I thank Ilya Somin and Eric Kaufmann for their thoughtful response essays (this post was written before Peter Skerry’s response was published). Both of them raise a number of interesting points. Not surprisingly, I find myself mostly in agreement with the points raised by Ilya, so this response expands on three issues—fractionalization, trust, and right-wing populist backlash—that Eric raised, though I will reference some of Ilya’s points in the process.
Immigration and Fractionalization[1]
I agree with Eric Kaufmann that unrestricted immigration will result in more ethnic and linguistic diversity in destination countries. However, I question whether this would lead to worse outcomes. He cites the well-known papers of Easterly and Levine (1997) and Alesina et al. (1999) that show that increased ethnolinguistic fractionalization is associated with lower spending on publicly funded goods and services and lower economic growth. However, Banting and Kymlicka (2006) point out that most of the evidence on fractionalization (including these two papers) comes from sub-Saharan Africa and the United States. In Sub-Saharan Africa, the fractionalization was mostly created by international interventions that imposed national borders on populations who otherwise would not have chosen political unifications with each other. In the United States, much of the fractionalization comes from African Americans whose ancestors were brought to the country as slaves. Immigration, on the other hand, increases fractionalization when people choose to go to a particular destination country. If immigrants, at least in part, select destination countries based on their institutions of governance, then there is less reason to believe that immigration-driven fractionalization would have the same effects as the fractionalization in the cited studies.
Furthermore, even if immigration-induced fractionalization did reduce government spending on publicly funded goods and services, one could argue that the result would be a beneficial increase in economic freedom. Alesina and Glaeser (2004) argue that fractionalization and ethnic heterogeneity are the main reasons that the United States has a smaller welfare state than most western European countries. The clear implication is that if immigration leads to greater heterogeneity it should shrink welfare states. Similarly, Razin et al. (2002) propose a median voter model that relies on relative income positions, rather than ethnic fractionalization, to predict that native-born taxpayers will shift their preferences away from high-tax, high-benefits welfare policy more than immigrants, who join the pro-tax, pro-benefits coalition at the bottom of the income distribution. They study 11 European countries from 1974 to 1992 and find that a larger share of low-education immigrants in the population leads to smaller social transfers and lower rates of taxation on labor. The overwhelming bulk of the scholarly literature measuring the consequences of economic freedom that finds that increases in economic freedom are beneficial, not harmful (Hall and Lawson 2013).
However, ethnic fragmentation may impact governance institutions other than welfare state spending. Easterly and Levine (1997) find a negative relationship across countries between ethnic diversity and the shares of government-provided goods such as schooling, electricity, roads, and telephones. Similarly, Alesina et al. (1999) find a negative correlation in U.S. cities, metropolitan areas, and counties between ethnic fragmentation and shares of spending on government provided goods and services such as trash pick-up, roads, sewers, and education. These findings also could be interpreted as support for the view that government will be smaller, and thus economic freedom higher, when there is greater fractionalization.
If ethnic fractionalization were to harmfully impact economic freedom it would have to come through undermining the security of property rights and the rule of law. But securing property rights and the rule of law, unlike most of the publicly funded goods and services studied in the fractionalization literature, are largely non-rival public goods rather than scarce rival publicly funded goods that a fractionalized population has to agree how to allocate. It would be a mistake to assume that fractionalization induced lower public spending on rival goods necessarily translates into less ability to protect property rights and maintain the rule of law.
Immigration and Trust
Kaufmann raises an important point that greater diversity is associated with lower levels of generalized trust. Perhaps immigration induced diversity lowers economic growth by lowering trust. I didn’t address this point in my opening essay but Alex Nowrasteh and I examine immigration’s impact on trust at length in chapter 8 of Wretched Refuse. We find little reason to believe that immigration will harm either economic growth or institutions of economic freedom through decreased trust.
First, there is much evidence that increased diversity diminishes trust, but the effects are small and confined mostly to racial differences between blacks and whites, not ethnic differences caused by immigration (Alesina and La Ferra 2002). Furthermore, Robert Putnam’s work that Kaufmann references finds that the impact of ethnic diversity on trust is fairly small.
Second, generalized trust is more important for economic activity when formal institutions are weak and unreliable. If people think that the courts will not enforce their contracts and protect their property, then generalized trust can partially substitute as a mechanism that enables people to realize gains from exchange. However, the flip side is that generalized trust is much less important if people trust courts and the government to enforce their contracts and protect their property. Generalized trust has the greatest positive effect on income when institutional strength is low, while the positive effect of trust shrinks when institutions are stronger (Ahlerup et al 2009). Since people tend to immigrate to places that have stronger formal institutions, any immigration induced decrease in generalized trust becomes less important.
Furthermore, even if immigrants have lower levels of generalized trust, they have higher trust in formal institutions. Alesina and La Ferrara (2002) show that individual Americans living in more racial fragmented communities have a lower propensity to trust other people but do not have lower levels of trust toward formal institutions. In Wretched Refuse Alex and I show that while immigrants have lower levels of generalized trust than native-born Americans, they have higher levels of trust in our courts and legal system, the three branches of the national government, and in business.
