An interesting parallel appears here between economics and exit, on the one hand, and politics and voice, on the other. Just as in economics it had long been thought that the more elastic demand is (that is, the more rapidly exit ensues whenever deterioration occurs) the better for the functioning of the economic system, so it has long been an article of faith of political theory that the proper functioning of democracy requires a maximally alert, active, and vocal public. In the United States, this belief was shaken by empirical studies of voting and political behavior which demonstrated the existence of considerable political apathy on the part of large sections of the public, for long periods of time. Since the democratic system appeared to survive this apathy rather well, it became clear that the relations between political activism of the citizens and stable democracy are considerably more complex than had once been thought. As in the case of exit, a mixture of alert and inert citizens, or even an alternation of involvement and withdrawal, may actually serve democracy better than either total, permanent activism or total apathy. One reason, stressed by Robert Dahl, is that the ordinary failure, on the part of most citizens, to use their potential political resources to the full makes it possible for them to react with unexpected vigor—by using normally unused reserves of political power and influence—whenever their vital interests are directly threatened… [Albert Hirschman. Exit, Voice and Loyalty. Chapter 3. 1970]
Category: Economics
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.
First published in The Malaysian Insider on October 1 2010.
Suppose a fence can be produced by using either one high skilled worker or by using three low skilled workers. If the wage of high skilled workers is $38 per day, and that of a low skilled worker is $13 per day, the firm employs the high skilled worker because costs would be less and profts higher ($38 versus $39). The high skilled worker would soon recognize that one of the ways to increase his wealth would be to advocate a minimum wage of, say, $20 per day in the fencing industry… After the enactment of the minimum wage laws, the high skilled worker can now demand any wage up to $60 per day … and retain employment. Prior to the enactment of the minimum wage of $20 per day, a demand of $60 per day would have cost the high skilled worker his job. Thus the effect of the minimum wage is to price the high skilled worker’s competition out of the market. [Walter Williams. The State Against Blacks. 1982]
Veblen introduced some interesting ideas in The Theory of the Leisure Class. My professor seems to insist that Veblen was an early pioneer in the field of signalling.
Although Veblen drove his ideas to the extreme to bring in absurd implications that I simply will not buy, there are specific arguments that I find attractive and readily agreeable. This is one of them:
The same pervading canon of vicarious leisure is also visibly present in the exterior details of devout observances and need only be pointed out in order to become obvious to all beholders. All ritual has a notable tendency to reduce itself to a rehearsal of formulas. This development of formula is most noticeable in the maturer cults, which have at the same time a more austere, ornate, and severe priestly life and garb; but it is perceptible also in the forms and methods of worships of the newer and fresher sects, whose tastes in respect of priests, vestments, and sanctuaries are less exacting. The rehearsal of the service (the term ”service” carries a suggestion significant for the point in question) grows more perfunctory as the cult gains in age and consistency, and this perfunctoriness of the rehearsal is very pleasing to the correct devout taste. And with a good reason, for the fact of its being perfunctory goes to say pointedly that the master for whom it is performed is exalted above the vulgar need of actually proficuous service on the part of his servants. They are unprofitable servants, and there is an honorific implication for their master in their remaining unprofitable. It is needless to point out the close analogy at this point between the priestly office and the office of the footman. It is pleasing to our sense of what is fitting in these matters, in either case, to recognize in the obvious perfunctoriness of the service that it is a pro forma execution only. There should be no show of agility or of dexterous manipulation in the execution of the priestly office, such as might suggest a capacity for the turning off the work. [The Theory of the Leisure Class. Chapter 6: Pecuniary Canons of Taste. Thorstein Veblen. 1899]
As a side note, I am beginning to understand why a Veblen good is called a Veblen good. It all begins with this book.