Mises Wire

Entrepreneurship is the Key to Immigration

Terror attacks, civil wars, and political upheaval around the world are clear signs that debate about immigration isn’t going to disappear any time soon. However, troubled times can also be a good opportunity to revisit our basic arguments and assumptions about controversial issues. They’re also a way to remind ourselves of how much we can still learn from great scholars like Mises.

Jeff Deist correctly argues that immigration is not an easy problem for most people, and that the controversy surrounding it can’t be resolved simply by resorting to superficial ideological labels. That’s exactly why we need to bring the best economic arguments to bear on the issue.

Immigration and Economic Calculation                     

Immigration policy involves arguments from a variety of disciplines, including history, political philosophy, cultural studies, public policy, and many others. But there is a convincing argument to be made that the essential problem of immigration is an economic one. In fact, Mises realized as much a hundred years ago. In particular, he recognized that immigration is first and foremost a question of differences in labor productivity between different regions of the world (see here and here).

Whether these differences are caused by geographic conditions, poor economic policies, or even warfare, they provide the ultimate motivation behind the desire to emigrate from one’s country of origin. More importantly, Mises’s work also hints at the best way to resolve immigration crises: like most other economic problems, the answer is entrepreneurship. Labor markets are especially important, and more specifically, the way entrepreneurs coordinate those markets over time.

Immigration is simply an application of Mises’s theory of economic calculation. We sometimes forget that this theory is more than a fundamental critique of socialism: it’s also a positive theory of the entrepreneurial market process. Specifically, Mises explains that the market depends on the price system to allocate resources to their most urgent needs. The price system is in turn created from moment to moment by entrepreneurs appraising the future prices of the factors of production.

The key point is that labor is one of those factors. Entrepreneurs constantly make judgements about which laborers to employ. Specifically, they appraise their future productivity. But they can’t be sure which workers will be the most productive. The future is uncertain, and human choice is a messy business. So entrepreneurs use their best judgment, and bear the consequences of their decisions through the profit and loss test. If they hire productive workers, they succeed: if they don’t, they fail. In addition, entrepreneurship here applies to more than for-profit businesses. There are also a wide range of alternative entrepreneurial organizations that make similar decisions about human resources. These include social enterprises, charities, and many other instuitions of civil society.

This is where immigration comes in. They key question under debate at the moment is, who decides which immigrants will be allowed to cross state borders? I think there’s an authoritarian tone to this question, but setting that aside, there’s a market-based answer: it’s through the entrepreneurial process that labor markets coordinate immigration. Entrepreneurs speculate about immigrant workers just as they do domestic workers. They must judge whether workers will be productive, lazy, or even criminal. They thus decide which people will move to which employments in which regions.

If entrepreneurs welcome criminal immigrants into the workplace, the law will punish the offenders and the market will punish the entrepreneurs. In other words, entrepreneurial “regulation” of immigration is really just another way of talking about the discipline of the market, which in turn is shorthand for individual consumer sovereignty. When labor markets are left free, immigration is decided by the peaceful interactions of all individuals in society, including immigrants. In other words, immigration problems are resolved in the same way as countless other social issues.

Immigration Subsidies

This is all true of immigration in a liberal society, but what about immigration in our current interventionist society? For example, what about immigration that’s “subsidised” by government? Surely this has nothing to do with entrepreneurs and workers contracting on free labor markets. How then can we expect markets to cope with the task of sorting productive, peaceful immigrants from unproductive or violent ones? Don’t we need government to do this for us?

Let’s return to economic calculation. Even assuming there are no ethical problems with expanding the state’s power to regulate movement, we have good economic reasons to believe that it can’t accomplish its objectives. The reason is that government cannot imitate the market, and it can’t discover the “correct” quantity or quality of immigrants just as it can’t discover the correct quantity or quality of shoes to produce. Without entrepreneurs risking their own necks, and without a price system to guide its decisions, government can only make arbitrary choices about immigration.

In contrast, labor markets constantly test entrepreneurs’ judgments about which immigrants will participate peacefully in society. If entrepreneurs get it wrong and sponsor lazy or violent immigrants, they pay the price, just as they go bankrupt if they sell defective or dangerous products. This kind of trial and error is the only way to determine which immigrants will contribute to society. Yet government pays no penalty for getting it wrong or even for letting criminals run loose. In fact, it can even benefit from these events, and by promoting fear and hysteria among the population, which it can then use to acquire even more power (see “terrorism”).

Entrepreneurs have every incentive to get it right. Governments don’t, and in fact, they face many bad incentives. For example, governments are often hostage to labor unions, who are among the biggest opponents of immigration, which they realize threatens the artificially high wages of their members. To placate the unions, governments cause further “unseen” harm by not letting in “good” immigrants. Competitive entrepreneurs would be incentivised to make sure such immigrants were not overlooked.

So while it’s true that immigration is subsidised by certain public benefits programs, does that mean government should be given the right to regulate immigration? The production of corn is also heavily subsidised. Is it reasonable to argue that government should regulate production until the subsidies can be removed? Should it decide how corn should be produced, and in what quantities and qualities, and at what prices? Economists argue that doing so simply multiplies the problems involved. Instead, the only real solution is to abolish the subsidies as quickly as possible.

But what should be done until then? How can entrepreneurs be expected to get things right when they inhabit an interventionist market? The answer is: the same way they always do. That is, they make do with what they have. Even stifled by regulations and the monopoly privileges of competitors, entrepreneurs find a way. For example, despite heavy resistance from taxi cartels, ridesharing companies have reshaped the taxi market. More broadly, consider the following: defenders of free markets give entrepreneurs their full confidence in virtually every area of society, sometimes including even the production of law and order. Even under the present system of interventionism, entrepreneurs constantly find creative solutions to social problems. So why not immigration, which requires them to make the same kinds of decisions they already do? That’s the brilliance of markets: they take seemingly insurmountable social problems, and turn them into a complex series of mutually beneficial exchanges.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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