, decrease mortality rates, and “civilize” the poor. Poor public health was tied to poverty, as up to 75 percent of pauperism in the mid-nineteenth century was related to sickness (Green 2002: 221). Increasing population density in industrializing urban areas increased the risk of

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contagions and epidemics, posing significant threats to public health. Shocks in the form of cholera outbreaks created impetus for public vaccination and urban infrastructural reform. In England, the 1834 amendment to the Poor Law, which included provisions for medical treatment, was partially motivated by the cholera outbreak in 1832. This outbreak claimed 18,000 victims in England and indicated that all classes were susceptible to such epidemics (de Swaan 1988: 122). In 1848, Parliament passed the Public Health Act, which established a Board of Health for the purpose of undertaking sanitary reform. The Board took over private and local companies that provided water, waste removal, and drainage services. Additionally, the Vaccination Act of 1848 established public vaccination for small pox and was made compulsory in 1853 (Green 2002: 230). The final major public health development in England during this period was the 1867 Metropolitan Poor Act, which excluded the sick from poorhouse environments by providing for the construction of asylums for sick paupers. In France, the Third Republic sought to ensure the provision of health care nationwide. Medical aid and social welfare were formally linked on a national level in 1888 when Henri Monod became leader of two national welfare offices: the Conseil Superieur d’Assistance and the Conseil Consultatif d’Hygiene Publique. In 1893, the government passed a law that made medical assistance an obligation for the commune; however, it did not provide structured requirements (Ramsey 2002: 301). The Aide Medicale Gratuite of 1893 provided compulsory assistance for sick paupers. Additionally, the Assistance Obligatoire pour les Vieillards, Infirmes et Incurables offered aid to the disabled and elderly poor. It was expanded in 1905 to cover pregnant women and families with more than three young children in 1913. The implementation of health programs were organized on a commune level, but national legislation in the late nineteenth century underpinned such provisions and showed a state commitment to public health. In Germany, Bismarck introduced public health legislation as one of his earliest reform initiatives. The 1873 Sickness Insurance Law created a foundation for an extensive health-care program. The Law provided benefits that included medical care and sickness pay equal to that of the wage for 13 weeks— a safety net to keep workers and their families from falling into poverty in the event of illness. In addition it created a financing formula where one-third of the insurance was financed by the employer’s contribution and two-thirds by the employee. By 1889, disability insurance was available and financed by employers and employees in equal parts (de Swaan 1988: 191). Italy took a different approach to address issues of public health. Instead of building a foundation for a centralized health insurance platform, Italian state governments adopted a series of public programs that mostly sought to address public health disasters. Major cholera epidemics hit Italy in the late 1800s, particularly in the South. A substantial component of the Italian public health initiative was investment in infrastructure to manage or contain

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such epidemics. With approximately one million Italians infected with malaria, the government began a mass campaign in 1900 to distribute free quinine throughout the affected provinces (Clark 1996: 162). The system remained relatively decentralized and based in private aid compared to other European nations. Public education The expansion of public education was a major component of modern social welfare states and another example of the changing relationship between state and society in the late nineteenth and early twentieth centuries. France and Germany developed roughly similar centralized systems of national education, whereas England and the United States moved toward more flexible and decentralized systems. The educational system in France varied greatly during the nineteenth century. The government emphasized that a strongly centralized system of state education was important to national unity (Barnard 1961: 416). Napoleonic laws established a framework for secondary schools in 1802, but those laws provided for Church control of schools. With the overthrow of the Second Empire and the establishment of a liberal democracy came the creation of the modern French education system. The School Laws of 1879–1884 established the modern French public education system. These mandated free, secular, and compulsory elementary education for French children. An 1881 law abolished fees to attend primary schools and an 1882 law made attendance mandatory for students aged 6 to 13 (Barnard 1961: 416). In England, the development of a national educational system was a slow and piecemeal process. The Parochial Schools Bill constituted an early attempt to institute a national public education system. As part of the Poor Law Reform Bill, this legislation sought to provide free elementary education for all children. A truncated version of the proposal passed in 1819 as the Factory Act and applied to children in cotton mills (Barnard 1961: 65). Child labor laws and education were initially linked in the United Kingdom. For example, the 1843 Factory Bill prohibited children between the ages of 8 and 13 from working more than six and a half hours a day and required at least three hours of schooling a day. It was not until after the Reform Act of 1832, which extended suffrage to include a larger segment of the urban middle class, that popular education became a priority. The year following the first Reform Act, the government allocated its first major grant for education—a sum of £20,000 for the construction of schoolhouses. By 1859, education funding reached £836,920, with a majority of the funding going to large schools in urban areas. The next major educational reform in England came after the 1867 Reform Bill, which enfranchised a greater number of the urban population. In 1868, the Liberals gained power and pressures grew for a more extensive public

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education system. The Education Act of 1870, introduced by W.E. Forester, responded to these pressures. Although it was a major piece of legislation, the Act did not create a centralized nationwide system of free education. Instead, it divided the nation into school districts led by school boards and required every child to pay a fee. Fees were subject to remittance if families were deemed unable to pay the costs (Barnard 1961: 116). Individual school boards had the option of offering religious instruction, but no child would be required to attend religious instruction. In the United States, the responsibilities for public education were decentralized and primarily under the jurisdiction of the individual states. However, a number of measures involved the Federal government in education. The first important educational measure was the Morrill Act of 1862, which offered Federal land grants for colleges in all states if they provided programs in agricultural science and mechanic arts. Additionally, the Blair Bill provided over $70 million in federal funds to public elementary and secondary schools. Under the law, the amount that each state received would be proportionate to the number of illiterates in the population, with the Southern states receiving the bulk of funding (Rudy 2003: 25). The Smith-Hughes Act marked the next major educational measure. The Act, passed in 1917, provided federal support for vocational training in agriculture and a variety of trades and skills in industry and technology. Italy also committed significant public resources to education. Primary education was maintained on a municipal level in Italy under the Cansati Law of 1859 and became compulsory in 1877 (Clark 1996: 37). Italy’s national educational system began with the passage of the Coppino Law in 1877, which established education as a fundamental civil right. Its supporters believed that education would provide the country with a literate and informed population, but also as an opportunity to cement national identification and unity. The Coppino Law introduced free and compulsory, and largely secular, schooling for all 6- to 9-year-olds. State-run secondary schools were not free to the public. Although open to the public, they were out of reach for all but an elite 10 percent of the population that could afford their costs (Clark 1996: 39). This state-run secular system was perceived as a threat to the Church and faced fierce Catholic opposition (Quine 2002: 37).

Conclusion If the underlying theoretical dynamic of the capital mobility and race-to-thebottom hypotheses is valid, then we should expect to observe it at work in other periods, all else being equal. As noted earlier, the results of empirical studies that focus on the late 1900s are conflicted about the influence of globalization upon state policy autonomy and the ability of governments to maintain social welfare policies in the face of greater capital mobility. Looking at another historical period could help reduce such ambiguity.

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Adding another historical period with comparable causal dynamics increases the number of observations, helps limit the degree of freedom problem, increases the prospects for variation in the independent and dependent variables, and may help researchers to gain analytical leverage. The evidence from the 1800s, an earlier period of globalization with financial mobility comparable to today, dramatically conflicts with the theoretical dynamics and predictions of the capital mobility and race-to-the-bottom hypotheses. Instead of the inverse relationship between capital mobility and welfare state provisions anticipated by the capital mobility and race-to-thebottom hypotheses we find a positive association. At the very time that the processes of globalization and capital mobility exploded in the 1800s, we observe the birth of the modern social welfare state and its expansion. The evidence challenges arguments about retrenchment of the social welfare state and a race to the bottom that depend solely upon the causal dynamic of capital mobility—a dynamic which supposedly awards greater bargaining leverage to holders of capital as a more mobile asset of production. The positive relationship between the social welfare state and globalization broadly—capital mobility specifically—in the 1800s and the ambiguous evidence from the late 1900s suggests that the relationship is much more complex and contingent than the simple inverse relationship posited in the capital mobility and race-to-the-bottom hypotheses. Lacking in this analysis is consideration of the possible role of democratization and representation, the expansion of political franchise beyond the well-to-do and holders of capital. In the nineteenth century, increasing globalization and emergence and expansion of the social welfare state empirically overlaps with the expansion of suffrage and political rights in many states of the Atlantic Economy. Globalization, political liberties, and the state appear to have co-evolved. Globalization and democratization appear concurrently with the transformation of the warfare state into the welfare state. In the United Kingdom, the Reform Bill of 1832 expanded the suffrage, increased the size of the electorate, began to redistribute electoral power by class and geography, and injected increasingly active two-party competition into British politics. The size of the electorate grew by over 50 percent, although still only about one-eighth of the total British adult male population. In 1867 Parliament passed the Second Reform Bill, which enfranchised many workingmen, almost doubling the size of the electorate. Parliament enacted the Third Reform Act in 1884, again essentially doubling the size of the electorate. During this period other pieces of legislation extended and protected political liberties, such as the introduction of the secret ballot, an act providing for polling hours that extended beyond the typical laborer’s workday, and the establishment of local county councils and boroughs with councilors elected by households in the local district. These led to a tremendous expansion of those voting and eligible to vote. In the 1859 election, won decidedly by the Whigs, approximately 565,500 people cast ballots. By 1885,

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the size of the electorate, those eligible to vote, grew to 5,708,030. At the turn of the century, the electorate in the United Kingdom reached approximately 6,730,935. Despite a longer history of electoral participation, dating to the Revolution, France had a mixed record of democracy for much of the early part of the nineteenth century. But the Third Republic’s Constitution, adopted in 1875, ended earlier fluctuations and firmly established greater political representation with the formal establishment of bicameral legislature with a Chamber of Deputies directly elected through universal male suffrage. A constitutional crisis in 1877 between the President and legislature ended with the legislature winning. Probably due to the Revolution and its extension of suffrage, French electoral participation began the nineteenth century at levels significantly larger than other states in the Atlantic Economy, and remained relatively stable throughout. Approximately 7,215,000 votes were cast for two parties in the 1863 election. In the 1885 election, approximately 7,793,000 voters participated, again for two parties. In an election at the end of the century, 7,828,000 people voted, but they split their votes among six parties, an expansion of the political space in terms of interest representation. In Germany, the formation of the Northern German Confederation in 1867 included an election of a lower legislative house, the Reichstag, which was elected by direct male suffrage. This carried over to the 1871 Constitution, which created a Reichstag elected via universal male suffrage and secret ballot. In 1861, with the declaration of the Kingdom of Italy, the Constitution provided for a bicameral legislature with a lower house elected through limited male suffrage. This suffrage expanded with a lowering of the voting age from 25 to 21, and a change in the tax paying requirements from 40 to 19 lire. These expanded the Italian franchise to approximately 2,000,000 from 600,000. In 1912, the Italian legislature again expanded suffrage, extending it to almost all males, creating an increase in potential voters from approximately 3 million to 8.5 million. In the United States, both legal shifts and migration, which led to a dramatic increase in population, helped account for the growth in the electorate. Following the Civil War, the Fifteenth Amendment to the Constitution ensured political rights could not be abridged due to race, color or any previous condition of servitude, extending suffrage to African-American males. In parts of the country, this was effectively negated by the adoption of Jim Crow laws that created barriers to participation. But in general, the franchise expanded and broadened throughout the nineteenth century. In the pivotal 1860 election, turnout was 4,680,727. By the 1880 election, the number of voters had doubled as 9,203,739 males cast ballots. The expansion continued, abetted by the rise of progressive and populist politics. The 1900 election saw 13,687,741 votes cast. As the nineteenth century progressed, politicians and policymakers across the states of the Atlantic Economy faced increasing pressures of representation

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from broader swaths of their societies. Consider globalization within this added dimension. Globalization that links national markets and takes advantage of specialization and comparative advantage, produces substantial social welfare gains, but not without costs to individuals and groups. Schumpeter’s creative destruction is abetted by globalization that links markets and rewards greater specialization. Some individuals and groups will inevitably find themselves uncompetitive, their resources being freed up for other economic activities for which they are better suited given the forces of globalization. Circumstances force such people to adapt and to move away from the status quo—an unsettling experience for many. These individuals and groups are exposed to tremendous risk even as society benefits in the aggregate. The mechanisms and bargains of the social welfare state can help mitigate such risks to individuals. Moreover, such people might attempt to use the political arena to lock-in a more preferred status quo even if such an outcome is contrary to the long-term welfare of society at large. At least in the short-term, these individuals and groups prefer less openness and they could pressure politicians to reverse the trend toward openness. The mechanisms and bargains of the social welfare state help mitigate such risks to individuals, which could translate into demands upon politicians to retreat from an open political economy and unravel the gains from increased international interactions (Polyani 1944). Politicians facing such pressures to contain or roll back the processes of globalization are those more likely to reside in states with broader forms of representation, and consequently may find the mechanisms of a social welfare state provide them with insulation from such political pressures. Moreover some of the most important mechanisms of the modern social welfare—education and training—help individuals adjust to the consequences of creative destruction and to take advantage of globalization. Education and training help people become more mobile, enabling them to move from economic endeavor to endeavor even as they find themselves dislocated by competitive processes unleashed by enlarging markets and increasing returns to specialization. In the 1800s, governments introduced vast programs of public education. In an era of expanding democratization and franchise, governments were partly motivated to create responsible citizens and voters. But such programs also helped workers and communities face and adapt to the risks of competitive markets. We can consider such state provisions as supply side goods or those that improve the quality and productivity of workers and enterprises in an economy (Boix 1998) as compared to demand side goods that offer a safety net against hardship and dislocation. Supply side goods constitute a large component of the modern social welfare state and help make political economies attractive in an era of globalization and more adaptable to the forces of creative destruction. Rather than a race-tothe-bottom and retrenchment, a relatively sophisticated and extensive social welfare state might be a necessary condition for societies to compete and maintain social and political stability in an era of globalization.

