What's wrong with "immigration reform"? Part 1

This morning my girlfried saw an extraordinary design project in a magazine she reads, done by a student in India. She asked "Can I hire her?" I responded, "No, not unless you want to hire her in India."

And therein lies the fundamental problem with our understanding of what immigration policy should be, and what is wrong with "immigration reform."

Over the past thirty years, world capital has been increasingly free to reallocate to different countries and regions, with a corresponding opening of trade in goods, all generally referred to as "free trade." There has been no corresponding opening of labor markets, which are increasingly protectionist. This dichotomy reflects a fundamental — and incorrect – view that values capital over labor, and political policies which reflect that view, enhancing further the value of mobile capital and devaluing immobile labor.

To see that this is true, one need simply consider the results of a typical outsourcing decision in the current environment. Widget Maker, facing high labor costs in Country A, closes production facilities in Country A. Working capital formerly deployed in Country A is available for other uses. Noting the much lower cost of labor in Country B (often a factor of 30 less) and relatively unimpeded in the movement of goods between countries, Widget Maker redeploys the working capital to Country B. Workers in Country B cannot relocate to the location with the highest wages with labor demand, but instead must stay within Country B. Since Widget Maker can simply move its operations, and workers cannot move, the negotiating position of the workers is severely disadvantageous, resulting in lower wages with a corresponding increase in return on capital.

One of the most pernicious effects of the current system is that workers in any given country perceive that they are disadvantaged by the availability of additional workers, since additional workers are simply competing for a limited number of available jobs. If a rising pool lifts too many boats too high, those controlling the water will just drain the pool and move to a shallower pool.

This situation can be fixed in one of two ways: by restricting the flow of capital, or by allowing the free flow of labor. Since the free flow of labor and capital would tend to maximize overall good by lifting all boats, I prefer that path. (I discuss why this creates a virtuous circle in Part 2.)

Consider the result of such policies. Capital would not only be able to seek the lowest wage labor market, but labor would be able to seek the highest wage labor market. If capital were reallocated, labor could follow, tending to reduce the advantage of relocating but increasing the wage base of all labor. Each person could legally seek the highest wage consistent with their knowledge and skills, in whatever location maximized the value of their knowledge and skills – unlike the current system where too frequently such action is illegal.

"Immigration reform" is not a debate regarding optimal policy, but a reflection of this fundamental value error and resulting negative feedback loop for those on the labor side of the equation. It does not address and facilitate the optimization of the free flow of labor, but attempts to lock down labor flows further, to the benefit of those controlling capital and the detriment of the rest of us.

True immigration reform would simply open residence and eventual citizenship, if desired, to all those willing to relocate and work, as was true in the late 19th and early 20th century.