Tag Archives: ha-joon chang

Immigration And Wages

In recent times, there has been a large rise in refugees. This has fueled the debate on migration—both about economic migration and on people seeking refuge in the West because of political turmoil in their home countries.

As is true with most issues, there’s a conflation. Of course, the latter is non-negotiable. Article 33. – Prohibition of expulsion or return (“refoulement”) of the United Nations’ Human Rights’ Convention relating to the Status of Refugees is clear about this:

  1. No Contracting State shall expel or return (” refouler “) a refugee in any manner whatsoever to the frontiers of territories where his life or freedom would be threatened on account of his race, religion, nationality, membership of a particular social group or political opinion.

So refusing refugees is both immoral and illegal.

But that still leaves a debate about economic migration. But in public debates, either people argue for “open borders” or we have xenophobic, far-right kind of arguments.

Heterodox economists such as Ha-Joon Chang argue for migration controls, who sees it as a policy for cheap labour and keeping wages low.

Now Simon Wren-Lewis thinks that it’s incorrect. On his blog he says:

[the liberal left] gets to love immigration controls and can begin again to represent the part of working class that dislikes immigration.

The reasoning is attractive. Starve firms of cheap labour, and they are forced to innovate and invest in labour saving machinery and/or in training their workers, which drives up productivity and real wages. In a world where capital is not mobile, that mechanism could work over a very long time period. But when capital is mobile, the firm has an obvious alternative: produce somewhere else where labour is cheaper. Keynes taught us not to make the mistake of assuming output was fixed, and the same is true here. Labour shortages could equally lead to less production, more imports, and a depreciation that makes everyone poorer.

The mechanism on how immigration controls work is simpler than that. There’s no need for labour-saving machinery. Instead because immigration controls put workers in a better bargaining position, it raises wages (as the Phillips curve tells us). Higher wages means higher domestic demand and hence higher output. It’s possible that some firms may shift production abroad but an economic policy which favours immigration controls also likely favours “reshoring”, i.e., bringing jobs back. In many cases—such as restaurant staff—it is not even true that jobs can be offshored. Plus why assume that non-immigrants are less productive?

It’s true—as Simon Wren-Lewis says—that output shouldn’t be assumed to be fixed, as Keynes taught us, but he also seems to miss the Kaleckian dynamics that wage rises will lead to higher output.

Of course, migration can be beneficial. But there’s conflation here too. It’s myth making to say that “immigrants aren’t taking jobs Americans don’t want to do”. But high-skill migration can be highly beneficial. This is because fortunes of nations depend critically on the competitiveness of their producers and firms are finally people. So attracting high-skill talent is beneficial for any nation. So debates and policies on immigration needs to be more nuanced.

There has been a rise in the rejection of the “center-left” globally coincident with the rise in right-wing populism. The center-left has shifted to neoliberalism instead of caring for the working class. Right-wing parties sensed an opportunity. As the blurb of a recent articleThe Ruthlessly Effective Rebranding Of Europe’s New Far Right by Sasha Polakow-Suransky for The Guardian, says:

Across the continent, rightwing populist parties have seized control of the political conversation. How have they done it? By stealing the language, causes and voters of the traditional left

Macroeconomics and political economy are now more important that ever. To get back the control of the populist parties, economic myth-making needs to go.

Ha-Joon Chang’s Kicking Away The Ladder Theory

With recent political changes such as Brexit and Trump, economists have been struggling to understand what’s going on. While there’s some concession with phrases such as “inclusive globalization” (which doesn’t mean much in practice), the global elite is upping its call for free trade.

I’d argue that it’s the macroeconomics of international trade which makes Post-Keynesian economics different from the orthodox. In recent times, economists have conceded a lot about the macroeconomics of fiscal policy and money, they have become more confident about their orthodoxies on international trade. Even with the former they are returning to their orthodox opinions with the argument that heterodox ideas make sense only if the zero lower bound (ZLB) is reached. But “free trade” is the holy cow which will be difficult for orthodoxy to ever abandon.

Ha-Joon Chang is a great writer and communicator on economics. In his 2002 book Kicking Away The Ladder: Development Strategy in Historical Perspective, he argues for a fresh look at how nations developed and how they used a mix of free trade and protectionism whenever it suited them more. Once they became advanced, they want to prevent others from adopting their strategy – they are kicking away the ladder they used to climb to top.

In a shorter article Ha-Joon Chang explains:

Central to the neoliberal discourse on globalization is the conviction that free trade, more than free movements of capital or labor, is the key to global prosperity. Even many of those who are not enthusiastic about all aspects of globalization–ranging from the free-trade economist, Jagdish Bhagwati, advocating capital control to some non-governmental organizations (NGOs) accusing the developed countries for not opening up their agricultural markets–seem to agree that free trade is the most benign, or at least a less problematic, element in the progress of globalization.

Part of the conviction in free trade that the proponents of globalization possess comes from the belief that economic theory has irrefutably established the superiority of free trade, even though there are some formal models which show free trade may not be the best. However, even the builders of those models, such as Paul Krugman, argue that free trade is still the best policy because interventionist trade policies are almost certain to be politically abused. Even more powerful for the proponents of free trade, is their belief that history is on their side. After all, the defenders of free trade ask, isn’t free trade how all the world’s developed countries have become rich? What are some developing countries thinking, they wonder, when they refuse to adopt such a tried and tested recipe for economic development?

A closer look at the history of capitalism, however, reveals a very different story (Chang, 2002). As we shall establish in some detail in this paper, when they were developing countries themselves, virtually all of today’s developed countries did not practice free trade (and laissez-faire industrial policy as its domestic counterpart). Rather, they promoted their national industries through tariffs, subsidies, and other measures.

and introduces the phrase “kicking away the ladder”:

Thus seen, contrary to the popular belief, Britain ‘s technological lead that enabled this shift to a free trade regime had been achieved “behind high and long-lasting tariff barriers” (Bairoch, 1993, p. 46). And it is for this reason that Friedrich List, the nineteenth-century German economist who is mistakenly (see section 3.2 below) known as the father of modern “infant industry” theory, wrote the following passages.

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations.

Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth [italics added] (List, 1885, pp. 295–6).

Never Trust An Economist

“Never trust an economist, including myself”, says Ha-Joon Chang in this wonderful video titled, Economics Is For Everyone.

Ha-Joon Chang

click the picture to see the video on YouTube.

Ha-Joon Chang is definitely sounding like Joan Robinson. In a lecture in Delhi in 1955, she said:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

More from her in this post Joan Robinson On Economists