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Governments can use effective social welfare state mechanisms—demand and supply side—to meet the challenges of globalization and promote its further expansion. This is a plausible explanation for the perseverance of the social welfare state in the late 1900s and its emergence in the 1800s. These effective governments contribute to their economies’ appeal to capital and expand the potential for their societies to take advantage of globalization, but also more effectively manage the accompanying risks to their citizens. In the nineteenth century, the co-evolution of governments and international exchange produced more intricate and sophisticated connections across borders, but also more capable governments for those able to manage the shifts in globalization and its challenges. Today, the revealed and expressed preferences of capital appear consistent with such an explanation. Part of the ambiguity in the empirical literature on the late 1900s stems from a case selection bias, which focuses upon advanced industrialized political economies to the exclusion of developing political economies. Here the variation on the social welfare state is bounded. But expanding the focus to include emerging political economies along with the advanced industrialized political economies removes much of the ambiguity. Most cross-border capital flows go from one extensive social welfare and regulatory political economy to another and not from such political economies to political economies with smaller and less developed social welfare and regulatory states. Moreover and despite common beliefs, research suggests that the state mechanisms most directly related to capital, taxes, play little role in cross-border investment calculations (Jensen 2005 and 2006). The World Economic Forum, Global Competitiveness Report 2006–07 ranks countries on an index of competitiveness. The index bases its scores on 90 different factors. The results for the top 20 nations in terms of competitive environments are reported in Table 8.1. Hardly a race to the bottom! Mobile capital is looking for more than simply a low-cost environment. A stable and talented work force, reliable infrastructure, health-care access, security and stability, and other factors enter into investment decisions. Many such factors can be improved by government programs, which redistribute resources from one part of society to another—the social welfare state. Moreover, much of the current fascination with highly mobile global capital oversells the narrow preferences and capabilities of capital in political arenas and undersells the capabilities of less mobile assets such as governments, land and labor. Less mobile assets of production still vote (exercise voice) in elections or some other form of political selection. Politicians seeking to survive must listen to voices in the selectorate who can affect their prospects for political survival, whether they are highly mobile or not. Capital is a primitive factor underpinning social behavior in an era of globalization, but not the sole primitive. But only considering capital, elevating it above other factors, neglects other fundamental forces that color social interactions. Many depict the relationship between states and markets as a zero-sum interaction (states

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Table 8.1 Global competitiveness, 2006–07 Rank

Country

Overall Score

# of Global 2000 Companies

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Switzerland Finland Sweden Denmark Singapore United States Japan Germany Netherlands United Kingdom Hong Kong SAR Norway Taiwan Iceland Israel Canada Austria France Australia Belgium

5.81 5.76 5.74 5.70 5.63 5.61 5.60 5.58 5.56 5.54 5.46 5.42 5.41 5.40 5.38 5.37 5.32 5.31 5.29 5.27

36 16 28 10 14 659 291 57 30 130 45 11 42 4 9 61 13 66 44 11

Source: World Economic Forum, Global Competitiveness Report 2006–07. The scale ranges from 1 to 7 (higher is better).

or markets), but investigating the interaction between them as a synergistic positive-sum relationship (states and markets) offers a richer alternative. Globalization and sovereignty are not necessarily at odds. Globalization is a demanding taskmaster and challenges government, but they can complement each other.

Notes 1. Mobility is affected by an asset’s physical nature, skills, elasticity of demand, liquidity, and flexibility. 2. Mitchell, B.R. Abstract of British Historical Statistics (Cambridge: University Press, 1962), see appendix for set of government expenditure statistics.

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Democratic Economic Strategies in the World Economy, Cambridge: Cambridge University Press. Bordo, Michael, Barry Eichengreen, and Jongwoo Kim. (1998) “Was There Really an Earlier Period of International Financial Integration Comparable to Today?” NBER Working Paper No. 6738, Cambridge, MA: National Bureau of Economic Research. Cerny, Philip. (1995) “Globalization and the Changing Logic of Collective Action,” International Organization 49: 595–626. Clark, Martin. (1996) Modern Italy 1871–1995, New York: Longman. Clayton, Richard and Jonas Pontusson. (1998) “Welfare State Retrenchment Revisited: Entitlement Cuts, Public Sector Restructuring and Inegalitarian Trends in Advanced Capitalist Societies,” World Politics 51: 67–98. Cunningham, Andrew, Peter Grell, and Robert Jütte (eds). (2002) Health Care and Poor Relief in 18th and 19th Century Northern Europe, Burlington: Ashgate. De Swaan, Abram. (1988) In Care of the State: Health Care, Education and Welfare in Europe and the USA in the Modern Era, New York: Oxford University Press. Dross, Fritz. (2002) “Healthcare and Poor Relief in the Enlightenment and 19th Century,” in Andrew Cunningham, Peter Grell, and Robert Jütte (eds) Health Care and Poor Relief in 18th and 19th Century Northern Europe, Burlington: Ashgate. Evans, E.J. (1996) The Forging of the Modern State: Early Industrial Britain, 1783– 1870, New York: Longman. Ferguson, Niall. (2002) Empire, New York: Basic Books. Flora, Peter and Arnold Heidenheimer. (1990) The Development of Welfare States in Europe and America, New Brunswick: Transaction Publishers. Friedman, Thomas. (2000) The Lexus and the Olive Tree: Understanding Globalization, rev. ed., New York: Anchor Books. Garrett, Geoffrey. (1998a) “Global Markets and National Politics: Collision Course or Virtuous Circle?” International Organization 52: 787–824. Garrett, Geoffrey. (1998b) Partisan Politics in a Global Economy, New York: Cambridge University Press. Germain, Randall. (1997) The International Organization of Credit: State and Global Finance in the World Economy, Cambridge: Cambridge University Press. Green, David. (2002) “Medical Relief: The New Poor Law in London,” in Andrew Cunningham, Peter Grell, and Robert Jütte (eds) Health Care and Poor Relief in Nineteenth Century Northern Europe, Burlington: Ashgate. Henisz, Witold J. (2000) “The Institutional Environment for Economic Growth,” Economics and Politics, 12(1): 1–31. Hirschman, Albert. (1970) Exit, Voice, and Loyalty, Cambridge, MA: MIT Press. Horne, Janet R. (2002) A Social Laboratory for Modern France: The Musee Social and the Rise of the Social Welfare State, Durham: Duke University Press. Jensen, Nathan. (2005) Fiscal Policy and the Firm: Do Low Corporate Tax Rates Attract Multinational Corporations? Multinational Enterprises Working Paper 2. Jensen, Nathan. (2006) Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment, Princeton: Princeton University Press. Katz, Michael B. (1996) In the Shadow of the Poorhouse: A History of Social Welfare in America, New York: Basic Books. Kidd, Alan. (1999) State, Society and the Poor in Nineteenth-Century England, New York: St. Martin’s Press.

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Knack, Stephen and Philip Keefer. (1995) “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures,” Economics and Politics 7(3): 207–228. Kunin, George Thomas. (1990) Encyclopedia of the First World, New York: Facts on File. Kurzer, Paulette. (1993) Business and Banking: Political Change and Economic Integration in Western Europe, Ithaca, NY: Cornell University Press. Leblang, David. (1997) “Political Democracy and Economic Growth: Pooled Cross-Sectional and Time-Series Evidence,” British Journal of Political Science 27: 453–466. Mauro, Paolo, Nathan Sussman, and Yishay Yafeh. (2006) Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870–1913 and Today, Oxford: Oxford University Press. Mitchell, Allan. (1991) The Divided Path: The German Influence on Social Reform in France After 1870, Chapel Hill: University of North Carolina Press. Oatley, Thomas. (1999) “How Constraining is Capital Mobility? The Partisan Hypothesis in an Open Economy,” American Journal of Political Science 43: 1003–1027. Obstfeld, Maurice. (1998) “The Global Capital Market: Benefactor or Menace?” Journal of Economic Perspectives 12: 9–30. Obstfeld, Maurice and Alan M. Taylor, (2003) “Globalization and Capital Markets,” in Michael Bordo, Alan Taylor, and Jeffrey Williamson (eds) Globalization in Historical Perspective, Chicago: University of Chicago Press. —— . (2004) Global Capital Markets: Integration, Crisis, and Growth, New York: Cambridge University Press. O’Rourke, Kevin H. and Jeffrey G. Williamson. (1999) Globalization and History, Cambridge, MA: MIT Press. Pierson, Paul. (1994) Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment, Cambridge: Cambridge University Press. Polyani, Karl. (1944) The Great Transformation: The Political and Economic Origins of Our Time, Boston: Beacon Press. Quine, Maria Sophia. (2002) Italy’s Social Revolution: Charity and Welfare from Liberalism to Fascism, New York: Palgrave. Ramsey, Matthew. (2002) “Poor Relief and Medical Assistance in 18th and 19th Century Paris” in Andrew Cunningham, Peter Grell, and Robert Jütte (eds) Health Care and Poor Relief in Nineteenth Century Northern Europe, Burlington: Ashgate. Rodrik, Dani. (1997) Has Globalization Gone Too Far? Washington, DC: Institute for International Economics. Rodrik, Dani. (2001) “How Far will International Economic Integration Go?” Journal of Economic Perspectives 14: 177–186. Rudy, Willis. (2003) Building America’s Schools and Colleges: The Federal Contribution, Cranbury, NJ: Cornwall Books. Sassen, Saskia. (1996) Losing Control? Sovereignty in an Age of Globalization, New York: Columbia University Press. Sinclair, Timothy. (1994) “Between State and Market: Hegemony and Institutions of Collective Action under Conditions of International Capital Mobility,” Policy Sciences 27: 447–466.

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Sobel, Andrew C. (1999) State Institutions, Private Incentives, Global Capital, Ann Arbor: The University of Michigan Press. Stone, Irving. (1999) The Global Export of Capital from Great Britain, 1865–1914: A Statistical Survey, New York: St. Martin’s Press. Sullivan, Michael. (1996) The Development of the British Welfare State, New York: Prentice Hall. Swank, Duane. (2002) Diminished Democracy: Globalization, Political Institutions and the Welfare State in Advanced Market Economies, Cambridge: Cambridge University Press. Williamson, Jeffrey G. (1995) “The Evolution of Global Labor Markets Since 1830: Background Evidence and Hypotheses,” Explorations in Economic History 32: 141–196.

Chapter 9

Global governance redefined Miles Kahler 1

Governance—defined as a set of authority relationships—has changed both site and scope over the past century (Kahler and Lake 2003a: 7–11). Before 1914, industrialization and economic integration prompted national governments to construct narrowly defined international institutions that enabled cross-border infrastructure (Murphy 1994: Figure 2, 84). The coercive hierarchies of colonial empires also substituted for contemporary international institutions. A second burst of international institution building after World War I faded in the face of economic closure, military insecurity, and war. Governance once again concentrated in powerful nation-states; hierarchical regional blocs added a new layer of economic coordination. After 1945, a third shift in institutional creation and global governance responded to a dis-integrated world in which there were relatively few sovereign units (Shanks, Jacobson, and Kaplan 1996). In both respects—economic integration and sovereign claimants to authority—governance in the early twenty-first century confronts a very different world. International institutions at the center of contemporary global governance were designed during that earlier era of economic closure; strong, centralized national governments; and a profound international cleavage between capitalist democracies and autarchic, authoritarian regimes. That world of war and cold war has now disappeared. The tight controls exercised by governments over cross-border flows of goods, capital, and labor have been substantially reduced, in part through the influence of those same post-war global economic institutions—the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO).2 The identification of those institutions with the economically open world of globalization during the past quarter-century has obscured both their genesis in a very different world and the ways in which globalization challenges and undermines them. Globalization has forced a redefinition of global governance, producing a world in which institutions based on one model of governance are now challenged to adapt to a very different global environment. Sites of governance have proliferated, raising the issue of

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whether institutions of global governance can co-exist with and complement other sites of governance at the regional and national level. The sections that follow concentrate on economic governance with some reference to parallel developments in the global security architecture. The global economic multilaterals (GEMs) that lie at the core of the post-1945 international economic order receive particular attention. This necessarily skews the analysis of governance, but the conclusions drawn from this important slice of governance apply, at least in part, to other domains as well. After defining the key dimensions of governance, features of the intergovernmental organization (IGO) model of global governance are outlined. The onset of globalization in the final decades of the last century produced an initial set of predictions for change in the IGO model, predictions that were largely overtaken by a redefinition of global governance that is still underway. Those international changes—predicted and actual—and their implications for global governance comprise the next section. The redefinition of global governance required by the transformed global environment is described in the concluding section.

Dimensions of global governance Models of global governance are defined by a number of key dimensions. First, and prior to all subsequent questions, who governs? Which actors are enfranchised by the system of global governance and serve as recognized actors or principals in the system of governance? The membership criteria for institutions of governance typically provide an initial answer to this question. Second, the institutional characteristics of global governance may vary along a number of dimensions. Investigation and debate for at least two decades has centered on the significance of particular dimensions for the performance of international institutions. Three dimensions have often been linked to institutional effectiveness (and often equated with “strength”): centralization (one center for global governance in a particular issue-area rather than competing institutions); legalization (the precision and degree of obligation entailed in institutional commitments); and delegation (the degree to which authority is delegated by the principals to a permanent organization and its staff).3 The precise relationship between institutional design calibrated on these dimensions and institutional performance or policy outcomes remains controversial. Changes along these dimensions have been posited to produce particular outcomes. For example, one familiar hypothesis suggests that both more legalized institutions and institutions with greater delegated authority will produce higher degrees of compliance with agreed rules. Such conjectures have seldom been subjected to rigorous tests, however (Kahler 2001a; Koremenos et al. 2001b: 1079–1080; Simmons 2001). Accountability is another product of institutional design that is often linked to delegation. The issue of accountability, so prominent in current

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debates over global governance, was far less prominent in earlier periods, and particularly in the first decades after 1945. Whether and why the institutions of global governance respond to the preferences of their principals—those empowered to make decisions for the organization—has become more important as the delegated authority of those institutions has grown and their goals have become more controversial. In other words, accountability increases in political salience with increasing delegation (or the perception of such delegation) to the institutions of governance and domestic political conflict over the goals of those institutions. Third, institutions of global governance target particular outcomes, both positive and negative, and embody strategies for either achieving or avoiding those outcomes. The principals—those who govern—ultimately determine which outcomes are of greatest importance. Both outcomes and strategies chosen will influence the site of governance and optimal institutional characteristics. Finally, any system of governance concentrates authority at particular levels or sites of governance. Vertically, political authority is distributed across global, regional, and national levels of governance. Over the first half of the past century, most supranational (global and regional) institutions exercised relatively little authority, at best coordinating or legitimating national policies. That distribution of authority began to change slowly after 1945. Global multilaterals were awarded greater delegated authority (at least in their founding charters). In Europe, delegation of authority to regional institutions was unprecedented in its scale. At the same time—and linked to change in the ultimate principals of governance—as national governments loosened their hold on economic activity, the divide between public and private governance shifted, and private actors regained a share of governance in a more market-driven international economy. Three arguments will be advanced in the remaining sections:

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Global governance after 1945—defined by the model of intergovernmental organization—was designed for a less integrated world economy. Its institutions—multilateral, intergovernmental, and weakly supranational —were designed to restrain deviant behavior on the part of states, a reflection of recent experience with economic depression and war. Over the past quarter century, globalization—defined as global economic integration—has produced a redefinition of global governance that includes a proliferation of principals, institutional diversity, new attention to the border between public and private, and complementarity among the sites of governance. This redefinition of global governance challenges the effectiveness and legitimacy of post-1945 global institutions. Rehabilitated global governance requires reform and adaptation of those institutions in light of the new international environment.

