Venetian capitalism, 1515 and 2015

I’ve had a short break to celebrate my 25th wedding anniversary, and we went to Venice. One of my books was Peter Ackroyd’s [amazon_link id=”0099422565″ target=”_blank” ]Venice: Pure City[/amazon_link], which has lots of interesting facts but is frankly a bit long and dull. I did enjoy, though, the sections about the Venetian economy. It was the engine of the world economy in the 16th century, a bustling, dynamic trading economy, built on a marsh with no natural resources apart from lots of fish.

Angus Maddison’s [amazon_link id=”B00BTM3SCU” target=”_blank” ]The World Economy: A Millennial Economy[/amazon_link] is excellent on this, and on the tides of economic history more generally; one of the fascinating things is how different places have had their moment. Italy’s was the during Renaissance, and look at it now. Maddison writes of the Venetian Republic: “It created political and legal institutions which guaranteed property rights and the enforceability of contracts. It was a pioneer in developing foreign exchange and credit markets, banking and accountancy. It created what was effectively a government bod market. … Its fiscal system was efficient and favorable to merchant profits and the accumulation of capital.” On the accountancy, Jane Gleeson-White’s [amazon_link id=”1743311494″ target=”_blank” ]Double Entry: How the Merchants of Venice Created Modern Finance[/amazon_link] is a great read.

[amazon_image id=”0099422565″ link=”true” target=”_blank” size=”medium” ]Venice[/amazon_image]  [amazon_image id=”B00BTM3SCU” link=”true” target=”_blank” size=”medium” ]Development Centre Studies The World Economy: A Millennial Perspective unknown Edition by Angus Maddison (2001)[/amazon_image]  [amazon_image id=”1743311435″ link=”true” target=”_blank” size=”medium” ]Double Entry[/amazon_image]

Venice was also the first centre of commercial publishing thanks to Aldus Manutius (there’s an exhibition on him now at the John Rylands library in Manchester). Ackroyd writes: “Printing was the first form of mass production technology, creating identical objects at identical cost.” Venice pioneered commercial printing and publishing, although the activity led to complaints that the technologically-driven abundance of books was making people less studious, a vulgarising influence. Sounds familiar!

One thing that intrigued me in Venice (the city, not the book) was the fact that the identity of the sellers of cheap handbags and selfie sticks in the streets has shifted. Last time I was there, five years ago, these men were mainly Senegalese. This time they were mainly South Asian. I wonder how these shifts happen? Of course, the city’s main trade these days is tourism, and all the services and goods that requires – like so many other beautiful places whose earlier economic function has vanished into the mists of time.

Beautiful - and redundant?

Beautiful – and redundant?

Migration then and now

Greater international migration has been one of the features of post-1990 globalization, but most people do not leave their homeland to work and live elsewhere. The costs of doing so are high: leaving behind families and social networks, learning to cope with a new environment and usually new language, finding a new place to live, taking the risk of having to find work – and, as Martin Ruhs’s new book, [amazon_link id=”0691132917″ target=”_blank” ]The Price of Rights[/amazon_link], observes, migrants usually do not have the same workplace rights as local workers. Their rights fall below those set in international standards.

[amazon_image id=”0691132917″ link=”true” target=”_blank” size=”medium” ]The Price of Rights: Regulating International Labor Migration[/amazon_image]

The book discusses both the evidence on migrant rights, and the ethical issues. In particular, it asks whether it would be better to agree a set of ‘core rights’ for migrant workers rather than the very comprehensive set of rights currently enshrined in international rules, but rarely if ever observed. The rationale for this move would be that the character of the rights of migrant workers determines their economic effects – how productive they are, how much they compete with or complement the resident workforce, their impact on the public finances. “Because rights shape the effects of labor immigration, migrant rights are in practice a core component of nation states’ labor immigration policies.” Immigration policy has three inter-related elements: the number of migrants, the selection of the type of migrants, and their rights after admission. The first two have been discussed widely, but this book makes a distinctive contribution to the debate by looking carefully at the third. Policy makers pay lip service to universal rights while not ratifying the UN’s convention on migrant worker rights, so the use of the granting of rights (or not) as an instrument of migration policy has not been debated. I also wholeheartedly applaud the inclusion of the ethical issues in the discussion here.

