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Immigration: Peril or Promise?

Politicians are fanning fears about refugees and economic migrants, but new blood can inject new energy into sluggish economies.

Different people see different things when it comes to the hot-button issue of immigration. To Donald Trump, the surprise front-runner for the Republican presidential nomination, many immigrants are “criminals, drug dealers, rapists,” as he told Fox News last summer, or at best “cheap labor” costing the U.S. “hundreds of billions of dollars,” as his website claims. Trump became more strident after a terrorist couple killed 14 people in a California shooting, calling for a “total and complete shutdown” of Muslims entering the U.S. To Marine Le Pen, the right-wing nationalist who’s a leading candidate to become France’s next president in 2017, terrorists may be lurking within the floods of Syrian refugees pressing for safe haven in Europe. “Our fears and warnings of the possible presence of jihadists entering our country” came true, Le Pen said after a forged Syrian passport with a Greek immigration stamp was found near the body of one of the terrorists who killed 130 people in Paris in November.

To Vivek Wadhwa, an Indian-born entrepreneur in the U.S., the face of immigration is his own. “I started two companies in Silicon Valley and gave jobs to one thousand Americans,” says Wadhwa, who is now a fellow at Stanford University’s Rock Center for Corporate Governance. “But we’ve gone into reverse on immigration and are sending today’s entrepreneurs back to start their companies in India or China.”

Diana Furchtgott-Roth, who served as the U.S. Labor Department’s chief economist under former president George W. Bush, contends that immigrants help the economy hum by doing millions of jobs natives won’t touch. “Immigrants have different skills and job preferences, so they make American workers more effective,” says Furchtgott-Roth, now a scholar at the Manhattan Institute for Policy Research in New York. “Not many American children want to grow up to be housecleaners or pick fruit.”

Debates over whether immigrants are a boon or a bane have simmered across the developed world for decades, often in sync with economic cycles. But the Syrian exodus and the Paris terror attacks have ratcheted passions to the point that candidates like Trump and Le Pen are realistically contending for power and threatening the world’s drift toward closer economic and social integration, a trend long considered inevitable. Between the U.S. election in November 2016 and the French contest five months later, U.K. voters may elect to leave the European Union, primarily to protest unbridled immigration, in a referendum promised by Prime Minister David Cameron. Opinion polls conducted in the wake of the Paris assaults showed a majority favoring so-called Brexit for the first time.

Raw numbers suggest that immigration was a political accident waiting to happen. The foreign-born population of the 34 rich nations of the Organization for Economic Cooperation and Development has swelled by 43 percent from 2000 to 2013, to 117 million. Although the vast majority have come to work — refugees account for just 7 percent of migrant flows worldwide, according to the OECD — a significant number draw social welfare benefits in their adopted countries, at least in Europe. Unemployment among the foreign-born population of the Continent’s OECD members sits at nearly 16 percent, compared with 10.8 percent for native-born citizens.

The human tide from Syria, Europe’s largest refugee crisis since the aftermath of World War II, is sure to add more dependents — and raise the political temperature — in the short term. The U.S. manages to absorb some 70,000 refugees a year under a long-standing program, yet Republicans vilified President Obama after he announced plans in September to take in 10,000 Syrian refugees over the next year. Germany, by contrast, is expecting to accept 800,000 Syrian refugees in 2015, but Chancellor Angela Merkel’s welcoming attitude is drawing increasing criticism. In a bid to stem the tide and deflect the political heat, the European Union agreed at the end of November to provide €3 billion ($3.2 billion) in aid to Turkey and to revive membership talks with Ankara in return for the country’s commitment to stanch the flow of refugees into the EU.

It is no wonder that democratic politics have reacted to these pressures, yet the economic and security fears aroused by immigration risk distorting the picture. Immigrants are a key driver of whatever economic expansion the Western world is eking out these days. Cheap labor or not, newcomers account for a striking 70 percent of employment growth in the EU over the past ten years and 46 percent in the U.S., according to OECD data. As of 2015 they will be responsible for 100 percent of population growth in low-fertility Europe.

The rapidly aging EU would need to quadruple current immigration levels from outside the union to maintain its present worker-to-retiree ratio of 3.3 through 2050, says Lant Pritchett, a professor at Harvard University’s John F. Kennedy School of Government. The alternative is to drift toward Japan’s 2.2 figure, the lowest in human history. “Now is the time for Europe to learn to let their people come — not just because it is the right thing to do, but because they need them,” Pritchett wrote in a recent blog post.