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Global governance after 1945: the IGO model A particular model of global governance dominated the decades after 1945, one in which multilateral intergovernmental organizations (IGOs) were created as peak organizations in key sectors of international collaboration. National governments were the principals in those multilateral institutions. Global institutions displayed greater centralization, legalization, and delegation than their interwar predecessors. They were marked by the mid-century crises of economic depression and war, which were viewed as the products of deviant national policies; IGOs were designed to prevent and curb such policies. The powers of global institutions to do so, however, were sharply limited by concentration of political authority in the hands of national governments: few contested the assumption that governance at the regional or global level would substitute for, rather than complement, governance by the nation-state. Who governs? The primacy of national governments In answering one key question—who governs?—post-1945 international governance awarded national governments a dominant role when compared to non-governmental actors, whether private corporations or non-governmental organizations. This assertion of public authority through the intergovernmental model of global governance entailed the demotion of an important institutional alternative from the interwar decades: public-private or purely private networks of economic governance (Kahler 2002). Private governance (oil) or public-private networks (finance), in which formal intergovernmental organizations played a negligible role, dominated the interwar era (Kahler 2002; Keohane 1984: 150–174; Yergin 1991). Although such modalities of governance persisted in certain sectors after 1945, states deployed domestic regulation and restrictions on cross-border exchange to exert more control over private power in the international economy. Since national governments dominated global institutions of governance, those institutions were required to balance the norm of sovereign equality of states against the realities of power and resource disparities. A time-honored model for international governance, ad hoc great power diplomacy, was set aside (or disguised) in favor of multilateralism, defined by institutions that aimed at universal membership. Until the 1960s, those membership rules did not produce very large numbers (Kahler 1992). Nevertheless, postwar institutions produced several formulas for balancing the demands of a growing membership against the desire of the largest powers for influence that matched their contribution of resources. In the case of the International Monetary Fund and the World Bank, formal weighted voting combined with super-majorities on key constitutional and policy issues provided a veto, first for the United States and then for the European Community. The GATT

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(and later the WTO) adopted consensus decision rules and a one country, one vote formula for formal governance. These rules protected the most powerful against a coalition of the weak, but also provided equivalent protection to any member of the organization, a formula for deadlock. At the United Nations, the Security Council veto served to differentiate the great (and ultimately nuclear) powers from other members. In most global institutions, at least until the last decade of the century, informal mechanisms also bridged the gap between universal membership and the prerogatives of more powerful states. Two were of particular significance. Many member states were disengaged from the decision-making of these institutions. Developing countries in particular accepted what John Williamson (2002: 2) labels a type of “global apartheid” that assigned them to special regimes exempted from the liberalizing obligations and norms of other members. A prominent example of such a regime was the special and differential treatment awarded to developing countries under the General Agreement on Tariffs and Trade. Equally important as a device for squaring large membership with large differences in power and resources was the club model of internal governance, described by Robert O. Keohane and Joseph S. Nye (2000: 26). Whatever the formal decision rules of the global economic multilaterals, small groups of industrialized countries steered them: the G-5 and later the G-7 in international monetary and financial affairs, the Quad in the case of the GATT. These informal clubs of the most powerful operated—and continue to operate —within global institutions. Clubs of influential states within the IGOs represented an implicit threat that reinforced both the power of those states and the acceptance of their position: a reversion from multilateralism to great power diplomacy. This threat became more credible as membership in key global institutions soared during the 1960s and 1970s. Early examples of such defections included the Group of 10 (G-10), a club of industrialized countries active in international monetary and financial affairs, and the Organization for Economic Cooperation and Development (OECD), which coordinated support for the fixed parity monetary regime during its last years. The IMF played a minimal role in global macroeconomic policy coordination, which was undertaken by the G-7, a further signal that economic weight could trump multilateral principles. Nevertheless, attachment to multilateralism in the core GEMs persisted, and membership was seldom denied to those who met minimal membership criteria. International institutions may adopt one of two strategies to increase compliance by their members. High barriers to membership admit only states that are likely to comply (the club model). Under the second alternative, the convoy model, institutional membership is granted liberally, in the hopes that the socializing influence of membership will improve compliance over time.4 Among regional organizations, the European Community adopted the club

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model of membership, with a daunting acquis communautaire that was implemented by new members. Since perceived club benefits are high, the ability of this model to change the behavior of prospective members has been evident in both East Europe and, most recently, in Turkey.5 Even the European Union, however, has introduced multi-speed membership and opt-out provisions. The post-1945 system of global governance, like the Association of Southeast Asian Nations (ASEAN) and other regional organizations in Asia, has more often adopted a convoy model, with low membership barriers and exemptions for entire membership categories. Membership itself is expected to have socializing effects on members. Among the global multilaterals, adoption of the convoy model of membership obligations, paradoxically, complemented an internal club organization that concentrated power in the hands of a small group of members. Those dominant members could govern without the engagement of the many peripheral members, far back in the convoy, who did not accept the full obligations of membership and provided few resources. Institutional architecture: centralization, legalization, delegation When compared to its immediate interwar predecessors, the IGO model of global governance was more centralized and more legalized. At least in design, the IGO model also entailed more delegation of authority to international organizations. That model created a strong attachment to peak organizations presiding over key issue-areas: the United Nations in security, the IMF in monetary and financial affairs, and the International Trade Organization (ITO) in international commercial policy. (The ITO was not launched; a less legalized GATT served as its more modest substitute in the trade regime.) The scope of these centralized institutions was relatively broad and functionally defined. The obligations of governments were defined precisely, and mechanisms for sanctioning the breach of those obligations were put in place. Enforcement often remained in the hands of national governments, although the delegated power of global institutions sometimes included a trigger for enforcement action. In order to carry out these new functions, authority was delegated by member governments to the permanent staff of these institutions, an international civil service that exhibited “many of the typical traits of Weberian bureaucracies.”6 Supranational authority remained relatively weak, but the organizational core of global governance under the IGO model was substantially stronger than it had been in the decades before World War II. The IGO model of global governance resembled a faint image of national government: supranational institutions would strengthen as they came to resemble the centralization and legalization of domestic political institutions; more authority would be delegated to those institutions over time with an eventual, and, in the eyes

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of some, irretrievable transfer of authority (Kahler 1995). Among regional organizations, the European Community most clearly adopted this institutional design of a state-in-formation, as the powers of the European Commission, Court of Justice and Parliament grew over time. Because the IGO model included delegation to a permanent organization, the accountability of those organizational agents became an issue. During the 1960s and 1970s, however, initial debates over accountability centered on a skewed pattern of organizational influence that favored the industrialized countries. Accountability was therefore linked to the question of which nation-states would govern. The possibility that delegated authority might escape the collective oversight of governments or that non-governmental actors might claim the status of organizational stakeholders was scarcely entertained. Taming states: strategies of the IGO model of governance The avoidance of two international outcomes dominated the goals set for global governance after 1945: on the one hand, economic instability and depression and, on the other, interstate military conflict. The prevailing diagnoses of those catastrophic outcomes shaped both the strategy of global governance and its institutional architecture. The world economy would be stabilized through restraint of economic nationalism, and international security would be increased through curbing aggressor states. Using contemporary vocabulary, the IGO model was aimed at rogue states. The rogue states that haunted the wartime United Nations were Germany and Japan, exemplars of a deviant and militarized capitalism that endorsed economic autarchy and territorial expansion. Post-1945 global governance was also directed at the failings of the victor states, however, particularly the potential for backsliding into self-interested and self-defeating economic policies. The institutional design of global governance, emphasizing centralization and legalization, fitted with this larger strategy of curbing deviant states. The IGO model matched the governance problems of the first half of the twentieth century: strengthened international institutions would meet state strength directed to the wrong ends. Sites of governance: weak supranationalism, strong national governments Each of the preceding dimensions of the IGO model—states as principals, multilateralism, a centralized and legalized institutional design aimed at curbing deviant state behavior—were shaped by the allocation of governance among national, regional, and global levels. Global governance after 1945 enfranchised national governments rather than non-state international actors. National governments jealously guarded their new powers, particularly

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those of economic management. As described earlier, one consequence of this concentration of authority at the national level was relatively weak supranational authority: global governance incorporated only limited delegation of authority to institutions beyond the nation-state. The IMF, for example, which was designed to exercise considerable authority over key economic decisions such as exchange rates, was marginalized in its relations with the major economic powers. GATT served as a useful negotiating forum, but its powers of adjudication and enforcement were sharply circumscribed. A de facto club system of governance meant that peer pressure, and particularly the stance of the United States (which held the levers of Marshall Plan aid early in the period and security guarantees throughout the Cold War), was often more significant than the delegated authority of global institutions of governance. A second powerful assumption influenced choices over the site of governance: supranational institutions and national institutions were viewed as competitors for a fixed amount of political authority, as were public and private institutions.7 In other words, political authority at one level would substitute rather than complement political authority at another. This view has persisted in contemporary debates over globalization, in which the sapping of national political authority is often seen as a necessary corollary of the movement of authority to supranational institutions. A competitive view of the sites of governance also colored American attitudes toward regional organizations during World War II and in the immediate post-war years. Although the United Nations system made room for a regional infrastructure, most regional arrangements in the immediate post-war years were colonial empires or discriminatory trading blocs. The United States viewed them with considerable suspicion as rivals to the global institutions, a stance that extended to other Eurocentric institutions, such as the Bank for International Settlements (BIS) (Kahler 2002: 47). The onset of the Cold War produced a more positive American view of regional institutions, both regional alliance systems and initiatives at European integration that led to the European Community. Nevertheless, the United States avoided direct participation in bilateral and regional economic arrangements until the 1980s, preferring to exercise its power in global institutions that reflected its core economic interests.

Globalization and the redefinition of global governance Acceleration and expansion of global economic integration in the final decades of the last century created a new environment for the IGO model of global governance. Not only did the volume of trade and capital flows increase, economic integration became global, as it had been before 1914, expanding from the industrialized countries to ex-socialist and developing

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countries. Initial predictions of a movement toward greater reliance on supranational institutions were not fulfilled, however. Instead, the new international environment produced by globalization challenged existing global institutions and the IGO model of governance through a proliferation of demanding stakeholders, a new and diverse array of institutional competitors, increased attention to dangerous outcomes at the border of public and private, and recognition of complementarity among levels of governance. Initial predictions: the threat to national governance Some observers predicted that the progress of globalization would be associated with dramatic changes in governance. Those who claimed a share of governance would become more diverse, as non-governmental organizations and multinational corporations—key drivers of political and economic globalization—assumed larger roles. This shift in principals and growing cross-border externalities would in turn force important changes in the site of governance. Governance would shift upward, enhancing the power of regional and global institutions, and, spurred by demands for local identity and autonomy, downward to sub-national jurisdictions. As private and non-governmental actors exerted more political influence, the boundaries of governance would shift laterally as well, expanding the scope for private governance as the boundaries of public authority contracted. As globalization moved more governance functions upward, supranational institutional design would shift toward more legalized and centralized institutions. Delegation of authority from national governments might become permanent transfer of authority. Finally, in this view, old threats to the international order had dimmed: newly liberalized states, operating in an integrated world economy, had been “tamed.” The international agenda would shift from the threat of wholesale economic closure to the more manageable irritant of incompatible or illiberal national policies that thwarted international economic exchange. Battles over policy harmonization—how much was required and how it would be achieved—would supersede earlier struggles over the content of external liberalization. International scrutiny would move further and further into the formerly domestic preserves of national policy (Kahler and Lake 2003a). The IGO model retained its central place in discussions of global governance. A diagnosis of neglected issue-areas or unwanted international outcomes typically led to recommendations for a global institution modeled on the IMF or the World Trade Organization (Esty 1994). Global economic integration would reinforce supranational authority and the IGO model of governance. In starkest form, these early predictions presented a portrait of national governance that would be hollowed out. Rather than remaining the prime targets of global governance, national governments would become increasingly irrelevant. Anti-globalization activists claimed that

