R.E.Rowthorn on "Schengen and the European Migration Crisis"

Robert E. Rowthorn, Emeritus Professor of Economics in the University of Cambridge (England) has written an extensive comment on my previous post, which clarifies, strengthens and develops my argument. He has kindly agreed to publish it as a follow-up guest post on my Blog, which I am delighted and grateful to do:  

In his  stimulating post, Mario Nuti considers Schengen area migration policy under three headings:

1.     Free internal travel requires strong external controls,

2.     Free internal travel requires convergence of living standards within the area  (including welfare provisions),

3.     Any attempt at a fair redistribution of immigrants among countries requires the re-establishment of national borders.

He points out that the fair redistribution of immigrants, as demanded by Germany and the Pope, is inconsistent with free travel as laid down by the Schengen agreement. This may not be such an important issue, since the Schengen agreement may be on the verge of collapse.  According to a new survey by French pollster IFOP, 72% of French, 66% of Germans and 60% of Italians are now in favour of repealing the Schengen agreement and reintroducing border checks at least temporarily (Süddeutsche Zeitung, 5 April 2016).   Even if the agreement is not formally repealed, it may become a dead letter as more states unilaterally re-introduce border controls.

Nuti also makes the point that effective control of EU external borders requires the cooperation of neighbouring countries, such as Turkey.  Where this cooperation is not forthcoming effective control may be impossible within normal moral and legal constraints. This is most evident in the case of Libya, where the state is too weak to prevent the departure of migrants to Italy and the country is too unsafe to permit the return of rejected immigrants.  In my own country, the UK, the control of immigration relies heavily on support from nearby countries. The reason we do not get flotillas of migrant boats heading for our shores is not because the UK is hard to reach by sea – it is only 33km from France = but because nearby countries prevent their departure.   The future ability of the EU to control immigration from poorer countries will depend on the ability of the Union to gain and retain the cooperation of its neighbours in North Africa and the Middle East.

Immigration controls, like all forms of legal constraint, involve either compulsion or the threat of compulsion.  Immigrants who have no legal right to remain must be either persuaded to leave or forcibly deported. Failure to remove them will only encourage others.  This is why amnesties are counter-productive.  The need for removals is inversely related to the difficulty of illegal entry.  The easier it is to gain physical entry, the greater must be reliance on removals. This is not a message which liberal-minded people want to hear. As Nuti points out, rejection and forced repatriation are unpleasant and sometimes brutal. But they are a logical consequence of excluding people who have a strong desire to live in Europe.  

The feasibility of repatriation depends on the ability to identify the country of origin of a prospective deportee. It also depends on cooperation of the country of origin. Legally speaking, a country is supposed to accept its nationals who are deported from another country, but this may not always be the case in practice. Thus, it will be important in the future to gain the cooperation of the countries to which migrants are to be repatriated,

The recent agreement with Turkey involves the compulsory return of all migrants entering Greece from Turkey, who are not applying for asylum or whose application is judged to be unfounded or inadmissible. This policy may be illegal under international law but the EU is powerful enough to disregard this provided its own internal courts acquiesce. If it works, the agreement with Turkey may act as a template for future agreements regarding the control of migrant flows and repatriation.

Nuti cites an interesting analysis by Branko Milanovic in Social Europe  (May 2015).  This analysis indicates the difficulty of coming up with a workable policy towards migration from poor to rich countries.  Milanovic calls for a coordinated quota system for allocating would-be migrants between emitting and receiving countries.  He concedes that such a system would not be able to deal with random events such as the war in Syria, but he argues that it should be able to deal with economic migration: “With an orderly quota system, a person from Mali who is considering migrating to France may prefer to wait several years and get an official permission to settle there rather than to pay a people smuggler for an uncertain entry to France”.  

Although at first sight plausible, this proposal does not address the central issue, which is the potential scale of migration under such a scheme. If a quota scheme is to deter illegal migration, the expectation of getting a permit must be high and the expected waiting time must be relatively short. This means that the number of permits given out must be roughly commensurate with the number of people wishing to migrate. The suggested scheme might deter illegal migration but it would be unlikely to reduce the total number of migrants.  Indeed, the scheme might actually encourage migration by eliminating the need to rely on dangerous and costly modes of travel.

