Two Nations Indivisible (part 2)

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In reflecting on Shannon O’Neil’s account of U.S.-Mexican relations, I was struck by the similarity between the choices facing international policymakers and those facing investors. Financial planners have often identified two enemies of sound investment–fear and greed. Fear leads an investor to flee from the ups and downs of the market by sticking to only the safest and most predictable of investments, thus settling for too low a return. Greed leads an investor to chase extravagant returns that often turn out to be illusory. Most sensible investors neither bet the farm on the latest hot stock, hoping to make a killing, nor run for the exits at the first sign of trouble. They maintain a diversified portfolio of assets with calm confidence that they will receive their fair share of a growing economy’s benefits.

Fear and greed have often characterized U.S. attitudes towards Mexico and Mexicans. Those who would close the door to migration and trade are afraid that Mexicans will take our jobs, undermine our culture, or become a burden on taxpayers. And some of those who advocate more open policies are greedy for one-sided economic relationships in which businesses exploit Mexican laborers and take advantage of their lack of rights. Having a poorer country with a weak democracy so near can be profitable, as U.S. businesses learned in the nineteenth century. Employing Mexican migrants in the U.S. while keeping them undocumented and vulnerable to deportation has also been profitable. With greater confidence in the future of both countries, we could base policies on the expectation that our peoples can prosper together, and that their relationship can be a win-win instead of a loss for one side or the other.

Mexican immigration

Compared to the brief spurts of immigration from countries like Ireland, Germany and Italy, Mexican immigration has been going on for a long time. Among the forces driving it have been “economic needs, demographic trends, and deep family and community connections on both sides of the border.” O’Neil says that a particularly large wave of immigration has occurred since the 1980s, but “this wave is already receding, and is unlikely to ever rise again.” Net immigration reached zero in 2011, with the U.S. economy still suffering from high unemployment, but the reasons for tapering immigration go deeper.

One cause of the recent wave of immigration was the 1982 Mexican debt crisis and its aftermath, which left unemployment higher in Mexico than the United States. A return to economic stability and growth, especially since the late 1990s, has alleviated the pressure to migrate. Another temporary factor was demographic. As in most developing nations, health improvements brought down the mortality rate–especially the infant mortality rate–and the surviving children were too numerous for the labor force to absorb. More recently, this population explosion has been slowed by a dramatic decline in the birth rate, with the average number of children per family dropping from about six to two since the 1970s. O’Neil also notes that as fewer young adults enter the Mexican labor force, the large baby-boom generation will be leaving the U.S. labor force, so migrant laborers may be seen as less of a threat and more of a blessing.

Many readers may be surprised to read that “nearly all economists agree that immigration presents a net benefit for the U.S. economy and for U.S. wages.” The harm that migrants may do by taking low-wage jobs may get most of the attention, but everything migrants add must be factored into the equation:

[T]he U.S. job market is not a zero-sum game. Immigrants and their families help spur growth and new jobs by buying groceries, going out to dinner, and shopping at the local mall. Also, long-time locals and new arrivals gravitate toward different jobs. U.S.-born workers are more likely to serve food in restaurants, check out shoppers as retail clerks, check in families at hotel front desks, hold manufacturing jobs, or manage construction or janitorial crews that have less-than-perfect English. In fact, study after study shows that foreign-born and native workers more often complement than substitute for one another.

States with large immigrant populations do not generally have either lower wages or higher unemployment than other states. Some groups of workers may be hurt by immigrant competition, especially men with a high school education or less, but the impact on wages is generally small.  And where wages are held down, the solution may be to upgrade the status and rights of workers rather than trying to get rid of them.

Academics also find that the pressure on low-skill wages stems not from immigration per se, but from the illegal nature of so many of today’s arrivals, which allows unscrupulous employers to underpay, undercut, and underprotect employees. One such study suggests that if immigrants were legalized, wages for all workers— citizens and noncitizens alike— on the bottom educational rungs would increase rather than fall.

O’Neil also debunks the claims of some cultural conservatives that Hispanic immigrants are less assimilable than earlier waves of immigrants. She finds the Mexican story similar to those of other ethnicities: the first generation struggles and clings to many of its traditions, while the next generations quickly adapt. Ninety percent of second-generation Hispanics speak English very well, and educational attainment approaches the national average by the third generation. Assimilation weakens many other traditions too, such as the close-knit Hispanic family: “Native-born Hispanics now divorce their partners just as frequently as native-born whites (three times the rate of recent immigrants.” (Not everyone’s idea of progress, but at least it shows assimilation!)

O’Neil concludes that recent immigration policy has been based too heavily on unfounded fears. The benefits of trying to exclude immigrants are too meager and the costs too high. Now that the border has been “hardened,” many immigrants who might have made the crossing more easily still manage to get here anyway, but with the aid of organized crime. The proportion of immigrants who settle here permanently instead of temporarily has risen, perhaps because border enforcement has made traveling back and forth too difficult. Economic studies have concluded that rounding up and deporting undocumented workers would be extremely expensive, and would actually shrink the economy of any state that accomplished it.

O’Neil would maintain the distinction between legal and illegal immigration, and even enforce laws against the employment of undocumented workers more strictly. However, she would allow more immigrants into the legal category, for example by making it easier for relatives of Mexican-Americans to be admitted. She would also provide more avenues to citizenship for migrants who are working here legally.

Free trade

O’Neil regards the North American Free Trade Agreement (NAFTA) as a “net win for both countries.” Since its approval, Mexico’s exports to the United States have increased by a factor of five, but U.S. exports to Mexico also increased by a factor of four. Mexico is now second only to Canada as an importer of U.S. products.

The free trade agreement made it much easier for U.S. firms to invest in Mexican production and then import the products back to the United States. That aroused the fear voiced by presidential candidate Ross Perot of a “giant sucking sound” as jobs were lured south of the border. While many manufacturing jobs did go south, they were offset–maybe a little more than offset–by jobs created by U.S. production for the expanding Mexican market. And while more Mexicans did find jobs in booming border cities, workers in small-scale farming and other traditional employment lost work as markets became more open to international competititon.

If the impact on overall employment has been modest, the benefits for economic growth, income and consumption have been large, especially in Mexico. Mexican per capita income more than doubled between 1996 and 2011, while the new flood of manufactured goods dramatically reduced the cost of consumer goods.

The main effect of free trade has been to closely integrate the two economies in processes of production and distribution. For many products, the distinction between “made in America” and “made in Mexico” is no longer meaningful because workers in both countries do the making. “The Chevy Malibu sold in Omaha, Nebraska, may have crossed the border not once but multiple times, as parts combine into components, components into systems or modules, and finally modules into cars. Every Ford Fiesta sold in Guanajuato, Mexico, is no different.”


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