Anxiety over immigrants does not exist in a political vacuum. Politicians who stoke it typically share other positions that strike at the heart of today’s globalized economy. Trump has lambasted the Chinese as “people who are destroying your children’s and grandchildren’s future” and advocated a 20 percent tariff on all imports to the U.S. Le Pen wants France to abandon the euro, and in the wake of the Paris attacks she has called for abrogating the Schengen zone of travel without border controls in the heart of Europe. “People may moderate their views once they achieve power, but these policies of Le Pen would be a catastrophe,” says Eric Chaney, chief economist at Paris-based AXA.

Even if ?Trump and Le Pen fail, the resentment propelling them and other nationalist politicians — like Geert Wilders, leader of the Netherlands’ Party for Freedom, who has compared the Koran to Mein Kampf and says the Dutch “want their country back,” and Jimmie Åkesson, whose Sweden Democrats say their country needs to stop immigration to save the welfare state — is unlikely to fade. It threatens to undermine internationalist trends that have been ascendant since the collapse of Soviet Communism and China’s shift toward free markets, says Jeffrey Garten, dean emeritus of the Yale School of Management and a former U.S. undersecretary of Commerce. “Globalization has become so complex that it’s creating a kind of indigestion when countries want to get their bearings,” he says. “The enormous backlash against immigration and refugees is an illustration of that.”

NATIVIST REACTION AGAINST IMMIGRATION and the broader integrationist agenda is not a foregone conclusion, however. Polling data can be contradictory, but in a 2014 survey by the U.S.-based Pew Research Center, solid majorities in the U.K. and Germany agreed that immigrants “make our country stronger.” In the U.S., 63 percent of the public thinks “immigration is a good thing,” according to a recent poll by the National Academy of Sciences.

One factor in this underlying goodwill is the rising proportion of people like Vivek Wadhwa. Thirty percent of immigrants in OECD nations are highly skilled. Job growth among foreign-born U.S. residents during the economic recovery underscores the trend: Construction, a classic employer of migrants, was the most vibrant sector, adding 372,000 jobs from 2011 to 2014, but trailing close behind at 320,000 was professional and technical services.

Canada and Australia have transformed their smaller societies with little dissent by using a merit system to attract the well-off and skilled. Canada’s foreign-born population has swelled to nearly 20 percent of all residents and Australia’s to more than 25 percent, compared with 13 percent in the U.S. and U.K. A stunning 90 percent of Australians believe immigration improves their society, according to a 2015 poll by the Australian National University. Comfort with migration fosters generosity toward refugees. A week after the Paris attacks, newly elected Prime Minister Justin Trudeau signed off on a plan to resettle 25,000 Syrian refugees in Canada, even as dozens of U.S. governors signed illegal executive orders to ban them from their states.

In the bigger rich countries, the racial face of immigration is shifting away from the groups that have provoked the most antagonism, though you might not know it listening to Trump or Le Pen. Over the past ten years, Europe has welcomed fewer Muslims and many more of its Continental brethren from new EU members like Poland and Romania. In the U.S., Asian newcomers now outnumber those from Latin America.

In a profound historical twist, 70 years after World War II, Germany is the beacon of tolerant internationalism in Europe. Merkel has opened the door for Syrian refugees and declared that “Islam belongs to Germany.” Her stance has generated no small amount of backlash, from both her own conservative electorate and from EU partners opposed to her refugee-­sharing plan. Yet Merkel brings rich political capital to this crisis: ­German employment stands at its highest level since reunification in 1990, and there is a broad awareness in Germany that, with the world’s lowest birth rate, the country needs fresh blood. The chancellor’s approval ratings have dipped but remain above 50 percent, an enviable number for other Western leaders. “The most right-wing 20 percent of the electorate has become increasingly agitated, but the rest are not in a panic,” says Josef Janning, who heads the Berlin office of the European Council on Foreign Relations (ECFR). That could change, however, if the chancellor fails to restore a sense of order by spring. “If we still have refugees living in school gymnasiums in March, so that children have to skip their sports lessons, patience could run out,” Janning says.

FOR GUIDANCE ON GLOBAL BEST practices in absorbing immigrants, Europeans might look to Canada and Australia. The two countries bring cultural and geographic advantages to the modern migration era: frontier histories and no land borders with poorer nations. Canada hung out the world’s first sign advertising for rich immigrants in 1986, with a statute that offered permanent residence to anyone who would invest C$500,000 ($375,000) in the country. That law brought in 57,000 families over the next decade, mostly Hong Kongers seeking a safe haven before the city’s 1997 return to China, and a further 128,000 before the so-called investor immigration program was terminated in 2010 amid concerns about fraud.