In Wretched Refuse we summarized our overall assessment of the relevance of trust as:
1) The overall evidence of a causal link between social trust and growth is not well established. 2) Whether trust promotes good institutions that are important for economic growth or whether good institutions promote trust is not clear. 3) To some extent trust and good institutions likely substitute for each other in promoting the realization of gains from trade that lead to higher productivity and growth. To the extent that destination countries have good institutions, this makes the question of whether immigrants create lower levels of generalized trust less important. Thus, although much studied, in our opinion the social trust literature and its link to immigration does not undermine the standard case for free immigration.
Immigration and Right-Wing Populism
Does immigration lead the native-born population to embrace right-wing populist platforms that could undermine economic freedom and growth? Ilya Somin offered some thoughts on the problem of nativist backlash in his essay. He argued three points, 1) because nativists overestimate the number of immigrants that they are unlikely to be pacified by reductions in immigration; 2) that there are better “keyhole” ways to address nativist concerns than restricting immigration; and 3) that its morally perverse to restrict immigration to prevent nativist backlash. I’m largely in agreement with all three points, so I will confine myself to raising a couple of more points in response to Eric Kaufmann’s concern that immigration will fuel right-wing populism that rejects globalization. My points will focus specifically on economic freedom.
Kaufmann cites the Dennison (2020) study that found a significant correlation between changes in immigration levels, the salience of immigration for voters, and populist right voting from 2005 to 2016.[2] What is the impact of that shift in voting? Did it reduce economic freedom? Dennison studied 11 European countries that had an average economic freedom score of 7.8 (out of 10) in 2005. The economic freedom of these countries was essentially unchanged at an average 7.77 in 2016. The average is not hiding any significant changes. No country’s score in Dennison’s data changed by more than 0.21 points. In short, even if immigration increased populist voting, that voting did nothing to decrease countries’ economic freedom. This could be because immigration induced populism does little to change economic policies or it could be because some populist policies increase economic freedoms while other populist policies decrease economic freedoms and these changes roughly offset each other.
What about populist right-wing policies that specifically reject globalization? What are these policies likely to be? The three most important are 1) increased immigration restrictions 2) increased tariffs, quotas, and barriers to international trade, and 3) a more isolationist foreign policy. On the first of these, it would be perverse to impose immigration restrictions now to prevent right-wing populists from doing it later. As to the second, the world is much closer to free trade in goods, services, and capital mobility, than it is in free trade in labor. So, even if the price paid for freer immigration is less free trade on these other margins, the world comes out ahead because the economic gains from greater free trade in labor will almost certainly dwarf the economic losses caused by decreased freedom to trade goods and capital. Finally, since war is the health of the state, an isolationist foreign policy is more likely to promote economic freedom by limiting the size and scope of the state than it is to undermine economic freedom.
I agree that right-wing populist reactions to greater immigration could be problematic but efforts at controlling that backlash should not include quantitative restrictions on immigration.
References
Ahlerup, P., Olsson, O., and Yanagizawa-Drott, D. (2009). Social capital vs. institutions in the growth process. European Journal of Political Economy, 25(1), 1-14.
Alesina, A. F., Baqir, R. and Easterly, W. (1999). Public goods and ethnic divisions. Quarterly Journal of Economics, 114: 1243-84.
Alesina, A. F. and Glaeser, E. L. (2004). Fighting poverty in the US and Europe. New York: Oxford University Press.
Alesina, A., La Ferrara, S. (2002). Who trusts others? Journal of Public Economics, 85, 207-34.
Banting, K. and Kymlicka, W. (2006). Introduction: Multiculturalism and the welfare state: Setting the context. In Multiculturalism and the welfare state, edited by Banting, K. and Kymlicka, W. New York: Oxford University Press, pp. 1-45.
Clark, J. R., Robert Lawson, Alex Nowrasteh, Benjamin Powell, and Ryan Murphy. (2015) “Does Immigration Impact Institutions.” Public Choice 163: 321-335.
Dennison, J. (2020). “How Issue Salience Explains the Rise of the Populist Right in Western Europe.” International Journal of Public Opinion Research 32(3): 397-420.
Easterly, W. and Levine, R. (1997). Africa’s growth tragedy: Policies and ethnic divisions. Quarterly Journal of Economics, 112: 1203-1250.
Hall, J, and Lawson, R. (2013). Economic freedom of the world: An accounting of the literature. Contemporary Economic Policy, 32: 1-19.
Razin, A., Sadka, E. and Swagel, P. (2002). Tax burden and migration: A political economy theory and evidence. Journal of Public Economics, 85: 167-90.
Notes
[1] Parts of this section draw on my prior work in Clark et al. (2015).
[2] Kaufmann’s essay incorrectly cites the paper as Dennison and Geddes (2019) in the text but lists the correct paper in the references. The correct citation is Dennison, J. (2020). “How Issue Salience Explains the Rise of the Populist Right in Western Europe.” International Journal of Public Opinion Research 32(3): 397-420.