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democratically accountable national governance would be eroded in favor of remote, bureaucratic organizations or collusive arrangements among international corporations. Supranational organizations might slip away from the direction of national governments and exercise their authority at the behest of increasingly influential corporate actors. A qualified version of these stark predictions emerged from more rigorous investigation of the consequences of globalization. Economic models of change in the site of governance weighed the competing influence of externalities and economies of scale in the provision of public goods on the one hand, and the persistence of heterogeneous preferences over public goods on the other. Globalization was likely to create cross-border spillover effects and to provide incentives for shifting governance to the supranational level. Globalization could also reveal economies of scale in public goods provision, for example, a common currency. Its effects on underlying preferences were more complex: globalization might encourage a homogenization in preferences over public goods. If one assumed no effect on underlying preferences, however, an increasingly open international economy would provide incentives for political disintegration, since sub-national groups, with different preferences over public goods, no longer depended as heavily on the national market as barriers to economic exchange fell.8 Although these economic models of governance change were more indeterminate than the simplest of the early predictions of globalization’s effects, the overall tendency, particularly if preferences over public goods became more homogeneous, would be for governance to shift upward. Although that tendency could be offset if globalization’s distributional or cultural effects produced more heterogeneity in preferences, concentration of governance at the national level was likely to erode. Predictions regarding the design of the global institutions themselves were less precise, but functional explanations for institutional design pointed toward more centralized institutions (ones with higher levels of delegated authority) under conditions of uncertainty. Arguably, globalization increased uncertainty about the state of the world and could contribute to greater delegation of authority to global institutions (Koremenos et al. 2001b; Kahler 1995). These findings are qualified in models that incorporate political dynamics, particularly distributive conflict and concerns over institutional accountability. Globalization creates winners and losers within national societies. Conflict between those who benefit and those who are disadvantaged is likely to slow movement toward supranational governance and arrest increased delegation to regional and global institutions. Strong preferences for democratic accountability may also bias outcomes in favor of the institutions of national or sub-national governance, which are closer to citizen-principals and are therefore likely to be viewed as more accountable. Democratization, another global trend in the last decades of the twentieth century, might therefore have effects on global governance that countervail those of globalization.9

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Global governance redefined: a proliferation of principals Even casual empiricism during the first decade of the new century confirmed that economic globalization had not produced most of these predicted effects on governance. The new international environment imposed new constraints on global governance as well as presenting opportunities for new models of international collaboration. Globalization both reinforces and undermines the inherited IGO model of global governance. New answers to the question “who governs?” demonstrate this simultaneous confirmation and questioning of the IGO model. On the one hand, global governance became fully multilateral for the first time, as developing and ex-socialist countries began to exercise their membership rights. Many key developing countries had not been deeply engaged in the international economy before the 1980s: outside East Asia, their economies did not export manufactures on a large scale. Governments typically discouraged and restricted foreign direct investment in favor of sovereign borrowing from international capital markets. As more economies shifted toward liberalization and greater dependence on the international economy after 1980, the stakes of the developing economies in global governance grew. With greater stakes came greater demands for participation and voice in governance. The club model of governance, in which the industrialized countries had held sway in the key global economic institutions, came under attack. The developing countries campaigned to change the decision rules and conventions that had sustained the power of the major economies in global governance. If globalization reinforced the multilateralism of the IGO model, it also undermined that model by adding claimants for the role of principal in these organizations. As Steven Charnovits (1997) describes, the IGO model of global governance had in some cases explicitly recognized the role of non-governmental actors. Transnational NGOs, often mobilized by opposition to economic globalization, now pressed a broad new agenda for global governance, from human rights to environmentalism, that confronted longstanding and relatively narrow definitions of scope in existing international organizations. NGOs also pressed claims to become new stakeholders in these institutions, exerting influence directly rather than through their national governments. In tandem with those claims, they mounted a strong critique of the process of global governance, arguing for greater democratic accountability.10 Their claims as new principals and proponents of greater transparency in the process of global governance often conflicted directly with demands by developing countries for greater influence in the same organizations and their willingness to accept the less transparent modalities of interstate bargaining.11

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Global governance redefined: institutional diversity The latest era of globalization has not witnessed a convergence on the IGO model of global governance. Only the creation of the WTO in 1995 followed earlier predictions of greater centralization, legalization, and delegation to supranational authority. Under conditions of deepening global financial integration, the scope of the IMF has instead become narrower. Developing countries are its sole clients; prevention and resolution of financial crises originating in emerging markets make up its shrunken mandate. Instead of convergence on the IGO model, divergent institutional models have proliferated. Two of these were earlier institutional competitors of the IGO model: hierarchy based in great power collaboration outside the multilateral framework and private-public networks. The growing importance of large developing economies—China, Brazil, and India—pulled the major industrialized economies back to a redefined multilateralism for global economic governance. In the domain of security, however, American military predominance moved the United States government toward unilateral action in preference to global multilateralism (United Nations) or alliances (NATO). Designing a global security regime or series of regimes in the presence of such military asymmetry became a major challenge, even as the long-running campaign against al Qaeda and the Iraq war led many Americans to question a unilateralist strategy. If the unilateral option dominates, hierarchical security institutions, described by David Lake, may co-exist with multilateralism in economic domains (Lake 2001). Public-private networks—another competitor to the IGO model of governance before World War II—revived with cross-border economic flows. Networked forms of governance, neither legalized nor centralized, often proved to be more efficient and flexible modalities for international collaboration. The Financial Stability Forum, the principal institutional innovation in response to recent financial crises, is a networked consortium of national financial regulators and international organizations. It builds on the network of central bankers at the Bank for International Settlements (BIS) that has coordinated international banking regulation for three decades. In such networked organizations, the formal authority of any single node is limited. Anne-Marie Slaughter has described a different form of networked organization—transgovernmental networks that return authority to disaggregated national governments. As Slaughter notes (2004), these networks of government agencies are “decentralized and dispersed, incapable of exercising centralized coercive authority.” Global governance also incorporates NGO networks that challenge both corporations and multilateral organizations for a role in global governance (Haufler 2003). Their relationship to national governments remains ambiguous. Some are barely nongovernmental because of funding and other links to government entities;

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governments also worked successfully to maintain their role as gatekeepers to authoritative negotiating forums and international organizations. In other issue-areas, Raustiala and Victor (2004: 305) have described new forms of international governance as regime complexes, based on existing institutional density and lacking “any central, hierarchical international institution.” As described by Walter Mattli (2001 and 2003), purely private governance, in the form of standards setting and arbitration, also assumed a larger role in governance. Finally, in certain areas at the core of globalization, such as foreign direct investment, efforts to construct multilateral global institutions have failed entirely. Instead, a web of bilateral investment treaties governs international investment.12 A diverse institutional menu has accompanied the new era of economic globalization. Few of these alternatives incorporate delegation of new authority to a centralized and legalized IGO. Global governance redefined: policing the border between public and private Globalization has created new outcomes—both positive and negative—that are the targets of governance. The IGO model had designated rogue states as the principal source of disorder in the global economic and security systems. Early predictions of governance shifts under globalization implied that national governments would be sapped of capabilities or constrained by the “golden straitjacket” of economic interdependence (Friedman 1999: 83–92). The threat of great power conflict declined with the end of the Cold War; interstate war also began a steady decline in the final decade of the century. Errant governments, therefore, appeared to pose a shrinking threat to global order. If the original IGO model overstated the importance of governments as a source of disturbance, this initial perspective on globalization overstated the role of private actors in constraining governments. A revised view of globalization and governance pointed to the interaction between governments and non-state actors as critical to both the production of positive global outcomes and the avoidance of negative outcomes. Non-state actors have assumed a larger role in global politics, in the international economy, and in new security threats. In the economic realm, the old concern over trade wars among the major industrialized countries—revived as recently as the early 1990s—has faded with an awareness that those governments have so much invested in the global trade and investment regime that only a major shock could push them toward policies of economic nationalism and closure. More threatening are financial crises that have recurred since the 1980s. Those crises have implicated emerging market economies in the first instance and then illuminated surprising links among financial centers and key financial institutions. The Asian financial crisis, its subsequent spillovers to Russia and Brazil, the threat to the global financial system posed by the failure of

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Long Term Capital Management, and the gradual internationalization of the 2007–08 home mortgage crisis in the United States are only the most recent examples. The economic connections that are constantly forged and ruptured in an integrated global financial system will produce unexpected future crises of wide scope. National economic development and international financial stability have become more dependent on a dance that governments undertake with financial markets in order to avoid a rapid withdrawal of confidence and capital that can lead to currency and banking crises as well as economic recession. “Good” monetary and regulatory policies are constantly redefined as the international financial system evolves. A combination of government missteps and private miscalculation (or herd behavior) can produce precisely the crisis that both public and private actors wish to avoid. In the realm of security, transnational non-state actors with violent agendas—whether criminal or political—were already targets of national policy before the terrorist attacks of September 11, 2001 (Andreas 2003: 78). Those events and the terrorist and non-proliferation threats that followed have confirmed the importance of threats arising from the border between state and non-state. The Bush Administration’s turn toward war with the Saddam Hussein regime in Iraq was a step back, toward an obsolescent view of decrepit rogue states as the principal threat to United States security. Centered on the leading nuclear scientist in Pakistan, the A.Q. Khan network was an apt illustration of the sources of new international insecurity and their link to globalization: a public-private network that sold nuclear plans and materiel developed by the Pakistan government to governments (and possibly others) for private gain. The Khan network was able to draw on a critical transnational group of suppliers because of the porous nature of a globalized world economy. Mobile financial resources, transferred through formal and informal transnational networks, have also sustained al Qaeda and other terrorist groups. Complicated interactions between governments and private actors lie at the heart of new threats to both economic prosperity and national security. Global governance redefined: complementarity in the sites of governance Contrary to early predictions, globalization did not uniformly shift governance to the supranational level and undermine the authority of national governments. Both the IGO model and the earliest predictions in the era of globalization assumed that political authority at one site of governance would substitute for authority at another: if supranational authority expanded, national authority would be compromised. Contemporary global governance has instead demonstrated that political authority at different levels can be mutually reinforcing or interdependent.

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Regional institutions provide one prominent example. The creators of post-1945 global institutions and later proponents of those institutions viewed regionalism as a potential threat to global governance and the more open international economy that post-1945 institutions promoted. Even the GATT, lacking many of the powers of the failed ITO, incorporated restraints (often flouted) on regional trade arrangements. As interest in bilateral and regional trade arrangements grew in the late 1980s and the 1990s, the identity of regionalism as either a building block or a stumbling block for global trade liberalization received renewed attention. Although regional initiatives appear to gain support when global trade negotiations falter, the pattern since 1980 suggests that a strengthened global trade regime can co-exist and even benefit from regional arrangements. A disintegrated world of discriminatory and mutually exclusive trade blocs is still imaginable, but the new regionalism is unlikely to produce it.13 Regional governance influences the effectiveness of global institutions in other ways as well. Global economic integration “remains uneven and spatially differentiated” (Kahler and Lake 2003b: 435). Regional neighborhoods that produce radically different outcomes—whether measured by interstate violence, democratic regimes, or economic openness—have remained features of a globalized world (Solingen 1998). Patterns of governance and regional institution building range from the high density and broad scope of European institutions to the far more informal and less authoritative institutions of East and Southeast Asia. Regional governance also affects affinities for global regimes. For example, ratifications of global human rights treaties, such as the convention establishing the International Criminal Court, display a distinct regional bias, with European ratifications nearing 90 percent and very few ratifications in South Asia or the Middle East.14 Global governance also relies on national capabilities, rather than substituting for those capabilities. Even during the heyday of neoliberal policy prescriptions, the “orthodox paradox” had been apparent: resilient market reforms require effective national institutions. Successful economic development is associated with robust national institutions, and the positive benefits of globalization are greater in societies linked by effective institutions to the world economy (Rodrik, Subramanian, and Trebbi 2004). Across many issueareas, contemporary global governance requires the creation or reform of national institutions. Accession to the World Trade Organization has required commitments by developing countries to build institutions that can protect intellectual property rights (including revisions to domestic legal institutions) and enable implementation of international obligations. The new international financial architecture, the core global response to recurrent emerging market crises in the 1990s, awarded a central place to reformed regulatory and supervisory regimes in developing countries (Eichengreen 1999: 42–51; Eichengreen 2002: 23–39; Kahler 2000). Environmental accords also require national capabilities for effective monitoring and enforcement.

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Even compliance with human rights regimes, as Turkey has recently demonstrated, entails reform of police and judicial systems to eliminate the conditions for torture and other violations.

