Foreigners from poorer countries working in unglamorous low-skilled industries in Malaysia have it tough. Stereotyped, some Malaysians associate them with the worst.

They are blamed for various problems — from the high crime rate to stagnating wages — while their contributions to the local economy are ignored. Seeing low-skilled foreigners as a source of trouble, there are Malaysians who want to limit the number of these foreigners in the country.

In times when economic growth is an obsession, that protectionist sentiment needs to be kept in check. It needs to be kept in check because immigration can be a key to economic growth.

More generally, population growth can lead to economic growth. High population growth rate enlarges the size of an economy in absolute terms. In this respect, immigration is the easiest route to take.

That is not the main reason why immigration is a powerful tool for long-term economic growth, however. Instead, it is the potential of their children along with ours.

The larger a particular society is, the likelier it would organically host inherently exceptionally talented individuals. Creation of talents does depend on multiple factors such as quality education quality but it is impossible to deny that some people are exceptionally brilliant compared to others. In a perfectly level-playing field stripped of other effects, these individuals would distinguish themselves from the masses, regardless of environmental factors.

Economist Robert Lucas once explained this to demonstrate the link between population growth, technical progress and economic growth. He wrote: ”If I could re-do the history of the world, halving population size each year from the beginning of time on some random basis, I would not do it for fear of losing Mozart in the process.”

These highly talented individuals would contribute to society and make it richer. By richer, it is not only in terms of material wealth but also other aspects that make life worth living.

If Malaysia is to enjoy the benefits of a larger population in the long run, it has to adopt a relatively open immigration policy. This can easily be done by granting productive foreigners who have spent considerable time in the country a pathway to citizenship, or at least a shot at permanent residency.

Some may consider this as an overly liberal policy. It is not and in fact, it is a realistic policy. Consider for a moment that there are more or less two million foreigners in Malaysia. That figure is before accounting for illegal aliens. One surely cannot believe that the government can reduce the number by a significant margin, much less boot of all of them out without hurting the economy.

Many of them have lived in Malaysia for some time. Many do speak Malay. They are acclimatized to Malaysian culture. In other words, the cost of accommodation and integration for them and for Malaysian society would not be too great.

At the same time, Malaysia does not have a comprehensive welfare system, which is a typical barrier to open immigration policy. As new citizens, they will have to work their way through. They have the necessary motivation to work and to contribute to society. This reduces the short-term cost of such liberal policy.

Implementation of the liberal policy may even give a short run boost to the local economy. Foreign workers face radical changes in their future given that they have to return to their home country once their stay permit expires.

It is reasonable to speculate that that places a limit on their spending within the local economy. If one has no future in the country, one has little reason to spend too much in that country — little incentive for them to undertake large, long-term purchases or investments at individual levels.

If they are given the chance to pursue Malaysian citizenship or permanent residency status, and if such speculation is a fact, then that limit could be removed. This could boost private demand in Malaysia.

In fact, some of these foreigners have proven to be entrepreneurial sorts. Citizenship will grant them security. That encourages them to establish private enterprises, which can only enhance the vigor of the free market and reduces the need for government involvement in business, if there is ever a need for such statist involvement in the first place.

This cannot be bad for the local economy in both the short and long run.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on October 1 2010.

21 Responses to “[2259] Of more open immigration as a source of growth”

  1. on 06 Nov 2010 at 20:54 Ilia

    With regard to solar cells – the point was that even though our population now is so great, progress has slowed. O fcourse there are lots of improvements to be made, but I thought you mentioned solar cells to prove that we are indeed moving forward? I found this a weird example as solar cells are hardly used..

  2. on 14 Nov 2010 at 09:02 Hafiz Noor Shams

    Ilia,

    I do get your point. All I’m saying is that controlling for culture, population helps. I’ve been repeating this several times now. And like I said earlier, I’m not saying culture doesn’t help.

    On immigration and Einstein, you forget that these better skilled immigrants need support and these supports come from other people who may not be as brilliant or as skillful as they are. These supports exist in many form. That nurse in the hospital. That janitor. That clerk filing the files. That labor building the lab. Of course, Einstein or others as talented could do this but that isn’t the most productive use of talent.

    On correlation, only on the surface but you need to control tons of other things to say it scientifically. There that need controlling that I can think off the top of my head are wealth, health and education quality. If you control for these variables, I’m sure you will see that population influences growth. Here’s something for you if you haven’t read it before: http://en.wikipedia.org/wiki/Omitted-variable_bias

    p/s- on Mozart, Shore et al, sure I am. People for some reason has bias for old stuff. Given another 100 or 200, I’m sure these contemporary composers will get there. Consider Sibelius.

  3. on 17 Nov 2010 at 02:20 Ilia

    I agree of course, not everyone can be Einstein, and the bulk of scientists are engineers that create progress are not nobel prize winners. However your points about the janitor and the file clerk I don’t quite understand.

    Maybe I know how to present my view more clearly. Let us start by assuming that population is an important (though not the only) factor in creating progress. Then we consider my example of Sweden vs Bangladesh. Surely if population is an important factor, and one country has a lead of 20x the population, it should at *least* be approximately equal in terms of progress? The fact that it isn’t says something I think – namely that all the other factors that contribute to progress probably account for maybe 99% of it.

    So perhaps, if Australia wants to stimulate progress, rather than doubling its population, which will cause all kinds of pressures (environmental impact, higher land price, lower wages – you understand these things much better than me) it would do better to focus on the other things, like the level of education, level of culture, public interest in science etc – since these other things seem to account for so much of the progress observed in places in Sweden.

    p/s. Well it is true some more modern composers are not so bad (like Silebius, Gershwin etc). But I think we can say quite objectively that Shore and John Williams are nowhere near Mozart and Tchaikovsky’s level. I think just the fact that these ‘old guys’ have stood the test of time, suggests that maybe they really are worth remembering.. I don’t believe there’s a bias for anything old – mostly I observe the opposite in fact (among young people at least).

    Just like ‘The Strokes’ are a decent modern rock band, but not really to be compared with The Rolling Stones for eg. Perhaps you reveal something about your own culture here :D (jk) I think I am perfectly objective when I say this – and it is possible to be objective about such things.

  4. on 17 Nov 2010 at 02:41 Ilia

    OK I think I understand now your point about the file clerks. Yes of course, if your population is only 1,000, and all you have is Einsteins, it would be kind of a waste of their time to be building their labs and doing their own filing. That makes perfect sense. But in a reasonably sized country (like ancient Athens with a population of 1-million at its peak) there are more than enough file clerks available. In fact much of the population was indeed slaves, giving people like Archimedes and Euclid plenty of time to draw their triangles he he.

    So I think here we come to the non-linear relationship of population. Obviously as we grow from 1,000 to 1-million people or so, we are rapidly stimulating progress. However, after that the same relationship doesn’t hold (especially in the modern world where more and more work is done by machines – not many people work as a file clerk nowadays because of the computer). So growing a population from 1-million to 10-million will not necessarily have the same effect as going from 1,000 to 10,000.

  5. […] prefer assimilation for these immigrants because they have been here for such a long time. The cost of assimilation should be reasonably cheap compared to mass expulsion. I also think expulsion is an inhumane policy. I think we have a […]

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