Cross border movement of managerial qualities

Having been in corporate life for about 20 years, I have always come across various thoughts and talks about the ideal qualities that a great business manager should possess. Vision, positive attitude, team player, perseverance, emotional bond with employees, etc. and the list is endless. As a part of university days in a global B-school, working outside India and extensive interaction with business managers from various countries and cultures I have always found very particular traits and qualities that characterize the effective working and productive business cultures of managers from various parts of the world. In fact the economic progress of a country can be linked to some particular traits that the managers of that country possess and probably the lack of progress can also be attributed to some qualities of a country`s managers do not possess.  

1)  Global vision and footprint of Americans

The big boy of the globe certainly did not make as the world`s superpower and largest economy without its managers thinking big on a global basis. American firms build products which appeals to people across the world and its managers build the business strategies keeping the world in mind and built global brands. Apple, IBM, 3M, Pepsi, Coke all of which are global American brands are every consumers delight. One of the key traits of American managers has been in successfully aligning their business strategies according to local business conditions. Corning Inc., in early 90`s, swooped in on the Chinese telecom companies and educated them on the benefits and ways to go about building their telecom networks before the European firms like Alcatel could move in and succeeded in creating a huge entry barrier for themselves.

The American military has a presence in almost all regions across the world viz. Korea, Philippines, Middle East, Africa, Europe, etc. which ensures that they have a say in many political developments globally.  The Americans played the global oil trade politics by playing off between the Sunnis, Shias and with Israel in the background creating instability in the region. They changed their game plans, reflected by the deal with Iran despite their major ally Saudi`s objections, influenced by the advent of shale oil. Global view and actions are the trademark of American managers.

2)  Strategic orientation of the British

The Brits ruled the world for over 300 years till the WW-2 weakened them and the USA and the Soviets took over as the global superpowers. Similar fate was for the other European colonial powers like the Spanish and the Portuguese but the British have strategically re-aligned themselves to influence global business and political developments. Politically, Britain has been happy playing second fiddle to the USA like in the Iraq wars of 1990`s / 2000`s and in the Russian – Ukraine crisis in 2014 and thus remain a key influence in global politics. Britain remains one of the key players in the EU but has managed to keep its currency, the Pound, out of the Euro and thus getting the best of both. Business wise, Britain has re-oriented its economy to a services base from a manufacturing base in tune with global shift in manufacturing towards Asia. London remains one of the key financial hubs globally, the global epicenter of commodities trade and mainly a desired place to work given its multi-cultural work force.  

3)  Technological prowess and details orientation of Germans

Germany is the home to some of the biggest manufacturing giants across many sectors viz. Audi, Bosch, Bayer, BASF, etc. and the technological and manufacturing strength of Germany was one of the pillars of growth of Germany post WW-2. The detail orientation and regimental approach of the Germans, which is even reflected in the way they play football, enable them to overcome all hurdles and hence maintain their competitive edge, like in high end manufacturing.

4)  Teamwork, classless culture and work specialization of Japanese

Japanese, like Germans, rebuilt their country after WW-2 through dint of sheer hard and mainly team work. Japanese work culture encourages teamwork and success of teams rather than individuals which is reflected in the way the Japanese firms, especially the automobile firms, captured the world. Even the leading Japanese corporate houses “sogoshoshas” like Mitsui, Marubeni, etc. enter a business sector / country as a group and hence spreading the risks and learning from each other.

Another aspect of this team work culture that is striking about the Japanese, is the high focus on specialization. A business team would have a product expert, finance expert, country expert, etc. who all pitch in for business decisions and hence analyse a situation from all angles. Thus we see no superstars from Japanese corporate world, barring a few, and only teams.

5)  Operational efficiency and execution abilities of Chinese

The last 20 years has seen the rise of China based on low cost high scale manufacturing which has been enabled by the cheap and highly productive labor which work with clockwise efficiency. This aspect has enabled firms to churn out huge quantities of low cost products and swamp the world be it garments, toys, automobile parts, power plants, etc. The western firms too advantage of this by setting up their manufacturing bases in China. Many of the Chinese firms like Haier, Huawei, etc. copied the western processes and “with blinkers on’ produced the products at low costs. Many Chinese firms even pirated the western technologies and made low cost versions too. The Chinese government is also known for executing projects, especially infrastructure projects, in double quick time like the Three Gorges Dam. Buildings, flyovers, etc. are known to be built in double quick time.