Global governance in a new environment Effective governance in the new global environment requires renovation of existing institutions of global governance and a careful reassessment of the roles of global, regional, and national governance. Many of the key institutions of global governance were established in a world that had suffered the disintegrating shocks of depression and war. In certain respects, they are the victims of their own success: as globalization has advanced, they risk becoming ineffective or irrelevant. Several difficult issues must be confronted: principal proliferation and institutional paralysis; accepting and exploiting the strengths of institutional models other than the familiar IGO; enhancing institutional accountability while avoiding institutional overload; and finally, linking global governance to strengthened regional and national capabilities. A consensus on subsidiarity—which functions should remain with national governments and which should be delegated to old or new institutions of global and regional governance—would support new and more effective governance structures. Principal proliferation and institutional paralysis The globalized world of the new century has remained a world of fragmented sovereignty. Although the European Union represents a new actor of larger scale, the characteristic territorial actor in world politics remains a small sovereign state. Globalization has offered substantial new incentives for activism as national stakes in the world economy have grown. One consequence has been near paralysis, particularly for those institutions, such as the WTO, that retain consensus decision rules. Multilateral negotiations have become increasingly difficult, as repeated breakdowns in the Doha round of WTO negotiations have demonstrated. The club system that informally governed many global institutions has broken down or, if embedded in formal decision rules, it is under siege. Those who were excluded from the most influential inner circle now demand admission, whether the United Nations Security Council, where Japan, Germany, and Brazil seek permanent membership, or the Bretton Woods institutions, where the developing countries have questioned both the privileged role of the industrialized countries and a less-than-transparent mode of decision-making. These new influentials could be co-opted into existing governance structures, but the cost to decision-making efficiency and organizational effectiveness is likely to be high. An alternative solution—relatively rare among institutions of global governance—is a system of representation

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that would effectively organize and give voice to governments—with widely divergent stakes and capabilities—without rendering decisions impossible. A new system of representation for member governments, however, cannot resolve the question of whether and by what means non-state actors should be directly involved in global governance, a question closely linked to the issue of accountability. Another solution to the proliferation of principals at the global level is a turn toward groups of smaller membership, particularly regional organizations. Unfortunately, as regional organizations grow in size and their mandates increase in complexity, the same shortcomings in decision-making appear. The constitution of the European Union, defeated by referendums in France and the Netherlands in 2005, was designed in part to deal with the threat of paralysis in an enlarged European Union. The formerly coherent ASEAN has found it more difficult to reach consensus on new initiatives following the expansion of its membership. So long as member governments protect their sovereignty and struggle for influence within formal international organizations—the IGO model—the shortcomings of largemembership multilateralism will reduce the effectiveness of global and regional governance. Movement to other institutional models—particularly networks and hierarchies—may offer a solution. Networks and hierarchies as institutional alternatives Globalization has not produced a general turn toward a reinforced IGO model. Global financial integration has neither strengthened the IMF nor produced new centralized and legalized institutions to which national governments have delegated authority. The availability of institutional alternatives is one explanation for a level of supranational delegation that is lower than predicted. In regulatory cooperation and other domains, a combination of networked collaboration and hierarchy (delegation of a policy sector to more powerful states) has produced cooperative outcomes in the absence of an influential supranational institution (Kahler and Lake 2009). Although networks and hierarchies have often supplemented or substituted for supranational delegation and the IGO model, these alternatives may also serve as blueprints for the redesign of existing global governance institutions. Given the political costs of ceding policy domains to another national government, hierarchy is far more controversial. Nevertheless, one form of economic hierarchy—dollarization—has been adopted by small, open economies that are economically dependent on the United States or the European Union. Existing global institutions are already central nodes in policy networks, and their influence may benefit from an expansion of their network roles. The World Bank, for example, is a key member of a global aid network constituted by aid recipients, national development agencies, regional development banks, private corporations, and NGOs. That network,

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more or less effectively, mobilizes to coordinate assistance to aid recipients. The expanding network of central bankers, centered on the BIS, continues to play a key role in managing financial crises. Networks, whether purely intergovernmental or incorporating private and NGO actors, often demonstrate flexibility in membership and mandate that permit cooperative advance without time-consuming and distracting negotiations over rules and participation. Institutions of governance: accountability and overload A crisis of legitimacy has engulfed global institutions, which have been criticized for lacking transparency and accountability. Although developing country governments and NGOs have each criticized the IGO model on these grounds, their definitions of accountability diverge: developing countries demand greater accountability to all member governments; NGOs emphasize accountability to global civil society or to citizens that they claim to represent. Greater transparency in existing global institutions has gone some distance to satisfying their criticisms. Nevertheless, equating accountability in these global and regional institutions with particular form of democratic accountability is misplaced. The appropriate analogy for these institutions is the delegated authority that is widespread in domestic, non-elective institutions. Central banks, regulatory agencies, and courts are all ultimately accountable to citizen-principals in a democracy, but the selection of their personnel and their decision rules are not congruent with majoritarian democratic procedures. Their effectiveness is in large measure dependent on their liberation from those procedures (Pollack 2002). Admitting the need for such liberation in global institutions would be a first step toward designing appropriate institutions of accountability (Kahler 2004; Keohane and Nye 2003). Strategies of accountability must aim to reduce the frequently steep tradeoff between accountability and legitimacy on the one hand, and other core institutional goals, such as effectiveness, on the other. Both the IMF and the World Bank now have accountability agencies that stand outside their organizational hierarchies. The IMF’s Independent Evaluation Office analyzes IMF programs using criteria set by the member governments. Its findings are made available to a wide audience outside the Fund. The World Bank’s Inspection Panel accepts requests for evaluation of the effects of Bank programs on clients. The criteria for evaluation are those set by the Bank’s members, but the evaluator is independent of Bank management. Both institutions rely on the dissemination of their findings as a means to produce organizational change and learning. Another strategy of accountability extends these practices of independent evaluation by institutionalizing competition among centers of expertise situated inside and outside governance institutions. Leadership selection practices that are more transparent also build accountability (Kahler 2001b). Without effective innovation to insure greater transparency and accountability at regional and global levels

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of governance, electorates and national leaders will resist awarding more authority to those levels of governance. As new functions are added in a haphazard fashion to old institutional designs, overload and mission creep impair the effectiveness of international institutions. The world of the IGO model was more easily parceled into distinct issue-areas than the contemporary globalized system, which has forced a redefinition of the international agenda. New issues have risen on that agenda—the environment, migration, human rights—and national elites have displayed a distinct reluctance to create new, authoritative institutions to deal with them. As a result, existing global institutions often become an awkward home for ill-fitting programs. Organizational expertise may be inadequate for the new mandates, and additional responsibilities risk distracting these institutions from existing programs that are central to their purpose. Linking trade and the environment at the WTO, adding financial regulation to the mandates of the Bretton Woods institutions, and awarding peacekeeping and nation-building responsibilities to NATO are only a few examples of mission creep since the end of the Cold War. Existing institutions of global governance may fill evident gaps in the patchwork of global governance; the result, however, is too often a haphazard widening of their scope. Global governance, regional neighborhoods, and national capabilities Redefinition of global governance during two decades of globalization has demonstrated that levels of governance are often complements, not substitutes. Avoiding institutional paralysis at the global level may require devolution of contentious issues to regional institutions. Building a global regime for foreign direct investment, for example, provoked strong political resistance at the global level. Regional trade agreements, on the other hand, have been able to incorporate investment provisions. Alleged accountability deficits, which motivate many critics of global institutions, may be more effectively reduced at the regional and national levels, where the chain of delegation is less extensive and mechanisms of democratic accountability can be deployed (as they have been in the European Union). Effective global governance is dependent on compatible regional neighborhoods and capable national governments. Two distinct strategies have built regional orders that are compatible with the demands of global governance. The first, represented by ASEAN, assumes domestic political heterogeneity and, through socialization, encourages compliance with norms of international behavior that comes to identify the region. For ASEAN, these norms are incorporated in its Treaty of Amity and Cooperation as well as other agreements and declarations. Regional norms in this case are both borrowed from and lend support to the United Nations Charter and its norms of territorial integrity, political autonomy, and peaceful resolution of

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disputes. On this basis, ASEAN has constructed a successful regional order, one that approaches a security community. A second strategy, characteristic of regional orders in Europe and Latin America, builds on and reinforces domestic political homogeneity in the form of democratic institutions. Supported by regional institutions and peer pressure, those democratic polities, in turn, conduct their foreign policies according to global norms. Although globalization is sometimes portrayed as a welcome constraint on wayward governments, capable national governments remain an essential foundation for successful global governance. The collapse of legitimate political authority in failed states represents a security threat to their neighbors and sharp setback to economic development. Weak domestic capabilities prevent governments from fulfilling global obligations. Unfortunately, international strategies for building and sustaining effective national governance have seldom been successful. The occupation of Iraq by a United States-led coalition has revived a hierarchical (imperial) strategy that many thought had disappeared: national governance imported and imposed, by coercive means if necessary. A redefined multilateral trusteeship has been suggested for states that have descended into anarchic and violent failure, although that strategy for building national governance faces many of the drawbacks in the imperial option. Existing global institutions have programs of technical assistance and surveillance of national policies that are aimed at gaps in national governance. For less reform-minded states, the instrument of conditionality— financial or other membership rewards in exchange for policy change and institutional development—has often been deployed, but it has seldom awarded the international community effective leverage over national policies (Kahler 1992 and Stone 2002). Those most optimistic about the reach of globalization have argued that market incentives and sanctions will encourage national governments to improve their capabilities and reform their institutions. During and after the financial crises of the 1990s, the power of international markets was emphasized as a critical support for the new international financial architecture. Private investors, it was argued, would avoid economies in which regulatory systems were flawed and the rule of law was weak. The response of investors to the SARS epidemic in 2003 made clear that governments could pay steep economic costs if they failed tests of transparency and effectiveness. Reliance on market discrimination as a replacement for other institutions of governance is misplaced, however. Private actors often have few incentives to either reward or sanction according to the rules and norms of global governance. In some cases, the advance of global economic integration may offer perverse incentives, for example, offering a safe haven to those avoiding legal and regulatory regimes established by national governments or international agreement. Investors discriminate among governments, but the bases for their discrimination only occasionally intersect with the rules and norms of global governance.

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Global subsidiarity: the boundaries of multi-level governance Globalization produced stark predictions that national governance would erode, and authority would inevitably shift upward toward less accountable regional and global institutions. Dani Rodrik has framed this possibility in the form of a trilemma (borrowing from the well-known trilemma of international monetary economics): in his view, citizens can have only two of the following three—global economic integration, democracy (mass politics), or the nation-state (Rodrik 2000 and 2005). In other words, effective democracy at the national level is incompatible with globalization and effective global governance. Decades of advancing global economic integration call into question such stark choices. Global and regional institutions can be made accountable to democratic electorates, even if the mechanisms of accountability are not themselves democratic. Globalization does not inevitably require or produce effective global governance, nor does it inevitably undermine national governments and their policy choices. I have argued, on the contrary, that effective national governments are essential to effective global governance. Embedded in that assertion is a second claim: that effective global governance implies choices about those governance functions that are best allocated to global, regional, national, or local levels. Such an allocation is fully compatible with accountable institutions, but accountability may not be enforced by formal democratic mechanisms at every level. Although the choices in Rodrik’s political trilemma are too stark, he correctly argues for a return to the vision of Bretton Woods, despite the transformations produced by global economic integration over the past 60 years. Hard but essential decisions must be made on the most effective site of authority for dealing with global problems that have long-term solutions at best—economic development, environmental degradation, political order, social inequality. Rather than imposing a single (American or Western or rich country) solution to those problems, global governance institutions should support governance at other levels in their own efforts to find effective strategies. Global governance may open the space and supply the resources for national and local governments—more directly accountable and perhaps better equipped—to experiment. Promising initiatives could then be transferred to other settings where experimentation could continue. It is often forgotten that global institutions after 1945 were designed to free national governments from international constraints so that they could pursue goals set by their citizens, in a more prosperous and peaceful environment created by international collaboration. That vision should be reinstated in the changed circumstances of a new century.

Notes 1. The author thanks Kelly Wurtz for his research assistance.

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2. The question of how important international institutions have been to particular international outcomes remains controversial. For a summary of the view that they were significant to the post-1945 global order, see Eichengreen and Kenen 1994. For a recent debate on this question as it applies to the GATT/WTO, see Goldstein et al. 2007 and Rose 2004a, 2004b. 3. For a definition of legalization, see Abbott et al. 2001. For a different categorization of institutional characteristics, see Koremenos, Lipson, and Snidal 2001a. If authority is delegated to a quasi-judicial entity that is responsible for interpreting or extending agreed rules, increased delegation also increases legalization. 4. Without using these labels, Downs, Rocke, and Barsoom 1998 give an excellent formal discussion of these alternatives. 5. Judith Kelley (2004) offers an excellent account of the use of both membership conditionality (based on the club model) and “socialization-based methods” (equivalent to the convoy model described here) in Europe to influence the policies of candidate states in East Europe. 6. Davies 2002: 3. The two eras were also bridged by individuals, such as John Maynard Keynes, a skeptic of American policy after 1919 and key designer of the Bretton Woods organizations; Per Jacobsson, a member of the Bank for International Settlements secretariat and later a Managing Director of the International Monetary Fund; and Jean Monnet, who moved from the League of Nations bureaucracy to become a founding father of the European Community. 7. For a discussion of domestic and international institutions as substitutes and complements, see Martin and Simmons 1998. 8. This summary and evaluation of economic models of governance change is based on Kahler and Lake 2003a, 2003b; Martin 2003; Alesina and Spolaore 2003: 81–94. 9. Supranational institutions may be equally accountable, but, as argued below, the mechanisms for enforcing accountability differ from those in the realm of national governance. 10. O’Brien et al. 2000 offer case studies of the interaction of NGOs with global multilateral institutions. 11. Kahler 2004; Sampson 2001 offer competing perspectives on the NGO–developing country divide in the WTO. 12. The Multilateral Agreement on Investment (MAI) was negotiated at the OECD from 1995 to 1998. The Agreement was open to all OECD members and the European Communities and open to accession by non-OECD (developing) countries. The negotiations failed under intense pressure from NGOs in 1998. On the negotiations, see http://www.oecd.org/daf/mai/. 13. For a more negative assessment of regional (preferential) trade agreements, see Bhagwati 2008. 14. I owe this finding to the research of Heather Smith.

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Andreas, Peter. (2003) “Redrawing the Line: Borders and Security in the Twenty-First Century,” International Security 28(3)(Fall): 78–111. Bhagwati, Jagdish. (2008) Termites in the Trading System: How Preferential Agreements Undermine Free Trade, New York: Oxford University Press. Charnovits, Steve. (1997) “Two Centuries of Participation: NGOs and International Governance,” Michigan Journal of International Law 18 (Winter): 183–286. Davies, Michael D.V. (2002) The Administration of International Organizations: Top Down and Bottom Up, Aldershot: Ashgate Publishing Ltd. Downs, George, David M. Rocke, and Peter N. Barsoom. (1998) “Managing the Evolution of Multilateralism,” International Organization 52(2)(Spring): 397–419. Eichengreen, Barry. (1999) Toward a New International Financial Architecture, Washington, DC: Institute for International Economics. Eichengreen, Barry. (2002) Financial Crises, Oxford: Oxford University Press. Eichengreen, Barry and Peter B. Kenen. (1994) “Managing the World Economy under the Bretton Woods System: An Overview,” in Peter B. Kenen (ed.) Managing the World Economy: Fifty Years after Bretton Woods, Washington, DC: Institute for International Economics: 3–57. Esty, Daniel. (1994) Greening the GATT: Trade, Environment, and the Future. Washington, DC: Institute for International Economics. Friedman, Thomas L. (1999) The Lexus and the Olive Tree, New York: Farrar Straus Giroux. Goldstein, Judith, Douglas Rivers, and Michael Tomz. (2007) “Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade,” International Organization 61(1)(January): 37–67. Haufler, Virginia. (2003) “Globalization and Industry Self-Regulation,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton: Princeton University Press. Kahler, Miles. (1992) “External Influence, Conditionality, and the Politics of Adjustment,” in Stephan Haggard and Robert R. Kaufman (eds) The Politics of Economic Adjustment, Princeton: Princeton University Press. Kahler, Miles. (1995) International Institutions and The Political Economy of Integration, Washington, DC: The Brookings Institution. Kahler, Miles. (2000) “The New International Financial Architecture and Its Limits,” in Gregory W. Noble and John Ravenhill (eds) The Asian Financial Crisis and the Structure of Global Finance, Cambridge: Cambridge University Press. Kahler, Miles. (2001a) “Conclusion: The Causes and Consequences of Legalization,” in Judith Goldstein, Miles Kahler, Robert O. Keohane, and Anne-Marie Slaughter (eds) Legalization and World Politics, Cambridge, MA: MIT Press. Kahler, Miles. (2001b) Leadership Selection in the Major Multilaterals, Washington, DC: Institute for International Economics. Kahler, Miles. (2002) “Bretton Woods and its Competitors: The Political Economy of Institutional Choice,” in David Andrews, Randall Henning, and Louis Pauly (eds) Organizing the World Economy, Ithaca, NY: Cornell University Press. Kahler, Miles. (2004) “Defining Accountability Up: The Global Economic Multilaterals,” Government and Opposition 39(2)(Spring): 132–158. Kahler, Miles and David A. Lake. (2003a) “Globalization and Governance,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton: Princeton University Press.