Ruhs constructs some new indicators of the openness of labour migration policies in 46 middle and high income countries. Those countries targeting high skill workers are more likely to grant more extensive social, residency and family rights. The book goes on to describe in more detail the immigration policies of a number of countries. The case studies clearly show that decisions about the granting of rights are considered for their impact on immigrant numbers. The governments of countries sending migrants have sometimes criticise host governments for using rights restrictions as backdoor ‘protection’ – the EU accession countries have voiced this view about the insistence by ‘old’ EU countries on the complete equality of rights for their migrants. Similarly India has tried to use the GATS agreement to argue against wage parity requirements for its migrants overseas on the basis that it is a restriction of trade.

Martin is a former colleague of mine from my days on the Migration Advisory Committee, and the book manifests his measured, pragmatic approach. He writes in the Introduction: “I am skeptical of anybody who maintains that there are obvious or clear answers to any of these issues.” A reasonable voice is more than welcome in this policy debate. He ends up arguing for evidence-based time-limited rights restrictions for migrant workers to enable greater openness to migration (ie. there should be a pathway to permanent residence and equal rights after a period), but is clear that we are in a world of trade-offs. The book is critical of the idealism of people – and UN agencies – advocating both equal and extensive rights for migrant workers and less restriction on migration.

The discussion of the ethics of this approach is very interesting. The book argues that demanding migrant worker ‘rights’ as a universal ethical norm closes the door to reasonable political debate about costs and benefits. When the issue inevitably involves conflicting interests, this is unhelpful – it makes what ought to be negotiable non-negotiable, and raises the temperature politically. Martin writes: “Bringing the state and politics back into rights-based approaches to international labour migration would open up a space for legitimate and important debates and deliberation.”This is an academic book, but very accessible, and I think it is an important one for anybody interested in the migration debate to read.

I also recently read Drew Keeling’s [amazon_link id=”3034011520″ target=”_blank” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914[/amazon_link], which I believe he will be discussing at the European Historical Economics Society conference taking place in London in the next two days. Here is the book website.

It looks at this historically unique, massive migration flow from the old to the new world through the prism of steamship transportation across the Atlantic: “This is a history of the 11 million European-born migrants who made 19 million ocean crossings on 18,000 voyages of several hundred vessels of two dozen steamship lines.” I found it fascinating to see this movement of people as a transport business, a novel approach to a story that is familiar in many ways. It was a significant business: “The business of migration between Europe and the United States generated over $20 million in revenues for transatlantic steamship companies in 1900, making it one of the largest examples of capitalist enterprise anywhere in the world at that time,” the book begins.

Falling transportation costs and better communications have played a major role in increasing migration during the current era of globalisation. I was surprised to learn that trans-Atlantic passenger fares in the early 20th century did not decline much over time, although there were periods of ‘fare wars’ – the assumption that freight to Europe from the US made space for passengers from Europe is incorrect. The ships used tended to only carry passengers and did not see the same pattern of cost declines as freight traffic.The book argues that the bigger cost to migrants was uncertainty about their prospects, and these costs declined over time as kinship networks in the United States grew more extansive.

Rather, the origins of the passenger steamships lay in state sponsorship of services to carry the mail reliably, the ‘packet’ vessels from the 1820s on. Their reliability and safety increased. The Cunard Line started its regular transatlantic voyages in 1840 with a significant subsidy from the UK government, and took 14 days with little variation – a reduction from earlier sailing times of anywhere between 4 and 8 weeks. This is a terrific business history with lots of fascinating detail about the steamship companies, their business strategies, their interactions with governments, and their risk-mitigation efforts.

It was all brought to a sudden halt by the outbreak of the First World War – one of the first moves by the British government in August 1914 was a blockade that stopped the two big German lines from operating. Migration flows fell sharply and never regained their early 20th century levels. The earlier climate of openness vanished irrevocably – certainly, a century on, it is hard to imagine a return to a population shift on that (relative) scale with such significant consequences for the receiving economy. And while there are certainly business models built on migration, it is hard to imagine they could ever grow into major corporations like Cunard, White Star or HAPAG.