6)  Style policing and aesthetic orientation of North Europeans

North Europeans focus on the final style and finish in their work which is reflected in some highly technologically advanced and products with great customer orientation viz. Nokia from Finland, Ikea from Sweden, Otticon from Denmark, etc. These countries` work ethic is defined by the quality coupled with product features and thus they have also other great companies oriented towards industrial sector like ABB, Alfa Laval, etc.

  

7)  Numerical and analytical prowess of Indians

The zero was invented in India and the Indian education system, recognises students with superior numerical skills. These skills have come in handy for the software industry in India and thus about 70% of software codes globally are written by Indians. Sharp Indian brains have been powering leading firms in the western world especially in the Silicon Valley in USA.

8)  Fun with work nature of Brazilians

What’s life without fun and nobody can party with work better than the Brazilians. Samba dance is the flavor in all aspects of life. Despite the economic slump and political issues Brazil successfully pulled off world cup 2014 and is all set for Olympics 2016. Brazilians mix fun with their work which helps them de-stress as well as optimize productivity. Work can also be fun is the motto!!

To summarize, there are lots of other examples to follow from people and managers from many countries. What can good firms learn from these trends?  Global firms move their employees across various countries to give them market exposure as well as imbibe good managerial qualities from the country managers. In a multi-cultural work force it is important to understand the work culture of different nationalities and mainly learn from other nationals. From education perspective, inter university exchange programs and field trips would help in imbibing good managerial qualities at an early stage of life.

As Thomas Friedman wrote in the book “Borderless World” about free movement across various countries. The free movement should also include good qualities and work practices across various nations! 

Economic agenda as a key tool to counter nationalism debate

As I was having lunch with an American colleague of mine, the topic of discussion naturally veered towards the American Primaries. I was pretty keen to know as to how an anti-establishment, anti-foreigners and anti-minorities person like Donald Trump is surging ahead in the Republican primaries and looks well set to get the nomination from the GOP to run for the Presidential elections in November. The simple reason, as my colleague told , was “Trump`s views resonate with most of the popular views in USA now”. Closer to home we saw the events in JNU wherein some students were arrested for anti-nationalism slogans and a major debate is on as to whether people from a particular section will say “Bharat Mata ki Jai”. Thus, the last few weeks have seen some interesting events and trends which may redefine the global dynamics the years to come.

Why is it that suddenly, in so called vibrant democracies like India and USA, we see suddenly see such upsurges of nationalist fervour suddenly. As the saying goes “There is no smoke without fire”. No doubt there has been some external instigation for the events in the JNU and other campuses for these acts of anti-nationalists however all these external forces tap into the pool of discontent. Similarly, in a secular, multi-cultural society like in the USA why have Trump`s views been lapped up by many people despite even the opposition by the Republican party?  

I feel the answers lie in the political dynamics that lie behind these issues which has caused lots of heartburn amongst the various sections of the people. Looking at the issue in India, the anti-establishment slogans have been raised by people who are aligned not with the development agenda of the country but only purely with political issues. Many sections of the society feel alienated from the mainstream development agenda which fuels their angst over the lack of improvement in their livelihood. One of the major reasons for this type of inequality is the role played by the vested politicians who are interested in using this “angst” to develop their vote banks and not essentially work for the development.  This is akin to a situation of a “socialist” struggle wherein the oppressed fight against the wealthy oppressors. The Communists made inroads into Bengal by supporting the causes of the farmers against the landowners which helped rule the state for a very long time. Similarly the communists sided with the trade unions against industrialists in Kerala and thus ensured minimal industrialization. The Congress party won an election using “Garibi Hatao” (remove poverty) about 45 years back but we still have poverty! Secondly, people have also seen massive corruption eroding the development agenda.

Where does the answer lie to resolve these problems? Simple, the government needs to pursue aggressively the development agenda and ensure that development reaches to all sections of the society which includes to all sections of various religions as well. Weeding out of corruption by using effective and technology based solutions like Aadhar, DBT, etc. will certainly help. The development agenda should create jobs which will ensure that the youth will have productive work rather than fall prey to unscrupulous parties which feed on the wavering mind of the unemployed youth and lead them to unproductive ways.

