Sunday, September 25, 2011

The free movement of people and the middle classes

The major problem with First world aid and transfers to the third world has been that the money and the multiplier effects occur there, while the developed world would like to see Marshall Aid type benefits occuring here.

Why doesn't it happen?

Simply because we have blocked it.

Once money goes to poor countries and some people benefit from it, these people want to spend it on imported goods and tourism. However, in the name of cultural homogeneity or in the fear of terrorism, we block out these tourists and potential immigrants.

The Marshall Plan was accompanied with ease of travel between the US and Europe. The aid to third world has been uni-directional in the benefits because those benefits have been blocked.

Immigrants need housing. Immigrants need schooling. Immigrants need legal counselling. All the markets get built and are nourished by immigrants. Block out immigrants and you block out growth. Because the existing population already has housing or will inherit. It already has education and has created systems for continuting this. It knows the laws and has participated in laying them down. Thus, if you rely on old population, you can only have a decline in aggregate demand and not growth.

Tourists are like temporary immigrants. They reward different industries. They spend and they go.

Therefore, the first thing required for European growth is to open the borders at least to affluent tourists visiting their families. As movement becomes free, ideas will flow and services will be provided to answer the needs of the new tourists.

Even this is simple to understand and implement and big business would be all for it. But what about the beggars on the street and the unemployment it creates.

This is the real problem. How can we share the new opportunities created by immigration and tourism so that middle class entrepreneurs thrive and that all is not captured by the large national chains providing cheap goods.

If the new business was evenly distributed, all can be happy. So, what is required is not redistributing money once it is earned, but redistributing opportunities for earning money.

One such method would be a cap on size.

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