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Kahler, Miles and David A. Lake. (2003b) “Globalization and Changing Patterns of Political Authority,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton, NJ: Princeton University Press. Kahler, Miles and David A. Lake. (2009) “Economic Integration and Global Governance: Why So Little Supranationalism?” in Walter Mattli and Ngaire Woods (eds) The Politics of Global Regulation, Princeton, NJ: Princeton University Press. Kelley, Judith. (2004) “International Actors on the Domestic Scene: Membership Conditionality and Socialization by International Institutions,” International Organization 58(3)(Summer): 425–457. Keohane, Robert O. (1984) After Hegemony, Princeton: Princeton University Press. Keohane, Robert O. and Joseph S. Nye. (2000) “Introduction,” in Joseph S. Nye and John D. Donahue (eds) Governance in a Globalizing World, Washington, DC: Brookings Institution Press. Keohane, Robert O. and Joseph S. Nye. (2003) “Redefining Accountability for Global Governance,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton, NJ: Princeton University Press. Koremenos, Barbara, Charles Lipson, and Duncan Snidal. (2001a) “The Rational Design of International Institutions,” International Organization 55(4)(Autumn): 761–800. Koremenos, Barbara, Charles Lipson, and Duncan Snidal. (2001b) “Rational Design: Looking Back to Move Forward,” International Organization 55(4)(Autumn): 1051–1082. Lake, David. (2001) “Beyond Anarchy: The Importance of Security Institutions,” International Security 26(1)(Summer): 129–160. Martin, Lisa N. (2003) “The Leverage of Economic Theories: Explaining Governance in an Internationalized Industry,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton, NJ: Princeton University Press. Martin, Lisa N. and Beth Simmons. (1998) “Theories and Empirical Studies of International Institutions,” International Organization 52(4)(Autumn): 747–749. Mattli, Walter. (2001) “Private Justice in a Global Economy: From Litigation to Arbitration,” International Organization 55(4)(Autumn): 919–947. Mattli, Walter. (2003) “Public and Private Governance in Setting International Standards,” in Miles Kahler and David A. Lake (eds) Governance in a Global Economy: Political Authority in Transition, Princeton, NJ: Princeton University Press. Murphy, Craig N. (1994) International Organization and Industrial Change: Global Governance since 1850, New York: Oxford University Press. O’Brien, Robert, Anne Marie Goetz, Jan Art Scholte, and Marc Williams. (2000) Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements, Cambridge: Cambridge University Press. Pollack, Mark A. (2002) “Learning from the Americanists (Again): Theory and Method in the Study of Delegation,” West European Politics 25(1): 200–219. Raustiala, Kal and David Victor. (2004) “The Regime Complex for Plant Genetic Resources,” International Organization 58(2)(Spring): 277–309. Rodrik, Dani. (2000) “Governance of Economic Globalization,” in Joseph S. Nye and

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John D. Donahue (eds) Governance in a Globalizing World, Washington, DC: Brookings Institution Press. Rodrik, Dani. (2005) “Feasible Globalizations,” in M. Weinstein (ed.) Globalization: What’s New? New York: Columbia University Press. Rodrik, D., A. Subramanian and F. Trebbi. (2004) “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development,” Journal of Economic Growth 9(2). Rose, Andrew. (2004a) “Do We Really Know that the WTO Increases Trade?” American Economic Review 91(4)(March). Rose, Andrew. (2004b) “Do WTO Members have More Liberal Trade Policy?” Journal of International Economics 63(2)(July): 209–235. Sampson, Gary P. (ed.) (2001) The Role of the World Trade Organization in Global Governance, Tokyo: United Nations University Press. Shanks, Cheryl, Harold K. Jacobson, and Jeffrey H. Kaplan. (1996) “Inertia and Change in the Constellation of International Governmental Organizations, 1981– 1992,” International Organization 50(4)(Autumn): 593–627. Simmons, Beth. (2001) “The Legalization of International Monetary Affairs,” in Judith Goldstein, Miles Kahler, Robert O. Keohane, and Anne-Marie Slaughter (eds) Legalization and World Politics, Cambridge, MA: MIT Press. Slaughter, Anne-Marie. (2004) A New World Order, Princeton, NJ: Princeton University Press. Solingen, Etel. (1998) Regional Orders at Century’s Dawn: Global and Domestic Influences on Grand Strategy, Princeton, NJ: Princeton University Press. Stone, Randall. (2002) Lending Credibility: The International Monetary Fund and the Post-Communist Transition, Princeton, NJ: Princeton University Press. Williamson, John. (2002) “Did the Washington Consensus Fail?” Washington, DC: Institute for International Economics. Outline of remarks at the Center for Strategic and International Studies, November 6. Yergin, Daniel. (1991) The Prize: The Epic Quest for Oil, Money, and Power, New York: Simon & Schuster.

Index

accountability: global institutions 15, 175–6, 180, 183, 184, 190, 191–2, 192, 194; regional institutions 194; supranational institutions 195 n.9 Africa 21, 22 African Charter on Human and Peoples’ Rights 52 African Union 43 ageing populations 9, 28, 29 agriculture: employment in 22, 128, 135, 141; migrant workers 22; subsidization 22; taxes on 22, 40 n.8 aid 38, 190 Aide Medicale Gratuite (1893) 163 al Qaeda 185, 187 Alderson, A. 135, 136 Algeria 25 Allgemeines landrecht (1794) 160 American Convention on Human Rights 47–8, 52 Argentina 58, 59, 69, 129, 133, 144 ASEAN (Association of Southeast Asian Nations) 179, 190, 192–3 Asian financial crisis (1997) 5, 186 Assistance Obligatoire pour les Vieillards, Infirmes et Incurables 163 asylum seekers 24, 25, 28, 51–2, 53 Atlantic Economy 3, 10, 14, 158, 167–8 attitudes, see elite attitudes; public attitudes austerity programs, IMF 131–2 Australia 19, 69, 71, 170 Austria 26, 27, 71, 170 authoritarian regimes 174; Latin America 133, 134, 139 Bank for International Settlements (BIS) 181, 185, 191

banking: central 191; collapses 2; early systems 2; regulation 185 Barbados 144 Barroso, J.M. 29 Beitz, C. 80 Belgium 26, 27, 73, 170 belle époque 3 Benso di Cavour, C. 160 birth rates 9, 67 Bismarck, O. Von 160, 163 Blair Bill, US 165 Blue Card program 29 Böhning, R. 38 Bolivia 144 Bordo, M. 157 Borjas, G. 70, 71, 82 Boyer, G.R. 64 brain drain 108 Brazil 130, 144, 185; financial crisis 186; immigration 69; import substitution industrialization (ISI) 129; UN Security Council membership 189 Bretton Woods 4, 189, 192, 194 Britain 2, 71; capital flows 157; competitiveness 170; education 164–5; foreign population 26; health care 163; immigration 9, 25, 29, 30, 50, 67 (IT professionals 31); nationality regulation 49; population 9; social welfare 158–9, 161, 163; suffrage 166–7; wages 62, 63 Bulgaria 29, 71 Burmese 19 Canada: competitiveness 170; immigration 19, 20, 25, 32, 40 n.18; (attitudes to 32, 71; points system 32,

200

Index

40 n.18; restrictions 58, 69); population 59 Cansati Law (1859), Italy 165 capital controls 6 capital flows 10, 13, 65–6, 103, 128, 130, 154, 155, 169, 181 capital-labor ratios 64 capital markets, openness 131, 132, 141, 148 capital mobility 5, 6, 78, 103, 104, 131; and social welfare provision 154–70 capital mobility hypothesis 14–15, 154–5, 156, 157, 165, 166 capitalism, global 2–3 Carens, J. 80 Caribbean, see Latin America and Caribbean central banks 191 centralization of global governance 15, 175, 177, 179, 180 Chae Chan Ping v. United States (1889) 50 Chang, H. 10–11, 78–99 Charnovits, S. 184 Chicago Council on Foreign Affairs 111 children: labor laws 164; migration issues 50, 52; right to nationality 48 Chile 129, 130, 133, 144 China 32, 185 Chinese 20 citizenship 45, 49 civil conflict 9 civil rights 48 Clayton Anti-Trust Act, US 162 Clayton, R. 155 Cold War 9, 174, 181, 186 Colombia 144 Colombians 19 colonialism 158, 174, 181 commodity market integration 156 commodity prices 5 communications 3, 20, 23, 24, 43 communitarians 11, 79–80 commuting 83 comparative advantage 101 comparative political economy 6 competitiveness 169, 170 conditionality 193; IMF 131–2 conscription 46, 47, 49 Conseil Consultatif d’Hygiene Publique 159, 163

Conseil Superieur d’Assistance 163 constitutionalism 3 Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT) 52 Convention on the Elimination of All Forms of Discrimination Against Women 48 Convention on the Nationality of Married Women 48 Convention on the Reduction of Cases of Multiple Nationality (1963) 47, 49 Convention on the Rights of the Child 48, 52 convergence hypothesis 5–6 cooperation, international 1–2, 4 Coppedge, M. 138, 139 Coppino Law (1877), Italy 175 cosmopolitanism 12, 54, 109, 118, 119, 121, 122 Costa Rica 129, 144, 146 Council of Europe 49 counterterrorism 52 credit crisis 5 Cuba 59 cultural change 96 cultural communities 10–11; and global social welfare 81–93; and immigration restrictions 11, 80, 82, 83–4, 89–90, 94, 97; and labor mobility 78–99; stability of 89–90, 96, 97; voluntarily segregated 11, 80, 81, 82–3, 84, 85, 91–2, 94, 97 cultural diversity 83, 85, 86, 87, 96, 111 cultural/social stability 89–90, 96, 97 culture, common 84 Cusack, T.R. 139 Cutler, D. 89 Czech Republic 71 death rates, Ireland 64 debt, sovereign 157 debt crisis, Latin America 13, 128, 129–30, 147, 148 degree of freedom problem 155, 156, 166 deindustrialization 13, 128, 130, 148 delegation of authority: Europe 176; global governance 15, 175, 177, 179–80 democracy/democratization 13, 15, 149, 166–8, 194; and global governance 183; immigration restrictions and 80, 95–7; and inequality 127, 129, 132–3,

Index 143, 147; Latin America 127, 129, 132–3, 143, 147 Democrats 121 demography 8, 20, 21, 24, 28, 66, 67, 136; see also population denationalization 45, 48, 49 denaturalization 45 Denmark 26, 65, 67, 170 deportation 45, 46, 50 depression 4, 180 deregulation 5 developing countries: birth rates 67; brain drain 108; and capital mobility 131; foreign direct investment 37, 184; and global governance 178, 184, 189, 191; and IMF 13, 128, 129–30, 131–2, 148, 185; institution building 188; living standards 67; migration between 8, 19; remittances to 27, 34, 35, 36; trade with 35–7, 38; see also Latin America and Caribbean; and individual countries development, see economic development Development Assistance Committee 38 diplomacy, great power 177 distributive justice 93 diversity immigrants 33, 40 n.21 dollarization 190 Dominican Republic 19, 32, 144 Dutch trading empire 2 East Timor 23 Eastern Bloc, break-up 9 economic development: inequality and 135; investment and 37; remittances and 27, 34, 35, 38; trade and 35–7, 38 economic differences 20, 21–3, 24 economic geography 6, 121–2 economic growth 5, 8, 149; Latin America 130, 147 economic instability 180 economic integration 38, 174, 176, 181–2, 188, 194 education 27, 51, 164–5, 168; expenditure 134, 140; higher 130, 131, 148, 149; and inequality 132, 134, 135, 146, 147; Latin America 130, 134, 135, 140, 143, 148, 149; level of 100–1, 117–18 Education Act (1870), Britain 165 efficiency wages 62

201

Egal, Z. 14–15, 154–73 Eichengreen, B. 157 El Salvador 32, 144 elite attitudes, to trade, migration and outsourcing processes 12, 34, 100–1, 111, 115–17, 122 emigration 10, 53; Europe 25, 59; ‘friends and relatives’ effect 66, 67; see also family unification; and income inequality 10; and living standards 10, 60, 62–5, 67, 72–3; as poverty relief 10, 11, 60–6, 72; as self-limiting process 10, 60, 66–7; and wages 61–6, 67 Employer’s Liability Act (1871), Germany 161 employment: agricultural 22, 128, 135, 141; government 46; illegal 8; industrial 128, 132, 141; informal sector, Latin America 128, 132, 134, 141; migrant labor 8–9, 11, 27; see also underemployment; unemployment employment rights 51 England, see Britain enlightenment 3 Enron 5 environmental issues 188, 192 equality 65; of opportunity 11, 80, 93–7, 97; see also inequality ethnic cleansing 9 ethnicity 128; inequality and 136, 143; Latin America 140–1, 143; voluntary segregation by 82 Europe 20; emigration 25, 59, 67; guest worker programs 25, 26, 27; immigration 25–31, 67; restrictions 58; skilled workers 29, 31; population 21, 22; see also European Community; European Union (EU); and individual countries European Commission 180 European Community 177, 178–9, 180, 181; see also European Union (EU) European Convention on Human Rights 52 European Convention on Nationality (1997) 49 European Convention for the Protection of Human Rights and Fundamental Freedoms 52 European Court of Human Rights 52