The World Bank measures the equality of development in a country using the term “Gini co-efficient” (GCE). A higher GCE reflects more inequality in the society. A look at the GCE of BRICS countries, USA and UK shows some interesting statistics. India has one of the lowest GCE`s amongst the BRICS nations and has a better value than the USA too!

Even though the GCE might be an indicative economic number, the USA GCE figures probably explains the reasons for the popularity of Trump whose election platform has been built on a plank of American nationalism and re- building the USA to its past glory as a true leader in the world. Average Americans are wary of not having enough jobs being created for them with many jobs getting shipped out of America. They are skeptical of the rich getting richer like Wall Street operators, I Bankers, etc.  On top of that their safety has also been compromised with terror attacks linked to various religion based outfits like Al - Qaeda and ISIS. These issues have been capitalized on by Trump who wants to take the USA to glory for the Americans.

The Indian and US events have a common solution – economic development and more jobs. Secondly, create a platform by which the economic development reaches all sections of the society. This might sound Socialist but it’s not. The key essence is to use a mix a policy and systems to ensure development touches all aspects of the society.

To conclude, the debate on nationalism will always be there in some form or other. However, it can be mitigated with a powerful tool – economic development.

Development Economics Vs Political Compulsions in India – Trends from Bihar Elections

Abstract

The Bihar election results has thrown a different hat in the Indian political arena viz. a combination of development politics, as practiced by JDU`s Nitish Kumar and a political with a religious tone of politics as practiced by RDU`s Laloo Yadav. Is this combination good for the development of India? This blogpost explores how development politics can overcome or keep at bay the counterbalancing pseudo politics that India has seen for long.

Main Text

In the last few days, India has been full of news of the state of Bihar election results which has been likened to a mini general election. The JDU alliance swept the elections by trouncing the BJP with a 2/3^rd majority thereby handing the clean, efficient and the man who has brought development to Bihar, Nitish Kumar, a third term to rule Bihar.

Switch back to May 2014 general elections, the BJP had trounced all in Bihar and across India to emerge as undisputed champs in India. I had written on my blog at that time (India at the edge of dramatic change in political governance (http://ramnarayanan1112.blogspot.com/2014/05/india-at-edge-of-dramatic-change-in.html) that the political trend in India has shifted to “Development” based politics on which Narendra Modi swept to power. People wanted real development and less corruption in India and not slogans which saw them vote to power leaders with a clean and pro-development image like Fadnavis in Maharashtra and anti – corruption crusaders like Kejriwal. The present Bihar elections where the grand alliance (Mahaghatbandhan) of JDU, RJD and the Congress won handsomely throws some interesting trends. It was a combination of progressive development, mainly of JDU, and caste based appeal especially of the RJD led by the evergreen Laloo Yadav.

Many political pundits say development agenda has its own limits and socialist trends like caste, reservations, etc. play a significant role in the Indian political ecosystem and will be a permanent feature in India as is evident from the Bihar election results. Will this socialist trend play an increasingly counter balance effect to development economics, which has been made a centre point by Narendra Modi? Does the rebirth of Laloo Yadav with his caste based politics with no heed to development or law and order point to many political pockets in India which doesn’t seem to care about development?

I would argue that the Bihar elections is to a large extent a vote for a development agenda thanks to Nitish Kumar. Nitish in his last two terms as Chief Minister has had a clean image and has brought development to Bihar. He has built infrastructure, brought electricity to the rural areas, reduced corruption and most importantly has improved drastically the law and order situation in Bihar which is a far cry from the past governments. He created jobs for Biharis in Bihar so that other states which used to get labourers from Bihar started facing a shortage of labourers as they were content working in Bihar. Over the last 10 years, the state of Bihar changed from a BIMARU state to one that started clocking a very high GDP growth amongst all the states in India. Hence Biharis have voted for development now to a large extent.