To implement even a slimmed down version of the scheme proposed by Milanovic it would be necessary to change public opinion. Even before the refugee crisis, there was widespread concern in Europe about large scale immigration.  According to an international poll taken in the period 2012-14 some 52% of Europeans thought that immigration should be reduced.  Only 8% thought it should be increased (How the world views migration, IOM 2015). The British Social Attitudes Survey reports that immigration has been consistently amongst the five most important topics of concern.  In 2013 of those questioned 56% thought that immigration should be reduced a lot and a further 21% thought it should be reduced by a little.  Such concerns have been around for a long time, but have been ignored by politicians.  However, politicians are now being forced to respond to public disquiet by the rise of anti-immigration parties.

Public disquiet about immigration is intensified by the perception that immigration is out of control. It is not simply a belief that the present level of immigration is too high that motivates this disquiet, but also a fear that the government has no means of cutting back on immigration should the need arise. In countries like Australia, where the government has a firm grip on migrant flows and can raise or lower them as the need arises, the public is willing to accept a high level of immigration.  If Milanovic’s quota scheme is to be politically acceptable, it will have to be accompanied by effective enforcement. Even then, it will be an uphill task to persuade Europeans to accept immigration on the implied scale.

Two Generations and Democracy

Branko Milanovic, who contributed a recent guest post on Inequality and the Global Crisis, spent the last month in Madrid, living at a stone’s throw from La Puerta del Sol. He contributed this guest post on the current rebellion by Los Indignados. This is to start the ball rolling, no doubt others will wish to argue. By all means comment via e-mail if you must, but it is much preferable to comment directly on the post.

Several weeks ago the Spanish newspaper “El Pais”, one of the leading dailies in the world, held a party to celebrate the 35th anniversary of its foundation. "El Pais" has appeared in the days of the Spanish "transition" from Franco's dictatorship to democracy, and has throughout remained consistently pro-democratic and center-left. The daily perhaps best reflects the period of remarkable transformation of Spanish society from dictatorship to one of the most tolerant democracies in the world; from the country of emigrants to the country in which foreigners, coming literally from everywhere, account for 12 percent of the population; from a middle-income and in some respects even an underdeveloped country to an affluent country with first-rate quality railroads and highways. In a display of commitment to democracy and tolerance, the “El Pais” party was attended by all Spanish prime ministers since the transition, whether of the left or the right. The tone of speeches was celebratory and somewhat smug. Praise for democracy and the transformation in Spain was not excessive, considering what was achieved in the previous three decades, yet perhaps a bit deafening", reminding one of rather formulaic declarations about the importance of democracy that can be heard in the United States on every 4th of July. I thought that, except for Poland, the Czech Republic and perhaps the Baltic states, it would be difficult to imagine such optimistic tones on similar occasions in Eastern Europe. The reason is simple: democracy is a good thing and there is reason to celebrate it, but only if it goes together with economic development and higher incomes. And in that Spain was indeed very successful, so the generation that has accomplished this historic feat had many good reasons to celebrate. Or so it seemed.

But just ten days after the celebration and on the eve of local and regional elections in Spain, thousands of young people began rallying in the main squares of Spanish cities. The largest gathering, which attracted the attention of world media, took place on the central square in Madrid, La Puerta de Sol, just a kilometer or so from the headquarters of "El Pais" and the building where its party took place. Young people´s discontent was driven not only by the fact that youth unemployment hovers around 40 percent, that most of those who are employed hold very precarious jobs (working on time-limited contracts), or that salaries are stagnant, but by discontent that has spread to the democratic system itself, as it functions in practice. In contrast to the praise we heard at the "El Pais" gathering, now the speeches were very different: democracy ignores the opinions and interests of a large part of citizenry who have become alienated and no longer participate in the process; all political parties, regardless of their name and professed affiliation, pursue similar economic policies; the real power is in the hands of big capital and bankers who finance all political parties, not in the hands of “people”. These are all criticisms that would be subscribed by most young people throughout both “old” and “new” Europe. So, one might think, there is really something deeply flawed with democracy as we know it, and one of key slogans of los indignados said precisely this: "Real democracy-now!". In other words, "partocracy" and "bancocracy" are not acceptable.