202

Index

European Court of Justice 180 European Monetary System 5 European Parliament 180 European Union (EU) 43, 46, 179, 189; constitution 190; harmonization processes 52, 53; migration issues 52–3; nationality issues 46, 49; Turkey and 38, 179; see also European Community exchange rates 4 expatriation 45, 48 externalities, migration 86–9 extradition 46 factors of production, mobility of, see capital mobility; labor mobility Factory Act (1819), Britain 164 family unification 8–9, 21, 27, 32, 33, 45, 50, 52; see also ‘friends and relatives’ effect fascism 3 Federal Reserve Act, US 162 Fédération Nationale de la Mutualité (FNMF) 161 Ferenczi, I. 58 Ferguson, N. 157 Filipinos 19 financial crises 2, 5, 7, 185, 186–7, 191, 193 financial innovation 5 financial regulation 185, 187, 192 Financial Stability Forum 185 financial system 186–7 Finland 170 Fisher, L. 39 Forester, W.E. 165 France 74, 190; education 164; foreign population 26; health care 163; immigration 9, 25, 29, 30 (of IT professionals 31); population 9, 26; social welfare 158, 159, 161–2, 163; suffrage 167 Franco-Italian labor accord (1904) 73 Franklin, B. 34 Frattini, F. 29 free trade 73–4, 78 freedom of association 51 freedom of movement 51, 53; see also labor mobility Freeman, R.B. 70

‘friends and relatives’ effect 66, 67; see also family unification Fuchs, S. 139 G-10 178 G-7 178 Garrett, G. 155 GATT (General Agreement on Tariffs and Trade) 73–4, 174, 177, 178, 179, 181, 188 Gaza 39 n.6 GDP (gross domestic product), world 35–6 Germany: competitiveness 170; education 164; emigration 67; foreign population 26, 27–8; health care 163; immigration 9, 20, 29, 30, 31, 71 (green card program 31; of professionals 31); naturalization policy 31; population 9, 26, 27–8; as rogue state 180; social welfare 160–1, 163; suffrage 167; UN Security Council membership 189 Gewerbeordnung (1845) 160 Gladstone, W.E. 161 Glaeser, E. 89 global economic multilaterals (GEMs), see multilateralism Global Forum on Migration and Development 34–5 global governance 15–17, 174–98; accountability 15, 175–6, 180, 183, 184, 190, 191–2, 192, 194; centralization, extent of 15, 175, 177, 179, 180; club model of 178–9, 181, 184, 189; complementarity 176, 187–9; delegation of authority 15, 175, 177, 179–80; democratization and 183; developing countries and 178, 184, 189, 191; great power collaboration 185; great power diplomacy 177, 178; institutional characteristics 175–6, 179–80; institutional diversity 176, 185–6; intergovernmental organization (IGO) model 16, 175, 176, 177–81, 182, 184, 186, 190, 191, 192; legalization, degree of 15, 175, 177, 179, 180; multilateralism 16, 175, 177, 178, 180, 184, 185, 186, 190; and national governments 177–9, 185–6, 194; networks and hierarchies 185, 190–1; overload 192;

Index principal proliferation 176, 184, 189–90; public and private, border between 176, 186–7; public-private networks 185; transgovernmental networks 185; transparency 184, 191–2 global social welfare: and cultural communities 81–93; and labor migration 10, 79 GNI, see gross national income goods: flow of 10, 53; public 183; trade in 36, 78, 79, 103 governance: private 16, 176, 177, 182, 186; public-private networks 177; regional 16, 174, 176, 178–9, 180, 181, 183, 187–8, 190, 192–3, 194; subnational 16, 182, 183; supranational 16, 176, 179–80, 182, 183; see also global governance; national governments government employment 46 Gramlich, E. 81 Grand Bureau des Pauvres 159 great power collaboration 185 great power diplomacy 177 green card program 31 gross domestic product (GDP), world 35–6 gross national income (GNI): per capita 19, 20, 21–2, 23; world 21 Guatemala 144 guest workers 8, 20–1, 25, 26, 27, 28, 38 H-1B program 33 Hague Convention on Nationality Laws (1930) 46, 47 Hainmueller, J. 117–18 Haiti 38 Haitians 19 Hanson, G.J. 108 Hatton, T.J. 66, 68 Hayek, F.A. von 5 head taxes 69 health care 109, 162–4 health expenditure 134, 140, 146 Heckscher–Ohlin model 103, 112, 113 Hirschman, A. 155 Hiscox, M.J. 117–18 Honduras 144 Hong Kong 170

203

Huber, E. 12–14, 127–53 Huberman, M. 73 human capital 129, 132, 134, 135, 140, 149 human rights 9, 188, 192; international regulation and 44, 45, 47–8, 50, 51, 52, 54; migration and 21, 23, 38 human trafficking 10, 52, 54 Hungary 71 Hyberman, M. 73 Iceland 170 identity: and attitudes to globalization 12, 100, 106, 118, 119, 121, 122; crisis of 7; migration and 109–10; multiple 43; national 9 IMF (International Monetary Fund) 2, 5, 174; conditionality 131–2; and global governance 177, 178, 179, 181, 185, 190, 191; Independent Evaluation Office 191; and Latin America 13, 128, 129–30, 131–2, 148; remittance data 35; repurchasing obligations to 141 immigrants: diversity 33, 40 n.21; illegal/ unauthorized 24, 25, 34, 54, 67, 79; naturalization 19, 31, 45 immigration 7, 9, 156; attitudes to 32, 34, 70–2; cultural communities and 10–11, 82, 83–4; demographic argument for 28; developing countries 8, 19; Europe 25–31, 67; high-income countries 20; inequality and 68–70; international law and 9, 44, 50–4; levels 9; living standards and 67–8, 73; national origins quota systems 94–5; political economy of 67–72; redistributive policies and 108–9; restrictions, see immigration restrictions; state sovereignty and 9, 20, 44, 54, 80; taxes and 108; urban–rural differences 110–11; urbanization and 110–11, 119, 121; and wages 67–8, 69–70, 72, 78, 79, 86 immigration restrictions 10, 11, 24–5, 58, 68–9, 91–3, 100; and cultural communities 11, 80, 82, 83–4, 89–90, 94, 97; and cultural/social stability 96; and global labor market 79, 80, 81, 83–4, 91; and global social welfare 80, 81; international constraints 9, 44, 50–3; and liberal democracy 80, 95–7

204

Index

import substitution industrialization (ISI) 13–14, 128, 129, 148, 149 income tax 46, 130, 162 income(s): and attitudes to trade, outsourcing and migration 118; distribution of 10, 11, 60, 65, 79, 127; gap 37; inequality 7, 10, 13, 127, 128, 129, 131–49; see also gross national income (GNI); wage(s) indentured workers 24 India 25, 31, 32, 185 Indonesia 37 Indonesians 19, 23 industrial accident insurance 161, 162 industrial employment 128, 132, 141, 146 industrialization, import substitution (ISI) 13–14 inequality 65; agricultural employment and 128, 135, 141; in assets 127; authoritarianism and 133; democracy and 127, 129, 132–3, 143, 147; development models and 128–30; economic development and 135; education and 132, 134, 135, 146, 147; ethnicity and 136, 143; foreign investment and 128, 131, 146, 147, 148, 149; health expenditure and 134, 140, 146; immigration and 68–70; income 7, 10, 13, 127, 128, 129, 131–49; industrial employment and 128, 132, 141, 146; inflation and 135; informal sector and 128, 132, 134, 141, 146, 148; Latin America and the Caribbean 12–14; political partisanship and 133–4; in political power 127, 128, 132–3; population growth and 136; sector dualism and 135, 143, 147; social security and welfare spending and 134, 143, 146, 147; trade openness and 141, 147–8 inflation 135 informal sector, Latin America 128, 132, 134, 141, 146, 148 information flows 10, 53 information technology (IT) professionals 31 institution building: international 4, 16, 174; national 188–9 intellectual property 53, 188 Inter-American Development Bank (IDB) 135

interdependence 5 intergovernmental organization (IGO) model of global governance 16, 175, 176, 177–81, 182, 184, 186, 190, 191, 192 International Convention on the Protection of the Rights of all Migrant Workers 19 International Court of Justice 46–7 International Covenant on Civil and Political Rights (ICCPR) 48 International Criminal Court 188 international institutions 4, 16, 174–5; membership 177 (club model 178–9, 181, 184, 189; compliance 178, 179; convoy model 177, 178); see also global goverance; and names of individual institutions International Labor Organization (ILO) 18–19, 24, 74 international law 9, 43–4; immigration and 9, 44, 50–4; nationality and 9, 44, 45–50, 53–4 international political economy 6 International Trade Organization (ITO) 179, 188 investment 66; bilateral treaties 186; and development 37; foreign 13, 37, 74, 184, 186, 192 (Latin America 128, 131, 146, 147, 148, 149); Multilateral Agreement on (MAI) 195 n.12 Iraq 185, 187, 193 Ireland 26, 29; death rates 64; emigration 60–1, 62, 64, 67; immigration 67 (attitudes to 71, 72); labor force 62; living standards 62–3; wages 61, 62, 63–4, 66 Irish Famine 64, 66, 67 Israel 170 IT professionals 31 Italy 20, 71, 74; banking operations 2; education 165; emigration 62, 63, 64, 65; foreign populations 26; health care 163–4; immigration 9, 29, 30; labor force 62; labor standards 73; living standards 62–3, 65; population 9, 26; social welfare 160, 162, 163–4; suffrage 167; wages 62, 63, 64 Ivory Coast 19 Jacobsson, P. 195 n.6 Jamaica 144

Index Japan 74; competitiveness 170; immigration 20, 70, 71; as rogue state 180; UN Security Council membership 189 Johnston, St. George 61–2 Kahler, M. 15–17, 174–98 Katz, L.F. 70 Keohane, R.O. 178 Keynes, J.M. 4, 5, 195 n.6 Khan network 187 Kim, J. 157 Kohl, H. 5 Kuznets, S. 135 labor: demand elasticities 70; marginal product of 78; prices 5, 60, 61, 103; shortages 9, 28; smuggling 8, 19, 24; standards 8, 73; supply 60, 70 labor force 22, 62; Europe 26, 27; female 27; skilled 29, 31, 33; unskilled 29, 62, 65, 68, 70, 71–2 labor–land ratios 68 labor market: immigration restrictions and 79, 80, 81, 83–4, 91; labor migration and 78–9, 83–4, 85–7; regulation 73; trade in 79, 80, 82–3, 86 labor migration 8–9, 60–74, 103; externalities 86–7; international regulation of 50, 52; and labor market 78–9, 83–4, 85–7; sustainable 18–42; wages and 61–70, 72, 78, 79, 84, 86 labor mobility 10–11, 78, 103; and cultural communities 79–99 Land Act Commission Report (1881), Ireland 61–2 land–labor ratios 68 language 84, 85, 87 Latin America and Caribbean: agricultural employment 128, 141; authoritarian regimes 133, 134, 139; capital markets 131, 132, 148; debt crisis 13, 128, 129–30, 141, 147, 148; deindustrialization 13, 128, 130, 148; democracy 127, 129, 132–3, 143, 147; economic growth 130, 147; education 129, 130, 134, 135, 140, 143, 146, 148, 149; ethnicity 140–1, 143; foreign investment 128, 131, 146, 147, 148, 149; health expenditure 134, 140, 146; IMF involvement 13, 128, 129–30, 131–2, 148; import substitution

205

industrialization (ISI) 13–14, 128, 129, 148, 149; industrial employment 128, 132, 146; inequality 12–14, 127–53; informal sector 128, 132, 134, 141, 146, 148; market liberalization 132, 141, 146; neoliberal model 13, 128, 130, 148–9; political partisanship 127, 129, 133–4, 138–9; population 22; poverty 14, 130; privatization 13, 128, 132, 148; sector dualism 135, 143, 147; social security/welfare 127, 130, 134, 140, 147; structural adjustment 13, 14, 128, 130; taxation 130, 132; see also individual countries Latvia 70, 71, 72 law: immigration 9, 24, 32, 33, 44; see also international law Law on Accident Insurance (1884), Germany 161 Law on Disability and Old-Age Insurance (1889), Germany 161 Law on Health Insurance of Workers (1883), Germany 160–1 Lazear, E. 84–5, 86, 87 League of Nations 74 Lee, C.-S. 135, 140 Legomsky, S. 9–10, 43–57 Lewchuck, W. 73 Li, Q. 131 liberal democracy, immigration restrictions and 80, 95–7 Liechtenstein v. Guatemala (1955) 47 Lisbon Treaty 72 living standards 3, 79, 156; convergence 10, 62–5; developing countries 67; emigration and 10, 60, 62–5, 67, 72–3; immigration and 67–8, 73 local–global balance 6 Long Term Capital management 187 Lora, E. 141–2 Luxembourg, foreign population 26, 40 n.12 Machado, R. 141–2 Malaysia 19, 37 Malians 19 market forces 4, 5, 13 market liberalization 132, 141, 146 Marshall, Chief Justice 50 Marshall Plan 181 Martin, P. 8–9, 18–42 Mattli, W. 186

