The economics of xenophobia

GDP increaseI recently read a pair of articles that on the surface are only tangentially connected. However after a little deep thought, I realized the authors are looking at the same problem from both a micro and macro level. The articles were “‘Buy Local’ is really bad economics” and “The economic case for open borders.” Again, after some thought I came up with the hypothesis: people who are xenophobic have a flawed understanding of economics.

Nikki Burgess, from Students for Liberty, writes, “Let’s begin with a basic economic principle: The more people an economy has, the more productive it can be. This appeals to common sense—given equal circumstances, 20 people working will create value more than 10.” For the sake of argument it doesn’t matter whether the 20 people live in one community or not. Those who oppose trade and/or immigration will argue that there may not be enough work for 20 people, and that some of the new people will work for less, thus putting someone out of a job. While that may be true in the short term, it is not true in the long term.

Burgess adds, “Economists agree that immigrants complement, rather than compete with, the native work force. Even assuming the opposite—that migrants and natives do compete for the same work—the estimated net benefit to natives from migrant labor is still $22 billion annually… Besides, competition is good; it ensures that the most productive candidates are employed and it makes goods cheaper by driving down production costs. However, empirically, immigrants and natives do not usually pursue the same work.”

On the macro level, Brian Brenberg & Chris Horst write, “History and research show that as trade increases, poverty decreases, and China is a prime example. Since 1978, when the country opened to foreign investment, China has grown to become the world’s largest trader – measured by total imports and exports. The results have been striking.
In 2012 alone, average factory wages in China rose 14 percent. In manufacturing, specifically, worker wages have increased 71 percent since 2008. Over the last thirty years, Chinese families living in extreme poverty dropped from 84 percent to under 10 percent.”

Of course, China is just one example of the benefits of trade. A report released in 2011 by Yale University and the Brookings Institution found that the world’s population living below the extreme poverty line plummeted from 52 percent to 15 percent in just 30 years from 1981 to 2011. Globalization and the spread of freer markets were credited with “enabl[ing] the developing world to begin converging on advanced economy incomes after centuries of divergence.”

Aside from being bad economics, xenophobia is also irrational. Advocates of “Buy Local” use slogans like “Don’t buy from strangers, buy from neighbors.” This may make people in small towns feel good, when they buy from the Mom & Pop stores, however one needs to look deeper. Chances are the products in the Mom & Pop store were brought in from somewhere, which means there was most likely trade with someone outside the community (i.e. a stranger). This is not a bad thing. The numbers don’t lie, when trade happens wealth spreads, and when wealth spreads everybody wins by becoming less poor!

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