Ekonomista skatiens: Vjačeslava Dombrovska blogs

This post is inspired by a discussion about migration policy at the EC Representation a few days ago. In short, my position is that (inward) migration, on average, is a good thing. And yes, I know, migration is a sensitive topic for most (ethnic) Latvians because of guys like me, second generation Russian migrants. That being said, some ethnic Latvians may just stop reading it right here since me being a migrant myself might very well explain why I am in favor of more migrants. What follows is for the brave few who want to hear out the arguments.

Lets start with some scares. Three things are going to haunt this country for years to come: (i) demography; (ii) public debt; (iii) (outward) migration. First, everyone knows the demography story, right? A sharp drop in birth rates in the early 1990s will still catch up with us and, over the not-so-long-run (not the one in which we're dead)  will mean there are a lot fewer young people to who can be taxed to pay pensions to quite a few pensioners. Just to give you an idea of the magnitude of this: already in 2004 there were only half of the kinder-gardens that there were in late 1980s. It's coming. Second, in just couple of years time the public debt will be around 60% of GDP, up from less than 10% of GDP in 2007. At the moment, interest rate on much of it are relatively small, about 3-4%. But it would have to be refinanced in just a few years time. Substantially higher interest rates are likely to be charged by the markets. A rather benign 5% interest rate (at which Greece is bailed out by the other eurozone members)  implies debt service costs of 3% of GDP! Third, the migration induced by extremely high unemployment rate is likely to impair growth in the medium run because of permanent reduction in the work force. No-one really knows how many have left but the numbers are unlikely to be small. What are the effects of these? Quite simply, the public finances are unsustainable in the long run. After all, this is what the coming fiscal consolidation is all about.

Like it or not, but opening up to migration is one potential solution to this - albeit one that is likely to be effective only in the medium term. There is a trade-off  that Latvians must understand: preserving a status-quo will have a price in terms of higher taxes or lower social spending, and/or public goods. And yet, although migration could be a solution to our fiscal problem, it is not unequivocally a good thing. Migration has it problems. It seems to be a blessing for some countries, but a curse for others. Latvia, after all, has been rather unsuccessfully coping with its large Russian minority with the ensuing political dead-locks, culture of (tax) evasion, etc. And what about Belgium? Or, take Africa, whose ethnic fragmentation may well explain substantial part of its backwardness. On the other hand, there are countries that clearly benefit from being  a melting-pot of many nationalities, such as the U.S. and U.K.

Migration is not a simple thing. What makes it a blessing for some countries but a curse for the others is a good question, certainly worth a million dollars. And yet, I am convinced that, at the level of principles, we should be open to migration. I am talking about openness as a principle. Openness to new ideas, and the people in which these ideas are usually embodied. Not everyone can take it, as is suggested by historical experience. But I believe that those who can cope with it in a non-destructive way are made better and stronger as a result. The alternative - living in constant fear of the outside influences, does not seem enticing to me.

That said, I do not think migration should be approached in a simple-minded way. Simply opening-up the borders for everyone is likely to produce unpredictable and possibly disastrous results. Migration policy requires careful thinking.  It's a bit like recruiting human resources for a firm. We'd like to get the best but we must understand there is huge competition for talent out there. So how is one to proceed?

Let me sketch some criteria for an 'ideal migrant'. Some of these may seem more than a bit cynical but hey, it is well known that economists have no heart.

1. Age. Clearly, the younger, the better.
2. Family status. The fewer old-age dependents - the better. The reason is that the civilized world (i.e. the EU) is quite sensitive about something called family reunification. This means that once a migrant settles in, he can usually bring his family with him. And lets face it, we want migrants to help us pay for our pensioners, not bring new ones with them.
3. Education. People need to understand that nominally opening up to "PhDs in physics, software engineers, and other bright things" is a bit naïve. There is substantial competition for talent out there and Latvia can't possibly compete with the heavy-weights like the U.S., Britain, and many others. This points to an obvious solution:  target young people with secondary education and put them through the Latvian system of higher education, possibly enticing them with student loans or other subsidies. This approach has two important advantages. First, it's cost effective since you don't have to pay a (substantial) cost of primary and secondary education. Second, going through student years is likely to forge relationships (with the opposite sex) and that is what REALLY makes people stay in a county. In case you haven't noticed, that's exactly what the U.S. and U.K. do.
4. Ethnic quotas. To put it bluntly, you may not want to have large diasporas of Chinese, Ethiopians, Asians, etc. The reason is that large diasporas are bad for integration. Large diasporas are more likely to become shut-out, criminalized, and generally more of a liability than a solution to anything. So, don't target a particular country but get a handful from each of a wide range of countries.

Let me recap a few important points. First, system of higher education is key. In order to attract potential migrants, it needs to be competitive in the world. At the moment, this is not the case for 80% of the Latvian education system. So something needs to be done here. Language laws that don't permit studies in languages other than Latvian need to go as well. There might also be a case for tuition subsidies to foreign students - say, student loans. Second, migration policy must be proactive with embassies in different countries acting as recruiters into Latvia's higher education system. There is a case for targeting the young people with small number of old-age dependents who are fresh out of high school.

There is one more thing that the bravest hearts may want to consider. When we're talking about competing for migrants, host country's language is likely to matter a great deal. Learning any language is a substantial investment and potential migrants are likely to weigh the costs of it with the benefits. As far as a potential migrant is concerned, language grants access to a particular labor market. Naturally, other things being equal, a migrant would want access to the largest labor market as it would increase his chances of finding a job. Thus, small countries like Latvia is at a disadvantage compared to large countries like Germany, or to smaller countries like Sweden that use English as a semi-official language. If you haven't guessed where I am getting, consider an example of Singapore, which has four official languages, one of them being English. Is it just a mere coincidence that Singapore has been doing quite well?