But while the young were attacking the current Spanish "system" from the left, the Spanish right, which, because of the economic crisis and high unemployment which it blames on the socialist government, expected a major victory in the elections, retorted with its own slogan, published on the election day on the front page of a newspaper close to Partido Popular: "Real democracy-today." The message to the youth was clear: if you want to have your voice heard and believe that you have a majority, this is your moment, defend your ideas as everybody else does, go to the polls and see if you can win. "People" is not just you: “people” is others as well.

A lot of young people chose not to go to the polls and these unexpressed votes, that would normally go to the Socialists, made a difference and gave a huge victory to the right. Zapatero´s government is on its deathbed, he will not run again, and early general elections may be called. Here, then, the weaknesses in the position of los indignados began to be revealed. While they, on their posters, did not associate themselves with the soixante-huitards (of which they strongly reminded me) but to the demonstrators in Cairo and Tunis, the differences between them and the Arab youth were glaring. Demonstrations in Cairo and Tunis had a clear objective: to end dictatorships and allow for a meangful universal suffrage, multiparty system, and freedom of speech and association. These were clear and simple demands. The protesters knew what they wanted, and eventually won in both Egypt and Tunisia. But the demonstrators in Madrid were not able to clearly say what they wanted: indeed, they desire a better democracy, but what exactly does it mean? Of course, they also want a less corrupt “system" but this is what we all want. How to achieve it is a problem, and they offered no solution. When los indignados finally formulated their 8 theses, all of them except perhaps two (on changing the electoral system and the financing of political parties) were so general in nature, lacked any clear "addressee" responsible for them, or indication of the way in which things need to be improved, that they were made in fact irrelevant. Anyone would sign on these demands any time, and nobody could do anything with them.

And since real democracy took place on the election day and the right won overwhelmingly, while the demands of protesters appeared so general and vague, the demonstration turned into a fiesta, young people having good time in the central city squares, discussing, chatting, drinking beer, smoking marijuana, listening to jazz and rock music for most of the day and night. At 3 a.m., La Puerta del Sol was full of young men and women who enjoyed themselves the way they enjoy themselves at any music festival. Love blossomed—which is indeed excellent, except that it had nothing to do with politics.

And while some youngsters were speaking passionately about the evils of the "system", at the edges of the square, real poor people slowly emerged trying to sell beer or cigarettes, and to make some extra euro. And so it turns out that the older generation, gathered at the "El Pais" party, was indeed right - although when one looks at these young people, in a good mood, kind, pleasant and decent, and compares them to the well-situated, smug and self-congratulating democratic bourgeois, one is torn between sympathy and reason. But the twentieth century has taught us not to trust what our heart tells us.

Inequality and the Global Crisis

This is a Guest Post contributed by Branko Milanovic, a Lead economist in the World Bank's research department. Branko - at present a Visiting Fellow of All Souls College, Oxford - spent over a quarter century working on poverty and inequality and made original, pioneering contributions to this subject, including: Worlds Apart. Measuring International and Global Inequality, 2005, Princeton/Oxford; The Haves and the Have-Nots: A Short and Idiosyncratic History of Global Inequality, 2011, Basic Books (DMN)


The current financial crisis is generally blamed on feckless bankers, financial deregulation, crony capitalism and the like. While all of these elements may be true, this purely financial explanation of the crisis overlooks its fundamental reasons. They lie in the real sector, and more exactly in the distribution of income across individuals and social classes. Deregulation, by helping irresponsible behavior, just exacerbated the crisis; it did not create it.

To go to the origins of the crisis, one needs to go to rising income inequality within practically all countries in the world, and the United States in particular, over the last thirty years. In the United States, the top 1 percent of the population doubled its share in national income from around 8 percent in the mid-1970s to almost 16 percent in the early 2000s. That eerily replicated the situation that existed just prior to the crash of 1929, when the top 1 percent share reached its previous high watermark American income inequality over the last hundred years thus basically charted a gigantic U, going down from its 1929 peak all the way to the late 1970s, and then rising again for thirty years.

What did the increase mean? Such enormous wealth could not be used for consumption only. There is a limit to the number of Dom Pérignons and Armani suits one can drink or wear. And, of course, it was not reasonable either to “invest” solely in conspicuous consumption when wealth could be further increased by judicious investment. So, a huge pool of available financial capital—the product of increased income inequality—went in search of profitable opportunities into which to invest.

