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Globalization: The Final Frontier

September 14, 2017 | Global/Emerging Markets

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Much of the urgency around the immigration debate has faded after the elections, but a number of factors could cause a resurgence of interest in the topic.

As I've explained previously, there are four aspects to globalization: the free movement, across borders, of goods, services, capital, and labor. We've seen the first three; we're just waiting to cross the final frontier, the movement of labor—or immigration.

To this, the social reaction has been the strongest so far. To understand why, consider the movement of goods, services, and capital across borders.

The movement of goods is widely considered positive. When the price of your underwear falls from $10.00 a pack to $3.00 a pack because it's made in Asia, you're happy (especially if you're in a lower income bracket, which benefits disproportionately from the globalization of goods).

Certainly, there have been isolated protests against abusive labor practices abroad, but these practices are distant from many Americans.

The movement of services and capital is a bit more controversial. It's hard to visualize the flow of services, such as tourism and insurance products. The same is the case with the flow of capital. We read about what's happening in the financial services industry, and every now and then we hear that bankers got greedy and we had to bail them out, which is negatively perceived. But we don't actually see the money flowing.

But immigration is different. It involves someone who looks differently, dresses differently, and cooks differently, and who has different cultural standards, moving into your neighborhood. That makes it harder to ignore than the movement of goods, services, and capital, and it's much more emotive.

So, the movement of labor has not yet been globalized. Today, if you want to immigrate—not as a political refugee, but an economic migrant, coming here for work, either temporary or permanent—you have few means of doing that legally.

The amount of paperwork that is required, the loopholes that you have jump through, and the payments extracted along the way relative to your opportunity to earn create tremendous barriers to entry.

The topic was in the forefront during the elections in both the United States and Europe, but when those elections passed, the urgency faded. In the United States, President Donald Trump tried and failed to pass several executive orders pertaining to immigration.

On the other side of the Atlantic, Theresa May fared poorly in the U.K. elections, illustrating that hard Brexiters no longer have the power they once did (and because of a proposal for an interim arrangement, the status quo on EU immigration may stand for some time).

A number of factors could cause a resurgence of negativity around the topic, however. Terrorist activity and police brutality are obvious triggers, but in Europe, the situation is more complicated.

Consider the release of trapped migrants in Turkey. In 2015, more than a million people streamed into Europe, most from eastern and central Turkey, creating political chaos, especially for Germany's Angela Merkel.

That flow in the span of months didn't need to happen; Turkish President Recep Tayyip Erdogan released the migrants to force concessions from the European Union (EU).  In striking a deal with Turkey in 2016, Brussels closed a route for refugees across the Balkans—but only one route.

In the first half of 2017, about 85,000 people still landed on Italy's shores, compared with 71,000 for the same period last year, according to the International Organization for Migration, a U.N. body. So, any number of events could precipitate another wave of negativity toward immigration.

In both the United States and Europe, we see the strongest anti-immigration sentiment in two areas: first, in homogenous communities that have not been exposed to immigrants, and second, in communities that have seen such a large and quick influx of immigrants that public services cannot keep up. This is what led to the Brexit vote in June 2016, so we might interpret Brexit not as a vote against immigration but as a vote for better public services.

 We might interpret Brexit not as a vote against immigration but as a vote for better public services.

So, we face a conundrum: Constrain immigration, which inhibits competition and economic activity, or allow immigration, which requires public sector investment to accommodate a rapidly growing and diversifying economy.

In another post, I'll try to answer the key question: What will it take for us to cross that final frontier and globalize the movement of labor?