Ottawa built on this approach in the early 1990s, instituting a points system that awards some 60 percent of residence permits based on candidates’ educational and professional achievements. The government has fine-tuned the law in recent years to emphasize English- or French-language skills and concrete job offers in Canada. Australia, which held to a whites-only immigration policy until the early 1970s, began opening up to refugee waves from Asia in the late 1970s, beginning with people fleeing from Vietnam. In the ’90s it established merit-based immigration.

The results have been astonishing. Two societies, traditionally almost exclusively European by ethnicity, transformed themselves racially while maintaining steady economic growth rates of 2 to 3 percent since 2000; relatively low unemployment (6 percent currently in Australia, 7 percent in Canada); and minimal social tension. “Immigration has fallen off the map as an issue of political dispute,” says Keith Banting, a professor of public policy at Queen’s University in Kingston, Ontario.

The success of these immigration policies helps explain the countries’ welcoming spirit for refugees. Canada takes in roughly the same number of refugees as the U.S. on a per capita basis, and Australia accepts far more, according to the United Nations High Commissioner for Refugees. Australia does take a harsh line on unauthorized asylum seekers, locking them up on offshore islands or, lately, towing boats back to their ports of origin. Human rights groups have blasted this so-called mandatory detention policy, but it helped deflate the anti-­immigration One Nation Party, which was on the offensive in the late 1990s.

Canada and Australia maximize their imports of human capital; the U.S. seems to squander its own. America’s advanced industries and universities are the world’s most powerful magnet for bright and ambitious foreigners. The number of foreign higher education students in OECD countries swelled from 2.2 million to 2.7 million between 2008 and 2012, according to the organization; more than one in four headed to U.S. campuses. The overwhelming majority will be sent home again after earning their degrees.

Research cited by economist Furchtgott-­Roth indicates that 45,000 more science and technology graduates would stay in the U.S. each year if they had a choice, as would 75,000 holders of the temporary H-1B visas for high-tech workers. Wadhwa offers one example from this legion of lost talent: his countryman Kunal Bahl, who earned a bachelor’s degree in economics and management from the University of Pennsylvania in 2007, then went to work for Microsoft Corp. in emerging-­markets business development but was eventually deported. Back in India, Bahl, now 31, started Snapdeal, which has grown in five years to become one of India’s leading online shopping sites.

Since the failure of comprehensive immigration reform by the U.S. Congress in 2014, Silicon Valley has focused on expanding the H-1B program, which provides visas for 65,000 foreigners a year. Employers filed 233,000 applications for visas in just five days in 2015 when the H-1B window opened; the visas are awarded by lottery. A bill introduced in January by Utah Republican Senator Orrin Hatch would lift the H-1B cap to as many as 300,000 in high-­demand years and eliminate all work restrictions on foreign graduates of U.S. universities in science, technology, engineering and math.

The H-1B program has come in for criticism following press reports of iconic U.S. employers like Walt Disney Co. and Toys “R” Us replacing hundreds of IT workers with cheaper visa holders, and of Indian outsourcing companies like Infosys and Tata Consultancy Services crowding out U.S. entrepreneurs by flooding the system with applications.

The Hatch bill has encountered bipartisan resistance, led by Senator Jeff Sessions, a conservative Republican from Alabama, with intellectual support from union-backed think tank the Economic Policy Institute and some companies. “Some of the criticism of H-1B is justified,” Wadhwa says. “The program should be reserved for tech start-ups. In any case, the green cards are the real problem.”

Republican Senator Chuck Grassley and Democratic Senator Dick Durbin introduced a bill in November that would move in Wadhwa’s direction, restricting H-1B candidates to companies with fewer than 50 employees and requiring them to receive competitive salaries. But reform proposals face high hurdles in Congress, where many Democrats refuse to de-link the H-1B issue from comprehensive immigration reform and many Republicans oppose any liberalization at all. “The most likely outcome is stalemate,” says Daniel Costa, director of immigration law and policy research at EPI.

That leaves the U.S. with the immigration framework it enacted in 1965, under which three in four new arrivals come in through family ties. Yet an invisible hand manipulates this creaky system with remarkable efficiency for the labor market, economists say. Immigrants accounted for 21 percent of the increase in the U.S.’s highly skilled workforce over the past ten years, behind Canada’s 31 percent but ahead of Europe’s 14 percent, according to OECD figures.