What explains the vote banks on socialist and religious basis, like Laloo `s and importantly how do progressive minded politicians tackle these vote banks which can play a spoil sport to the country`s and state`s development? Bihar especially has remained a backward area, before Nitish, due to the pseudo politics of the Congress and Laloo. Divisive vote banks based on caste and religious lines are nurtured by politicians to cater to their narrow needs by playing on their fears. The Samajwadi Party of Mulayam Yadav and Laloo `s RJD had consistently nurtured the Muslim votes by playing on their security fears after the Babri Masjid demolition while Mayawati has cobbled together a vote bank of Dalits in UP. However one of the striking features of these vote bank politics is that these vote banks never fully get the benefits like development, education,etc that is promised to them by their so called “benefactors”. By playing on their sense of insecurity, vote banks are developed which the politicians use for their political needs only and disinclined to improve the people`s basic life and needs. Anti-minorities jingoism from mainstream politicians have also led to the insecurity amongst the minorities as has been in the recent beef ban case, destruction of churches, etc. Thus these minorities groups vote to protect themselves and their interests thus creating a divisive vote bank which doesn’t necessarily encourage development politics. The Congress developed a vote bank on Muslims, backward castes, etc. for so many years but has their lot improved over the last so many years? Have the Muslims benefited from pseudos’ like Mulayam, Laloo, etc.? Only a few like the Yadavs in Bihar have benefited from these vote bank politics.

This leads to the questions as to how development oriented politics overcomes pseudo socialist and religious based divisive politics. The major question for Bihar`s immediate future is how will the marriage of Nitish, and Laloo work? Laloo‘s party RJD has the highest number of seats and it is obvious that RJD will be the backseat driver and in all probability impede the progressive thoughts of Nitish.

The progressive politics oriented politicians like Nitish and Modi can follow a few guidelines:

1)  Economic development is a sure shot winner in elections. People see the good work done and will surely reward the good work.

2)  Ensure that the people can feel the benefits of the development. E.g. good roads, uninterrupted power and water supply especially in rural areas, reduction in ground level corruption, etc. are feel good factors for voters. Chandrababu Naidu lost the AP elections in 2004 as most people in rural AP didn’t feel the effects of development.

 3)  Reduction in ground level corruption is a sure shot winner as has been the case with AAP in  Delhi.

4)  Importantly, control anti-minorities talk and feelers from mainstream leaders. One of the major factors for the BJP`s loss in Bihar has been the anti-Muslim activities like the beef ban followed by untoward events in UP and anti-reservations talk on the eve of the elections. Hot-headed religious fanatics have made statements which have pushed the minorities into a fear mode and thus voting for other parties who promise them the so called “protection”.

Atal Behari Vajpayee and Narsimha Rao, two of the most effective Prime Ministers that India has had, proved how run development oriented agenda by balancing all other factors and people. Narsimha Rao deftly managed all factions in the Congress while Vajpayee managed to handle the RSS, VHP, etc. in an efficient manner. Nitish may have to take a leaf out of their books to keep Laloo at bay while pursuing his agenda. Modi too needs to do the same to work more effectively to deliver his agenda which he promised in the 2014 elections.

Development by balancing irritable socialist agenda has been the key to many great leaders` success. Ronald Reagan in USA, Margaret Thatcher in UK and Deng Xiapoing in China, apart from Rao and Vajpayee in India are great examples. Time will tell what will happen to development and progressive politics in India. After the 2014 elections, India is again at the cusp of an interesting turn of development Vs socialist politics after the Bihar elections. Let`s all hope for the best!

Governance development in emerging nations. How does India fare?

This paper explores the concept that growth in many emerging countries, are struggling now as they failed to build up institutions which support further sustainable growth. This is one main aspect by which India can hope to outscore its rivals if proper steps are taken especially in implementation of reforms and development schemes and in control of corruption.

The World Governance Indicators (WGI) report ranks various countries on their performance on the governance indicators. The WGI ranks the countries on 6 parameters;

• Voice and Accountability,
• Political Stability and absence of violence and terrorism,
• Government Effectiveness,
• Regulatory Quality,
• Rule of law
• Control of Corruption.