[amazon_image id=”3034011520″ link=”true” target=”_blank” size=”medium” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914: Mass migration as a transnational business in long distance travel[/amazon_image]

New books on migration

My friend and colleague Martin Ruhs and I spent five years together on the Migration Advisory Committee. He sent this uplifting photo from the American Political Science Association meetings in Chicago:

My [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough [/amazon_link]has been out for a good while, and I’m soon due to be proofreading my next one. But Martin’s book [amazon_link id=”0691132917″ target=”_blank” ]The Price of Rights: Regulating International Labor Migration[/amazon_link] is brand new. I think it will be a must for people interested in the migration issue. It looks at the restrictions high-income countries place on inward migration and the trade-offs between migrant workers’ labour rights and their access to labour markets.

[amazon_image id=”0691132917″ link=”true” target=”_blank” size=”medium” ]The Price of Rights: Regulating International Labor Migration[/amazon_image]

I’m going to read it alongside another new book in my in-pile, on an important historical episode in the history of international migration, when the scale of cross-border labour movements rivalled those in the current episode of globalization, Drew Keeling’s [amazon_link id=”3034011520″ target=”_blank” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914.[/amazon_link] Intriguingly, it promises to look at the role mass migration played in the development of the travel business.

[amazon_image id=”3034011520″ link=”true” target=”_blank” size=”medium” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914: Mass migration as a transnational business in long distance travel[/amazon_image]

There have been quite a few books on migration recently. One well worth reading is [amazon_link id=”069115631X” target=”_blank” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_link] by Ian Goldin et al.

[amazon_image id=”069115631X” link=”true” target=”_blank” size=”medium” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_image]

One I must also read is Paul Collier’s [amazon_link id=”0195398653″ target=”_blank” ]Exodus: How Migration is Changing Our World[/amazon_link] – Dalibor Rohac reviews it here, very favourably albeit with a slight caveat about wishing it had looked more at the evidence on the untapped economic gains from less restricted migration.

[amazon_image id=”0195398653″ link=”true” target=”_blank” size=”medium” ]Exodus: How Migration Is Changing Our World[/amazon_image]

I haven’t bothered with David Goodhart’s [amazon_link id=”1843548054″ target=”_blank” ]The British Dream[/amazon_link] – it’s evidently political polemic rather than social science. This is very nerdy of me, but the OECD’s annual [amazon_link id=”9264200150″ target=”_blank” ]International Migration Outlook[/amazon_link] is always worth looking at it for actual data and analysis.

Robots v aliens

There has been an awful lot about robots around lately. As well as the links in my previous robot blog post, there was this primer from Robin Hanson, for example. Yesterday I did a talk at COMPAS in Oxford about research questions in the economics of migration, drawing on my experience as a practitioner for five years on the Migration Advisory Committee and also eight years talking to businesses when I was a Competition Commission member.

In MAC discussions, I was always keen to make sure what we called ‘bottom up’ evidence from companies, as well as ‘top down’ evidence from economic indicators,  informed our reports. The reason is that there was always a category of immigration that didn’t sit neatly in the framework of a labour market ‘shortage’. Economists naturally would expect a shortage to be resolved by rising real wages and/or increased labour supply, subject to frictions so it could take some time. But some businesses were clear they always need some immigrant workers, because they operated in global markets. They ranged from law, finance and professional service firms through to high-tech start-ups and engineering businesses. How should we think about their needs, in the context of migration policy?

My suggestion is that economists researching migration need to look more closely at ‘task-based’ models of production and trade. Rather than the conventional models that derive labour demand from a ‘production function’, with firms choosing how much (and what kind) of capital and labour they need to fulfill specific roles in producing the output, task-based models split production into tasks, and allocate inputs to tasks depending on the prevailing wages and technology. When technology is changing rapidly, as it has been, and factor prices change, tasks can be reallocated. In particular, many sectors of the economy, including services, have split their production into stages,some of which can be located anywhere in the world. In the existing literature, this is the phenomenon of ‘global unbundling’ or supply chains stretched over international borders. It can be driven either by low wage costs overseas, or simply by it being more efficient to allocate certain tasks to overseas contractors and workers.