The U.S. has plenty of unskilled immigrants, of course. Nearly 40 percent lack a high school diploma, compared with 9 percent of the native born, according to Furchtgott-Roth. That’s not such a bad thing, says Jennifer Hunt, who filled Furchtgott-Roth’s post at the DoL under President Obama and now teaches at Rutgers University in New Brunswick, New Jersey. The influx of laborers with limited English means more, not less, opportunity for native-born workers. “Immigration is good because it allows everybody to specialize more in what they’re best at,” Hunt says. “When immigrants come in to do unskilled jobs, they create more jobs for natives that emphasize language and communication.”

Economists debate whether a large pool of immigrant labor contributes to the wage stagnation that has become a depressing hallmark of today’s U.S. economy. Research by George Borjas, a Kennedy School professor who has led academia’s immigration-skeptic wing, shows an appreciable effect on workers without a high school degree, whose wages have dropped by 3.1 percent as a result of immigrant competition, but little effect on other groups. Hunt shrugs off this concern. “The evidence is that native-born high school dropouts have been hurt a little bit, but our response should be to improve education,” she says.

The U.S. has made a quiet success of its refugee program, albeit on nothing like the scale Europe is now contemplating. America resettled 66,000 asylum seekers in 2013, about two thirds of the global total, according to the Washington-­based Migration Policy Institute (MPI). More than 3 million have arrived since 1980, when current policies took effect, provoking far less public angst than surrounds labor-driven migration. This is true even though the refugee population is more alien — in a typical year comprising 64 nationalities speaking an impressive 162 primary languages — and more deprived than the general immigrant pool.

Nonetheless, refugees older than 16 are more likely to be employed than their U.S.-born neighbors, particularly the men, 67 percent of whom work, compared with 60 percent of natives. One contributing factor is a tough-love policy that offers a scant 30 days of support through a community organization, though many receive conventional social benefits after that. Although incomes at first lag those of the native-born, they improve dramatically over time. Refugees who arrived between ten and 20 years ago earn 87 percent of the national average, according to MPI.

These positive results spring from a system that clears asylum seekers thousands of miles from U.S. shores and holds to a tight annual quota, says Randy Capps, the institute’s director of U.S. research. The largest spontaneous exodus to America was the so-called Mariel boatlift from Cuba in 1980, which brought some 125,000 and spurred the legislative regime that is still in force. “The message for Europe is that refugees come with skills — some, not all of them,” Capps says. “But at some point Europe will have to put on some limits and start scoring people.”

Whereas Canada and Australia accept foreigners based on skills and the U.S. on family, immigration to Europe has been driven by periodic windows for defined groups of people, from ex-­colonials and guest workers in the postwar decades to intra-EU migrants since 2000. Once established in employment, newcomers generally enjoy the full social benefits of their host countries, with the partial exception of pensions.

The result has been a comparatively low-skilled stream of immigrants that flows abundantly when economies are booming but can become a burden when times get hard. Spain’s population swelled by 15 percent in the decade 2000–’10 as construction workers flocked in from Eastern Europe, Latin America and North Africa. Even though the real estate bubble burst in 2008, many of those newcomers stayed on, aggravating a Spanish unemployment rate that remains above 20 percent.

Against this background 57 percent of European Union citizens professed a “negative feeling” about immigrants from outside the union, versus 35 percent who felt positive, according to a 2014 poll by the European Commission’s Eurobarometer service. Opinion on free migration within the EU was more supportive but not exactly warm: 52 percent positive and 41 percent negative.

Of the core European states, France most closely reflects this sour mood. Le Pen’s popularity is no surprise given that unemployment among immigrants, at 16 percent, is twice the rate of joblessness for the native-born. Economists like AXA’s Chaney blame unemployment on France’s high minimum wage — €9.61 ($10.19) an hour, compared with €8.50 in Germany and $7.25 in the U.S. — and restrictions on firing employees. “If we had fewer immigrants, the result would be higher prices rather than lower unemployment,” he says. But France’s population remains unconvinced: 52 percent think immigrants are “a burden on our country,” versus 45 percent who believe they make the nation stronger, according to the Pew poll.

Other issues inflame the immigration debate. France bans Muslim women from wearing head scarves to work or school, prohibiting a religious gesture that would seem innocent enough in many other countries. And France is paying a price for herding North African workers, who were supposed to stay temporarily, into isolated satellite towns in the 1950s and ’60s. These ghettos erupted in rioting for three weeks in 2005. “It’s safe to say that France’s integration policies have not been as strong as those in some other European countries,” says Thomas Liebig, senior migration specialist at OECD headquarters in Paris.