The broad findings of the WGI makes an interesting if not surprising reading. The main observations are:

1. The world has not significantly improved on governance over the last 10 years!! The last 10 years has seen a period of high growth, a financial crisis and a stagnation and hence this comment spreads across various economic conditions.
2. The most developed countries are not the best governed e.g. amongst G-8 countries Russia and Italy are not amongst the top ranked countries on many parameters. Some developing economies like Slovenia, Czech Republic, Chile, etc. are well governed countries.
3. Nordic countries, which score very high on social indicators, are amongst the best governed.
4. Sustained commitment to governance is required to build up a good governance ranking.
5. Importantly, any shifts in governance standards in developed industrialized countries can have severe repercussions as was seen during the financial crisis in 2008 in USA. Between 2008 and 2009, the USA score on control of corruption went down by 10% and its ranking slipped by 5 points on this score.

In the last 10 years we have seen many shifts happening in the global economy. In the mid 2000`s, it was the period of the sizzling developing countries especially the BRICS (Brazil, Russia, India, China and South Africa) and other commodity exporting countries like Australia, Malaysia, etc. The developed countries were doing well but all the economic news were full of the turbo charged growth of countries like China and India and it was common to see in all financial and economic newspapers of prediction of future growth rates of these countries and how soon will these countries catch up with the developed world.

As we speak now, the predictions have not come true exactly. The BRICS nation’s growth stories have got stalled. The USA has again become the prime mover of the global economy. It is growing at a steady pace and after many years is looking to increase its interest rates. The shale gas revolution has given a big boost to the US economy with many manufacturing activities shifting back to the USA. Germany`s economy remains robust with its manufacturing business aided by low energy prices and similarly Britain too is showing signs of recovery. Thus we look to be going back to the mid 80`s when these developed countries ruled the roost.

Many reasons can be assigned to the stagnation faced by the star economies of 2000`s especially India and China. One of the questions to be asked is whether these economies have invested enough in building up the enablers for sustained growth like the developed economies. On some of the indicators like education and infrastructure, probably yes but what about institutional strength which is a key building block and an enabler for sustained development? Governance indicators reflect the performance of the nations on institutional development. 

Comparison of India and China

In the recent past, with all kinds of issues in China many comparisons have been drawn between India and China which shows how India is better placed than China. As reported in many places India`s forex reserves are comfortable, GDP growth rate is at 7%+, a stable democracy with a pro- business government and enough room to cut rates to stimulate the economy, etc.  which gives it an edge in the immediate future. What kind of progress have India and China made on governance indicators over the past 10 years? 

The WGI rankings show that China outscores India in 4 out of 6 parameters with India ahead in Voice and Accountability and Rule of Law.

India being a democracy with more democratic rights for people as compared to one party rule in China which suppresses any rebellion and people`s rights, it’s obvious India will score far more than China in Voice and Accountability aspect.

 In political stability China being a one party dictatorial rule, even though very opaque, with no opposing parties scores higher. Secondly, India is a federal system with many powers devolved to the states, multiple political parties and with militant problems in many areas faces the threat of political stability even though it has a had a democratically elected governments at all times except in emergency time. The Chinese government, right from Deng Xiaoping, even though socialist in name was capitalist in thoughts. In pursuit of economic growth, the Chinese government has been very effective in implementing growth oriented policies like building of infrastructure, export zones, etc. At the same time successive Indian governments, even though focussed on growth, have got bogged down at many times, some due to democratic system issues and many due to inaction (like the UPA-2 government) and hence China scores more than India in Government Effectiveness.

 For similar reasons on regulatory quality, which is a reflection of a government`s ability to implement its policies for private sector development, China has been able to outpace India with the gap getting wider between 2009-13 during the ineffective days of the UPA-2 government.  

 Legal implementation and legal rights to businesses have always been a problem in China for all multinational firms. China adopted a legal system just before it opened up in 80`s but the effectiveness of the legal system has always been suppressed and bypassed by politicians and firms with strong political connections. Protection of Intellectual Property Rights, especially in technology, has always been a sore point with western firms operating in China. As compared to that India has had a very good legal system with effective control with the biggest advantage being that the Indian legal system, being adopted from the British system, is compatible with all western legal requirements. The Indian courts have not shied away from taking strong positions either in political or key business issue (like the 2G scam ruling) acting as an effective control on the legislature and thus India scores very highly against China on Rule of Law.

