The clashes in Mumbai between political parties based in north India and Maharashtra have been widely covered in the media. The concern is not just being felt in Mumbai, but also in another metropolitan city—Bangalore. Outlook magazine asked in a recent cover: Why Bangalore Hates the IT Culture.
In economics, we say that capital and labour will relocate to the place where the return (profits and wages, respectively) is the highest. Therefore, people (labour) migrate from poor regions to make a better living in other, more prosperous regions.
It seems migration has led to culture clashes in cities such as Mumbai. The home population is concerned that jobs are being given to those not belonging to their city/state/community.
Migration is actually a global problem which, if managed well, could help many people come out of the poverty trap. Lant Pritchett, a development economist at Harvard University, has made labour mobility his agenda. He takes a different view of the matter than most development economists, with their stress on institutions, trade, aid, etc., to developing and least developed countries.
(Indranil Mukherjee / AFP)
Pritchett advocates migration of people to developed countries as temporary workers, so that they can earn a decent living and come back to their homes. They can stay for three-five years, with no path to citizenship, and will work in areas with certified labour shortages. He assumes that most receiving countries will not allow migrants to bring families. Taxpayers would be spared from educating the migrants’ kids. Domestic workers would gain some protection through the certification process. And?a?revolving labour pool would reach more of the world’s poor.
Pritchett has published a book called Let Their People Come, which is available online. In one recent magazine profile, he says, “The biggest single determinant of how well off you will be is not the college you get into, the colour of your skin, your gender, or your work ethic; it’s the country listed on your passport.”
The profile also pointed to the World?Bank research which shows that a Vietnamese labourer who moves to Japan will make nine times what she would at home, a Guatemalan will find wages for the same work increase sixfold in the US, a Kenyan who moves to the UK, sevenfold. These are stark findings and show huge inequality among the countries.
The idea was criticized by most economists, who believe that the developed countries would thus import many problems. Milton Friedman had said much earlier that open borders are incompatible with the welfare state. Jeffery Sachs says the temporary programme will lead people to separate from their families and spread adultery, divorce and AIDS across the developing countries, the very problems development economists are trying to eradicate.
Development economics tries to build sustainable economies, while Pritchett’s idea seems like a temporary fix. But institution-building is a fairly long-term process, and a bit of a Catch-22 situation. How do you develop institutions in areas that are poor? How do you make aid effective when there is so much corruption? To reduce corruption, you need institutions and the argument cycle just goes on and on. The Pritchett idea could at least help the current set of people get a decent living standard.
Mobility in labour and capital is an issue that has been a puzzle in economics. In fact, the experiences have been contrasting. Capital has moved at a breathtaking pace across economies. (But the direction of its movement is still a puzzle, with capital moving from poor to rich countries; this has been called an “allocation puzzle”.) Labour has hardly moved. The euro area was built around free movement of four economic variables—products, services, capital and labour. The first two are moving across the euro area quite freely. Capital is also quite free to move, but there could be some restrictions on cross-border investment in certain sectors because of nationalist sentiments. However, there are far more restrictions on labour movement.
We see a similar situation in the Mumbai and Bangalore cases. Products, services and capital can flow easily, but labour is still a problem even within a country. Data on per capita incomes in various states shows the benefits that could come from migration. Per capital income of Maharashtra in 2003-04 was five times that of Bihar, four times of Jharkhand and three times of Uttar Pradesh (UP).
If we compare these poor states with Chandigarh (the region having the highest per capita income), the gap widens to 10 times that of Bihar, eight times of Jharkhand and six times of UP. Hence, people from poor regions in India have much to gain if they migrate to more prosperous regions. However, the problems with migration have yet to be solved. The home population has its own set of grievances. Community clashes are becoming common.
We see problems the world over as migrant communities are harassed in case there is a problem in the country they have migrated to. The gains from migration are huge. But it would require more than political will to make this otherwise great solution workable.
(Amol Agarwal is an economist with IDBI Gilts Ltd. Comment at email@example.com)