There are some excellent papers on separate aspects of the choices this approach presents to firms – Richard Baldwin and Frederic Robert-Nicoud on trade, Daron Acemoglu and David Autor on labour markets, Ottaviano, Peri and Wright on migration – all building on a 2008 AER paper by Gene Grossman and Esteban Rossi-Hansberg. These need joining up to account for the joint decisions many businesses are taking: do they hire native workers, aliens or robots? Do they locate them at home, requiring some immigrants, or overseas via offshoring? What are the effects of different choices on the level of employment of natives, rather than either aliens or robots? And on their real wages? If migration flows are reduced, what adjustments will businesses of different kinds make in assigning other inputs to tasks – will offshore aliens or robots in fact do better than onshore natives?

All of these are empirical questions so the big problem, it seems to me, is data. The US has a skills database (O*NET) but I’m not aware of one in other countries. The trouble is, if the task-based approach is more useful (more realistic) than the production function approach, it requires quite a significant mental shift. For one thing, wages will be determined by productivity in tasks, so regressing real wages on individuals’ skills will be misleading whenever firms reallocate people with given skills to different tasks. The newer approach fits much better with how I’ve heard businesses describe their strategic decisions over the years. The Acemoglu and Autor survey chapter in the [amazon_link id=”0444534520″ target=”_blank” ]Handbook of Labor Economics[/amazon_link] is a good, comprehensive starting point. The Economist did a brief write-up on the robot aspect a while ago, too.

[amazon_image id=”0444534520″ link=”true” target=”_blank” size=”medium” ]HANDBOOK OF LABOR ECONOMICS, VOL 4B (Handbooks in Economics): New Developments and Research on Labor Markets[/amazon_image]


Unknowns in the immigration debate

From 2007 until last November I was a member of the Migration Advisory Committee, a group of independent economists advising the UK government on specific questions about the economic effects of immigration policy. There has been some debate on the radio and online today about the latest political statements on immigration. Unfortunately, the area of what we don’t know about the effects – is immigration a net benefit or a net cost to the host country? – far exceeds what we do know. The areas of uncertainty are described in the MAC summary of a series of research projects on the impacts of migration, commissioned and published a year ago.

In a nutshell, the biggest potential benefit we don’t understand is the long-run dynamic effect on potential growth (in an ageing society) from an increase in the working-age labour force, the increase consisting of people who are by definition more than normally enterprising and have different experiences and ideas to contribute. I have a particular interest as well in what businesses will do, in a globalised age, if they can’t employ as many immigrants as they have become used to – to what extent will outsourcing or imports replace inward migration? The biggest potential costs yet to be carefully assessed are the ‘congestion’ effects of immigration on housing, or access to services, for example. While some supposed costs are myths – the idea of higher crime rates for instance – others have not been well measured.

There are plenty of interesting books on immigration. I liked quite a recent one, [amazon_link id=”069115631X” target=”_blank” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future by Goldin, Cameron and Balarajan[/amazon_link], and an older (2000) one, Jeremy Harding’s [amazon_link id=”1861972113″ target=”_blank” ]The Uninvited: Refugees at the Rich Man’s Gate[/amazon_link].

The former is an argument for liberalising migration policy, which runs counter to the popular mood in many countries at present; but even if you do not share that perspective, its contribution is placing the debate in the context of globalisation and demographic change. National policies will be more effective if they acknowledge the underlying global trends.

[amazon_image id=”069115631X” link=”true” target=”_blank” size=”medium” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_image]

The latter is an evocative short piece of reportage that reminds us that migrants are real people, with extraordinary stories. It too raises the question of globalisation, but in its cultural dimension – particularly the awareness everybody in the world now has of other lives, through satellite TV. “The father of a desperate family in Burkina Faso who decides, after three bad harvests in a row, to ride into town and negotiate a loan can watch a slimming commercial on CNN while he waits in the living room of a prestigious uncle.”

[amazon_image id=”1861972113″ link=”true” target=”_blank” size=”medium” ]The Uninvited: Refugees at the Rich Man’s Gate[/amazon_image]

Satellite TV spread rapidly around the world in the second half of the 1990s, and again in the 2000s in Asia. Its enormous cultural impact has hardly been studied.