 Both India and China suffer from rampant corruption which is deep rooted. Due to lack of proper institutional strength China has faced massive issues on the corruption front with the opaque governmental processes leading to many issues on corruption. However with many corruption issues getting highlighted in both India and China, owing to media and people pressure, measures have been taken to control corruption. After the 2G scam in India and the Aam Aadmi movement, the present government has taken steps to reduce corruption especially at government level. Similarly in China, the Xi Jinping government and the previous government has been cracking down massively on corruption. The UPA-2 government time was mired in scams and thus India has lost ground to China since the late 2000`s to China on the corruption control front.

How do BRICS countries fare against the developed countries?

Being emerging nations one would expect that the average rankings of the BRICS nations should show an ever improving trend. On the contrary the BRICS average governance rankings have remained almost the same and on the contrary on the 2 important parameters of regulatory quality and control of corruption, the rankings show a downward trend which shows that these countries are still weak on the governance front. India too shows a downward trend on these 2 parameters with China showing improvement on the rule of law and corruption control front.

India scores well above the BRICS average on voice and accountability and in rule of law. India is ranked lower than the BRICS average on political stability, regulatory quality and control of corruption.

Let’s see how India and China fare against the other BRICS countries and the perennial stars G-8 countries (without Russia and hence referred to as G-7 in this paper). The stark observation is that the G-7 countries are way ahead of the BRICS countries on all parameters. The developed nations have built up sustainable institutions and frameworks which acts as a check as well as a good platform to sustain and remain continuously on the growth path. In fact the G-7 rankings have been pulled down to a significant extent by Italy, which given its issues with its unstable governments and deep rooted corruption, has always been low on the governance rankings.

Amongst the BRICS countries, apart from India and China, Russia and Brazil have seen a major collapse in their economies, after the oil crash, as well as due to various misgoverns deeds. In Russia, Vladimir Putin has destroyed and made redundant various institutions in order to further his grip on the country. He has also isolated Russia with the Ukraine issue and the oil crash has severely dented Russia`s finances. Similarly, severe corruption cases in Brazil, like the Petrobras scam, have dented the governance institutions in the country and again the oil crash has only aggravated the issue. South Africa, despite a stable political government, is still grappling with issues related to the black minority and violence in the rural front and hence many governance institutions are still weak.

Imperatives for India

India`s democracy with high degree of freedom of speech and a good legal system are the major positives. The weak governance skills, corruption scandals and poor implementation are the major negatives for India.

What should the Indian government do?

• At present India has got a strong government at the centre with a vision for implementing reforms. Given the federal framework in India, the states play an important role and in the last budget the government has devolved more power to the states. Hence it very important for the Indian government to ensure that the various channels for implementation of schemes be charged up at the state level.
• The bureaucracy has a major role to play in implementation and hence needs to be charged up and protected for effective implementation of development projects.
• The Indian government has been cracking on corruption and black money holders as stated earlier. The government should be ruthless in tackling corruption.
• India has got very good governance institution as compared to many other countries like the judiciary, financial regulators like the RBI, SEBI, etc. The integrity of these institutions shouldn’t be compromised. The actions of the RBI, in face of turmoil in the financial markets, have been exemplary as compared to the other central banks.

The actions of the Indian government over the past one year on governance, especially on implementation, has yielded some results with the latest World Competitiveness Rankings pushing India up by 16 notches.

So Mr. Modi, implementation and corruption reduction which you have been emphasising about needs to be ruthlessly followed up for India to move up to the annals of the developed nations!

Migrants are a value enhancement proposition to a nation

Bloomberg carried an article on 27^th March `15 which claims that if all the migrant [i] controls globally were removed then the global GDP can increase by 67% - 147%! Freer flow of people can add more value to an economy as compared to a free flow of goods and controls on movement of people is the “last frontier of globalization” which however has shown least progress, claims the article. I am slightly inclined to agree with this claim if I look at the top ten countries in terms of migrant population. Out of the top ten countries, seven countries are developed nations (viz. United States of America, Canada, United Kingdom, Germany, France, Spain and Australia). The highest ranked country is the world`s biggest economy – USA.  Right from the Mayflower pilgrims who set foot in the USA to immigrants fleeing oppressive regimes to skilled people looking for opportunities, the USA is the top preferred choice of migrants. USA has been able to leverage the skills and abilities of the migrant populace to enhance the nation`s development.