But the richest people and the hundreds of thousands somewhat less rich, could not invest the money themselves. They needed intermediaries, the financial sector. Overwhelmed with such an amount of funds, and short of good opportunities to invest the capital as well as enticed by large fees attending each transaction, the financial sector became more and more reckless, basically throwing money at anyone who would take it. While one cannot prove that investible resources eventually exceeded the number of safe and profitable investment opportunities (since nobody knows a priori how many and where there are good investment opportunities), this is strongly suggested by the increasing riskiness of investments that the financiers had to undertake.

But this is only one part of the equation: how and why large amounts of investable money went in a search of a return on that money. The second part of the equation explains who borrowed that money. There again we go back to the rising inequality. The increased wealth at the top was combined with an absence of real economic growth in the middle. Real median wage in the United States has been stagnant for twenty five years, despite an almost doubling of GDP per capita. About one-half of all real income gains between 1976 and 2006 accrued to the richest 5 percent of households. The new “gilded age” was understandably not very popular among the middle classes that saw their purchasing power not budge for years. Middle class income stagnation became a recurrent theme in the American political life, and an insoluble political problem for both Democrats and Republicans. Politicians obviously had an interest to make their constituents happy for otherwise they may not vote for them. Yet they could not just raise their wages. A way to make it seem that the middle class was earning more than it did was to increase its purchasing power through broader and more accessible credit. People began to live by accumulating ever rising debts on their credit cards, taking on more car debts or higher mortgages. President George W. Bush famously promised that every American family, implicitly regardless of its income, will be able to own a home. Thus was born the great American consumption binge which saw the household debt increase from 48 percent of GDP in the early 1980s to 100 percent of GDP before the crisis.

The interests of several large groups of people became closely aligned. High net-worth individuals and the financial sector were, as we have seen, keen to find new lending opportunities. Politicians were eager to “solve” the irritable problem of middle class income stagnation. The middle class and those poorer than them were happy to see their tight budget constraint removed as if by magic wand, consume all the fine things purchased by the rich, and partake in the longest US post World War II economic expansion. Suddenly, the middle class too felt like the winners.

This is what more than two centuries ago, the great French philosopher Montesquieu mocked when he described the mechanism used by the creators of paper money in France (an experiment that eventually crumbled with a thud): ‘People of Baetica”, wrote Montesquieu, “do you want to be rich? Imagine that I am very much so, and that you are very rich also; every morning tell yourself that your fortune has doubled during the night; and if you have creditors, go pay them with what you have imagined, and tell them to imagine it in their turn”.

The credit-fueled system was further helped by the ability of the US to run large current account deficits; that is, to have several percentage points of its consumption financed by foreigners. The consumption binge also took the edge off class conflict and maintained the American dream of a rising tide that lifts all the boats. But it was not sustainable. Once the middle class began defaulting on its debts, it collapsed.

We should not focus on the superficial aspects of the crisis, on the arcane of how “derivatives” work. If “derivatives” they were, they were the “derivatives” of the model of growth pursued over the last quarter a century. The root cause of the crisis is not to be found in hedge funds and bankers who simply behaved with the greed to which they are accustomed (and for which economists used to praise them). The real cause of the crisis lies in huge inequalities in income distribution which generated much larger investable funds than could be profitably employed. The political problem of insufficient economic growth of the middle class was then “solved” by opening the floodgates of the cheap credit. And the opening of the credit floodgates, to placate the middle class, was needed because in a democratic system, an excessively unequal model of development cannot coexist with political stability.

Could it have worked out differently? Yes, without thirty years of rising inequality, and with the same overall national income, income of the middle class would have been greater. People with middling incomes have many more priority needs to satisfy before they become preoccupied with the best investment opportunities for their excess money. Thus, the structure of consumption would have been different: probably more money would have been spent on home-cooked meals than on restaurants, on near-home vacations than on exotic destinations, on kids’ clothes than on designer apparel. More equitable development would have removed the need for the politicians to look around in order to find palliatives with which to assuage the anger of the middle-class constituents. In other words, there would have been more equitable and stable development which would have spared the United States, and increasingly the world, an unnecessary crisis.