206

Index

Mauro, P. 157 Mayda, A.M. 71 medieval origins 2 Medina, M. 11–12, 100–26 Metropolitan Poor Act (1867), Britain 163 Mexicans 20 Mexico 35, 129, 144 middle classes 3 migrant self-selection, theory of 71 migrants: agricultural employment 22; economic 20–1, 25–6, 27, 38, 39; family unification 8–9, 21, 27, 32, 45, 50, 52; illegal/unauthorized 24, 25, 34, 67, 79; numbers 18, 59; remittances 9, 27, 34, 35, 36, 66; returning 27, 34, 38, 64, 67; rights 8, 19, 20, 23, 24, 34, 38–9, 48, 51, 52; skilled 29, 31; transfers 41 n.24; unemployment 28; unskilled 29; see also immigrants migration 3, 8–12, 102–3, 192; between developing countries 8, 19; demand– pull factors 20–1; elite/public attitudes to 11–12, 100–1, 111–22; externalities 86–9; free 10, 58–76; hump 37; and identity 109–10; and income distribution 10, 11, 60, 117; international 8, 9, 20–5; international regulation of 9, 44, 50–3; labor, see labor migration; middlemen recruiters 21, 39 n.5; multinational 10, 53; network factors 20, 21; outsourcing and trade (substitutability of 35–7, 104; theoretical connections 101–5); as policy substitute/complement 12, 104, 106, 107; rotation model 26; rural– urban 8, 22, 23, 25, 128; south–south 19; supply–push factors 20, 21; trade as substitute for 35–7, 104; transition 20; see also emigration; immigration military operations 158; see also warfare military service 46, 47, 49 minority populations 87–9, 90–1 mission creep 192 Mokyr, J. 61 Monnet, J. 195 n.6 Monod, H. 163 Morley, S. 131, 141–2 Morrill Act (1862), US 165 mortgage crisis, US 5, 187 movies 23, 40 n.10 multicultural society 85, 95, 96

Multilateral Agreement on Investment (MAI) 195 n.12 multilateralism 16, 175, 177, 178, 180, 184, 185, 186, 190 multinational corporations 182 Mundell, R.A. 103, 104, 105 nation-building 9, 192 nation-state, see state(s) national characteristics, persistence of 5–6 national governments 176, 185–6, 194; capability 192–3; erosion of national identity 9 national institutions 188–9 National Pension Law (1910), France 161 nationalism 3, 109 nationality 10, 44; dual 45, 47, 48, 49, 54; international regulation of 9, 44, 45–50, 53–4; loss of 48, 49; state sovereignty over 9, 44, 47; termination of 45, 48, 49 NATO 185, 192 naturalization 19, 31, 45 neoliberal model 155; Latin America 13, 128, 130, 148–9 Netherlands 26, 71, 170, 190 networks, global 185, 190–1 New Deal 162 New Zealand 19, 71 Nicaragua 144 Nicholas, S. 61 Nielsen, F. 135, 136 non-governmental organizations (NGOs) 43, 177, 182, 184, 185–6, 191 nonrefoulement, principle of 51, 52 North America: immigration 59; population 21, 22; see also Canada; United States North German Confederation 167 Norway: competitiveness 170; emigration 62, 64, 65; foreign population 26; gross national income (GNI) per capita 21; immigration, attitudes to 71; labor force 62; living standards 62–3, 65; wages 62, 63, 64 Nottebohm case (1955) 46–7 nuclear weapons 187 Nye, J.S. 178

Index Ó Gráda, C. 61, 65 Obstfeld, M. 157 OECD (Organization for Economic Co-operation and Development) 10, 38, 65, 155, 178 Official Development Assistance (ODA) 38 oil crisis (1973–74) 27 opportunity, equality of 11, 80, 93–7, 97 Organization of American States 43 O’Rourke, K. 10–11, 58–76, 79, 103, 156 Ottaviano, G. 86, 87, 111 outsourcing 100, 108; elite/public attitudes to 11–12, 100–1, 111–22; as policy substitute/complement 12, 104, 106, 107, 117; and trade and migration (substitutability of 104; theoretical connections 101–5) overload, global governance 192 Pakistan 25, 187 Panama 144 Paraguay 144 Parochial Schools Bill, Britain 164 Passel, J. 79 passport applications 45 peacekeeping 192 pension systems 160, 161–2 Peri, G. 86, 87, 111 Permanent Court of International Justice 46 perpetual allegiance, doctrine of 49 Perry, S. 95, 96, 97 Peru 133, 144 Pettinato, S. 141–2 Philippines 32, 35, 70, 71, 72 Pierson, P. 155 Pogge, T. 80 Poland 71, 74 Poles 20, 29 policy, national autonomy in 6 political economy of immigration 67–72 political geography 6, 121–2 political partisanship 13, 119, 121; Latin America 127, 129, 133–4, 138–9 political power, inequality in 127, 128, 132–3 political rights 48, 166–8 Pontusson, J. 155 Poor Law Commission (1834), Britain 158–9 Poor Laws, Britain 158–9, 161, 163

207

poor relief: early- to mid-1800s 158–60; emigration as 10, 11, 60–6, 72 poorhouse systems 159 population: ageing 9, 28, 29; decline 28, 39 n.6; foreign born 26, 27, 59; growth 21, 22, 39 n.6, 136; working age 28, 29, see also demography poverty 149, 162; Latin America 14, 130 poverty traps 64–5, 66 prices 156; commodity 5; labor 5, 60, 61, 103 private governance 16, 176, 177, 182, 186 privatization 5, 13, 128, 132, 148 property rights 51 property tax 130 Prussia 160 public attitudes: to migration/ immigration 11–12, 32, 34, 70–2, 100–1, 111–15, 117–22; to outsourcing 11–12, 100–1, 111–22; to trade 11–12, 100–1, 111–22 public goods provision 183 public health 162–4 Public Health Act (1848), Britain 163 public–private networks, global governance 185 Putnam, R.D. 110, 118, 121 race-to-the-bottom hypothesis 6, 14–15, 154, 155, 156, 157, 165, 166 racial segregation 89, 93 racism 69, 100 Raustiala, K. 186 Reagan, R. 5 recession 5 redistributive policies 6, 7, 13, 108–9, 128 Reforms Acts, Britain 164, 166 refugees 10, 24, 33, 38, 50, 51–2, 53–4, 70, 74–5 n.4 regional organizations/governance 16, 43, 174, 176, 178–9, 180, 181, 187–8, 190, 192–3, 194 religion 51, 150 n.5 remittances 9, 66; to developing countries 27, 34, 35, 36, 38 Republicans 119, 121 restrictive covenants 92, 94 retirement systems 27; see also pension systems Reuveny, R. 131

208

Index

rights 51; civil 48; employment 51; migrant 8, 19, 20, 23, 24, 34, 38–9, 48, 51, 52; political 166–8; see also human rights Rodrik, D. 73, 194 Rogowski, R. 107 rogue states 180, 186, 187 Romania 29 Rosen, H. 81 Royal Commission on Agricultural Labour (1893) 61 Rubinfeld, D. 81 Rueschemeyer, D. 136 rule of law 3 Russia 19, 39 n.6, 71, 186 Russians 23 SARS epidemic 193 Schelling, T. 87, 88–9, 90 Scheve, K. 108, 118 School Laws (1879–84), France 164 sector dualism 135, 143, 147 security 9, 180, 186, 187; global architecture of 4, 175, 179, 185; migration and 20, 21, 23, 24 SEDLAC 136 segregation: racial 89, 93; voluntarily constructed 11, 80, 81, 82–3, 84, 85, 91–2, 94, 97 separatist movements 9, 23 services: flow of 10, 53; free movement of 78; trade in 36, 41 n.26, 103 settlement house system 159 Shergold, P.R. 61 Sickness Insurance Law (1873), Germany Singapore 170 Singer, P. 80 Sinnott, R. 70 Slaughter, A.-M. 185 Slaughter, M.J. 108, 118 slavery 59 Slovakia 71 Slovenia 70 Smith, A. 18 Smith–Hughes Act (1917), US 165 Sobel, A. 11–12, 14–15, 100–26, 154–73 social capital 118–19 Social Security Act (1935), US 162 social welfare 24, 108, 109; access to 33; capital mobility and provision of 154–70; Latin America 127, 130, 134,

140, 143, 146, 147; and trade liberalization 78; see also global social welfare social welfare state 4, 6–7, 9, 13, 73, 154; in 1800s 14–15, 157–65 social/cultural stability 89–90, 96, 97 Soering v. United Kingdom (1989) 52 South Korea 20 sovereign debt 157 sovereignty, state 9, 20, 44, 47, 54, 80, 154 Soviet Union 23, 31; breakup of 9, 39 n.2 Spain 20, 26, 71 statelessness 45, 47, 49, 54 state(s) 4, 6, 84, 174, 194; creation of new 23; failed 193; intervention 4, 13; rogue 180, 186, 187; sovereignty 9, 20, 44, 47, 54, 80, 154 Stephens, J. 12–14, 127–53 Stimson, J.A. 142 Stolper–Samuelson model of trade 12, 103, 104, 105–6 Stone, I. 157 Storesletten, K. 108 structural adjustment 13, 14, 128, 130 students 33 sub-prime crisis 5, 187 subsidiarity 189, 194 subsidies, agricultural 22 suffrage 166–8 supranational organizations/governance 16, 176, 179–80, 181, 182, 183 Sussman, N. 157 Swank, D. 155 Sweden 29; competitiveness 170; emigration 65, 67; foreign population 26; immigration, attitudes to 71; living standards 65; wages 65, 66 Switzerland 26–7, 170 Sykes, A. 80 Taiwan 170 Tamir, Y. 82 taxes 169; agriculture 22, 40 n.8; head 69; immigration and 108; income 46, 130, 162; Latin America 130, 132; property 130 Taylor, A.M. 64, 157 television 23, 40 n.10 terrorism 10, 54, 187 Thailand 19 Thatcher, M. 5 3-D jobs 22

Index Tiebout, C. 81, 82–3 Timmer, A. 69 ‘tipping’ model 89, 90 torture 52 tourists 33 trade 2, 4, 43, 66, 74, 181; and development 35–7, 38; elite/public attitudes to 11–12, 100–1, 111–22; free 73–4, 78; in goods 36, 78, 79, 103; Heckscher–Ohlin model 103, 112, 113; liberalization 104, 132, 141, 146, 188; and migration and outsourcing (substitutability of 35–7, 104; theoretical connections 101–5); openness to 13, 108, 128, 131, 141, 147–8; as policy substitute/ complement 12, 104, 106, 107, 117; protection 100; regional arrangements 181, 188, 192; in services 36, 41 n.26, 103; Stolper–Samuelson model 12, 103, 104, 105–6; as substitute for migration 35–7, 104; wars 186; see also GATT; World Trade Organization transparency, global governance 184, 191–2 transportation 3, 20, 23, 43, 53, 85 travel, declining cost 24 Treaty of Versailles 74 Trinidad & Tobago 144 Tsai, P.-L. 131 Tunis and Morocco Nationality Decrees Case (1923) 46 Turkey 29, 38, 179, 188 Turks 20 Tushnet, M. 94 Ukrainians 19 underemployment 21 unemployment 21, 27; benefits 109, 161; migrants 28 unilateralism, US 185 United Kingdom, see Britain United Nations (UN) 19, 24, 179, 180, 181, 185; Charter 192–3; Conference on Migration and Development (2006) 34; Convention Against Torture (CAT) 52; Convention on the Elimination of All Forms of Discrimination Against Women 48; Convention on the Nationality of Married Women 48; Convention

209

Relating to the Status of Refugees (1951) 51; Convention on the Rights of the Child 48, 52; International Convention on the Protection of the Rights of all Migrant Workers 19; International Covenant on Civil and Political Rights (ICCPR) 48; Protocol Relating to the Status of Refugees (1967) 51; Security Council 178, 189; Universal Declaration of Human Rights (UDHR) 47, 48, 52 United Nations (UN) High Commissioner for Refugees (UNHCR) 38, 51 United States: attitudes to globalization processes, see elite attitudes; public attitudes; competitiveness 170; cultural communities 81–2; education 164, 165; Federal Reserve 5; Federal Trade Commission 162; and global governance 177, 181, 185; immigration 19, 20, 23, 25, 32–4, 110–11 (attitudes to 71; families 33; H-1B program 33; national origins quota system 94–5; numbers 59, 108; and population decline 30; of professionals 29, 33; restrictions 24, 50, 58, 68–9, 92–3; and social welfare access (Proposition 187) 33; unauthorized 34, 79; and wages 68); income tax 162; mortgage crisis 5, 187; New Deal legislation 162; population 59; racial segregation 89; savings and loan crisis 5; Sixteenth Amendment (1913) 162; social welfare 159, 162; suffrage 167; Supreme Court 50; Treasury 5; unilateralism 185; wages 63 United States Commission for the Study of International Migration and Cooperative Economic Development 37 Universal Declaration of Human Rights (UDHR) 47, 48, 52 urbanization, and immigration 110–11, 119, 121 Uruguay 129, 144, 146 Vaccination Act (1848), Britain 163 Vandenbussche, H. 107 Venezuela 19, 144 Victor, D. 186

210

Index

voter registration 45 voting rights 166–8 wage(s) 156; efficiency 62; and emigration 61–6, 67; gap in 37, 64; and immigration 67–8, 69–70, 72, 78, 79, 84, 86; unskilled labor 62, 65, 68, 70, 71; see also income(s) Walz, U. 108 Walzer, M. 11, 79–80, 82, 83, 87, 89–90, 91, 93, 94, 95 warfare 158, 180, 186; see also World War I; World War II Washington Consensus 5, 149 wealth: aggregate 11; media portrayal of 23, 40 n.10 Wellisch, D. 108 Westphalian system 9 Willcox, W.F. 58 Williamson, J.G. 64, 65, 66, 68, 69, 103, 156, 178

Wilson, W. 58 women: labor force participation 27; nationality rights 48 Women’s Convention 48 World Bank 2, 129–30, 135, 141, 174, 177, 190, 191; Inspection Panel 191 World Income Inequality Database (WIID) 136 World Trade Organization (WTO) 2, 74, 174, 178, 185, 188, 189, 192 World War I 3–4 World War II 3–4, 16 xenophobia 100, 109, 118, 119, 121 Yafeh, Y. 157 Yates Report (1834), US 159 zoning 92, 94