The U.K.’s experience of immigration, as of many things, lies somewhere between North America’s and continental Europe’s. Blessed with the dominant global language and a leading financial capital, the U.K. attracts well-educated immigrants — 46 percent hold a university degree, close to Canada’s 52 percent, according to OECD figures. The adoption of a Canadian-style points system in 2008 may have influenced this result. The U.K. attracts 420,000 foreign students — three times as many as the U.S. in per capita terms — and unemployment rates for immigrant and foreign-born men are about equal. In the U.K. public anxiety about newcomers seems less widespread than on the Continent and motivated more by sociological than economic worries. “People recognize that the Poles and others bring a very good work ethic, and joke about calling a Polish plumber if you really need something done,” says Phil Woolas, former minister for borders and immigration in Gordon Brown’s late-2000s Labour government and now a partner at London-based Wellington Street Partners. “But you will also hear people, particularly in poorer areas, complain about how they don’t recognize their country anymore.”

Cameron, pressed by euroskeptics in his own Conservative Party and by the rising, nativist UK Independence Party (UKIP), has played to these concerns. He ran for office in 2010 pledging to halve net migration to 100,000 per year. Instead, it has increased by half, to 300,000, driven by newcomers from other EU states. In 2013 the prime minister responded by promising the Brexit referendum, which he has said will take place no later than 2017.

Committing to the plebiscite may have helped Cameron in the 2015 general election, when his Tories won a surprise outright majority and UKIP was contained to a single seat at Westminster. But his implicit strategy of using Brexit as a lever to contain intra-EU immigration looks risky. Woolas and Continental analysts say there is little chance of EU partners granting the U.K. an opt-out on labor mobility. “This is not compatible with EU law, and changing the treaties is out of the question,” says the ECFR’s Janning. That leaves Cameron looking to obtain some symbolic victory, such as limiting newcomers’ access to social benefits.

The prime minister does have the relative advantage of time. He can stretch out his chess game with fellow EU leaders for two years before the Brexit deadline, though most analysts expect the referendum by late 2016. Germany’s Merkel faces the much more urgent challenge of finding an EU consensus on refugees, or limiting the flow, before the German public loses patience. “This is not a crisis of numbers; it’s a crisis of politics,” says Alexander Betts, director of the University of Oxford’s Refugee Studies Center. “The 1 million expected in Europe this year are no more than have been living in Lebanon, a country the size of Maryland.”

The political crisis seems intractable, though. Prime Minister Stefan Löfven of Sweden, Europe’s historical leader in refugee absorption, declared in November that “we simply cannot do any more.” Hungarian Prime Minister Viktor Orbán blasted Germany for what he called a “secret pact” with Turkey at the end of November, and Merkel herself admitted it would be an “uphill struggle” to find countries willing to accept an additional 400,000 Syrians. “I really admire what Merkel has done, but she cannot sustain it unless she gets some support from other European countries,” Yale’s Garten says.

Yet as the immigration debate intensifies, there are grounds for optimism. Most important, the West has never been in a better position to grab the most-­promising immigrants. The upsurge in international students and the scramble for H-1B visas are just two signs of soaring supply of and demand for migrant human capital.

Driving this accelerating brain and wealth drain is the restlessness of China’s well-off and well educated, who are attaining the means to relocate just as their prospects at home appear constrained by slowing growth and entrenched authoritarianism. An astonishing 60 percent of Chinese with net worth above $1.6 million plan to apply for foreign citizenship, according to research by global consulting firm Bain & Co. Meanwhile, Chinese account for nearly 25 percent of the swelling international student army.

Developed countries have tightened up on immigration before without long-lasting harmful effects. Germany amended its constitution in 1993 to restrict newcomers after absorbing some 450,000 Bosnian refugees the previous year and seeing a surge of support for xenophobic political parties; it reliberalized in 2005. Mandatory refugee detention helped Australia beat back the One Nation Party in the late 1990s. Margaret Thatcher’s 1979 election as U.K. prime minister deflated the National Front, which advocated the expulsion of nonwhite immigrants.

Few voters in developed countries are blind to the benefits of hardworking Polish plumbers, Indian software engineers and Chinese graduate students. The key word that jumps out of conversations across the West is “control.” Says Queen’s University’s Banting: “Canadians are not better than other people. But we do have three oceans and the United States to keep our flow under control.”

The challenges faced by U.S. and European leaders in maintaining that sense of control with more-exposed geography have intensified as Europe opens internal borders, the Middle East implodes and domestic politics drift further toward ideological extremes locked in shouting matches. Yet electorates seem open to compromise solutions if politicians can find them, and the benefits of getting immigration right have never been so obvious.

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