Flat White

How Asia thrives without open borders

19 February 2017

4:35 PM

19 February 2017

4:35 PM

The European Union, the United States and Australia have since the late eighties shared in the belief that the key to matching the performance of the Asian economic giants has been to disregard any oversupply of labour (or unemployment) in the market and maintain high annual levels of immigration. Ever since it has been taken as read that economic growth is dependent on immigration, the idea being that expanding the labour force means more productive activity.

But more activity is not the same thing as increased productivity or real economic gains. The economies of the Western world are beset by low productivity, income inequality, unsustainable public expenditure and private indebtedness. The fact that more people are working in retail on low wages or being exploited through employment agencies is not a sign of improved economic performance.

The argument that immigration is critical to economic growth has its counter example in East Asia. China, South Korea, Japan and Taiwan are among the wealthiest countries in the world yet they have had incredibly little immigration. What they have had is heavily weighted towards highly skilled workers migrating to fill positions in the education and business sectors.

In 2016 South Korea recorded two million foreign residents out of a population of 51 million. Japan, 2.2 million out of 127 million in 2015. Taiwan, the lowest of the four with just a little over 630,000 non-Taiwanese residents out of a 23 million population.

China’s 2010 census counted two million registered foreign residents. The present number would be higher due to increased arrivals, illegal entries and those overstaying their visas. But even if the foreign population had dramatically increased it would be a drop in the ocean relative to China’s 1.3 billion strong population.

China encourages high-skilled immigration under highly restrictive conditions but it does not allow low skilled ‘economic refugees’ to enter its land. Despite the tremendous economic rebirth of China since the 1980s, there remain hundreds of millions of Chinese, not in dire poverty, but in low socio-economic conditions. Up-skilling this part of your population acts to solve employment shortages in important areas at the same time as ensuring social and political stability. Yet in 2016 the Economist argued that China is missing out on the benefits of a liberalised immigration policy to attract more ‘unskilled or service industry workers’. Why would a country burdened with a large low-skilled labour force open the floodgates and exacerbate its present problems?

It should also be noted that foreigners who work in East Asian countries almost never gain full citizenship rights owing to restrictive regulations on migration and the granting of citizenship rights to foreign-born. A report from 2003 stated that in that year only 291 foreigners, meaning those without Korean ancestry or a Korean spouse, were granted Korean citizenship. The requirements to gain citizenship in the other East Asian countries are similarly restrictive and mitigate the flow of economic migrants, especially those without skills.

Singapore, perhaps the greatest example of a modern city-state, has near 40 percent of its present population classified as permanent residents, possibly representing the largest population of non-citizens in the world relative to population. Applications for citizenship are similarly restrictive and are often conditional on being able to demonstrate financial security and employment in critical areas of the economy.

Interestingly Singaporean law once allowed for naturalisation for anyone over the age of 21 who had been a resident of Singapore for 10 years. But this provision was repealed and all applicants for Singaporean citizenship must go through the more rigorous requirements described above.

The Japanese Business Federation (Japan’s peak industry group) is a vocal supporter of skilled migration to address shortages in the Japanese labour market. However, even they stress strict limitations on the duration of time a foreign worker can stay in Japan for work purposes. By contrast, Heather Ridout, formerly of the Australian Industry Group, has consistently favoured high annual intakes of migrants and derided concerns about Australia’s population growth and negative effects on those already in the labour market.

What may be driving Japanese concerns about adopting the Australian model of high annual migration without strict work conditions and limitations on the duration of stay, may be the negative consequences for the economy. Japan’s unemployment rate hit a post-war high of 5.6 percent in 2009 during the GFC and has come down to three per cent in 2016, all without Australian-style immigration.

Like many countries, Japan’s youth unemployment rate (5.2 per cent in 2016) is higher than the national average and a major source of social concern. Their restrictive immigration program has ensured more favourable conditions for Japanese workers and it has arguably not had a damaging effect on its economic size. Japan does have a number of population issues but these can be, and often are, exaggerated by those who want to press the point that immigration on its own is critical to economic performance.

Japan has long possessed a highly efficient and technologically capable workforce coupled with a high degree of underemployment and non-participation in the labour market. Women have long been discouraged or prevented from entry into the workforce, a reality Prime Minister Shinzo Abe has set about trying to resolve.

A sizable minority of younger Japanese have long remained on the economic periphery either unwilling or unprepared for life at work. With this specific set of strengths and weaknesses, it is not self-evident that an increase in immigration would solve Japans economic challenges. A country with a large pool of low-skilled workers, readily trainable, has the makings of the solution to its labour problems.

The same Economist item cited before posited that immigration was being sidelined due to parochial concerns about national identity and solving the employment challenges of China’s citizens rather than opening up the labour market to the whole world.

Rather than the pro-immigration fundamentalist line of the Economist and others, governments in Asia will be cognizant of the destabilising effects of open borders upon European society. They are unlikely to want to repeat the mistaken policies undertaken in Europe, the Americas and Australia to pump up their economies through expanding the number of people working in it at the bottom end and exacerbating their employment inequality.

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