Migration – benefits and flow pattern

The United Nation`s department of economic and social affairs report of last year reports a global figure of international immigrants at around 231mn which is about 3.3% of the world population with the developed nations accounting for close to 60% of the immigrants stock. Females account for 48% of the migrants and interestingly the developed nations` immigrants stock comprises of 51% of women. Refugees account for close to 7% of the migrants and 87% of the refugees are accounted for in the developing countries.

The major benefits for a migrants receiving country are:

a)    Migrants add to the economic growth of the country with their work and savings.

b)   Migrants bring specific skill sets which help in the economic development

c)    In case of ageing populations, migrants help in maintaining the ratio of the working population.

The major benefits for a sending country are:

1.  Remittances that the migrants make back to their countries
2. Ease the employment pressures in their home country.

The key trends for migrants flow are:

1. Migrants flow follows economic development as majority of the migrants would move to places     mainly in search of work.
2. Apart from work the other critical factor for migrants` movement is preference to move to places which has a culture to integrate migrants and effective laws and systems (viz. social benefits) to protect them. Hence the western world, which is high on governance and law and order systems, is able to attract skilled migrants in good numbers on a sustainable basis.
3. Women migrants prefer to move to countries where they have working conditions conducive for  work as well as safe to live and work. Conservative Muslim country Saudi Arabia which is a top 10 migrant country has only 29% of women migrants.

Do migrants add economic value and productivity of a nation?

Boubtane and Dumont in their research paper noted that the main advantage of migrants flow is human capital formation and disadvantage is capital dilution. Their research on 22 Organization of Economic Co-operation and Development (OECD) countries showed that the advantageous human capital formation exceeds the disadvantageous capital dilution but by a small amount only. A 50% increase in net foreign born migrant stock increases the productivity of a nation by less than 0.1% but this increases with more selective migration policies. Countries generally follow immigration policies to address their specific needs and wouldn`t try a mass migration policy. Many countries, especially the western nations, have a focused immigration policy to build a sustainable work force with varied skill sets. Countries like UK, Denmark, Australia, etc. attract skilled migrants through a points based selection system.

The productivity potential of a country are nowadays indicated by the Competitiveness of a nation (hail Michael Porter) and the new buzzword in the last few years “Innovation”. To understand the effect of immigrants movement on the economic development of nations, two key rankings of a country`s progress viz. World Competitiveness and Innovation Rankings were analysed.  An analysis of the migrants’ flock of population of the top countries, as shown in table no. 1 &2 shows that the top 100 nations have a higher proportion of migrants as compared to world average, which is expected as the top countries would also have higher economic development. The top competitive countries show a significantly higher proportion of migrant population and also the top 20 nations also show a higher female migrants proportion. A similar trend is also observed in the top countries based on the innovation rankings also.

 

These trends are in sync with the reasons behind the migrant flow of economics, stature and societal acceptance of migrants. These trends show that there does exist some positive correlation between the migrants and the economic growth and growth potential of a nation. What could be the possible reasons? Migrants, based on their requirement of work and to survive, have to be competitive with the local population, if not more, and hence add a significant value to a nation`s development. Secondly, in case the migrants take the lower end jobs it frees up the existing local population to focus more in higher end jobs and thus contribute more to the country.

Are similar trends seen in top migrant nations?

A look at the migrant structure of the top 10 migrant nations (viz. USA, Russia, Germany, Saudi Arabia, United Arab Emirates (UAE), UK, France, Australia, Canada and Spain) shows some similar but interesting facts as shown in table no.3  All the countries have a higher proportion of migrants as compared to the global average of 3.2%. All nations also have a higher proportion of female migrants with the exception of Saudi Arabia and (UAE). These two countries are Muslim conservative countries where women`s right to work and freedom of movement and speech are highly restricted thus showing a very low proportion of female migrants.    

The analysis of key growth potential indicators i.e. GDP,Competitiveness and innovation rankings, Labor participation rate[ii] and tertiary education of the top 10 migrant nations, as in table no.4, throws the following facts:

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1. All the top migrant countries are ranked in the top 30 in terms of GDP and only UAE is marginally behind at 32^nd rank. 7 countries are ranked in the top 30 countries in terms of GDP per capita.  
2.  Eight countries are ranked in top 25 in Global competitiveness rankings and 6 countries in top 25 in innovation rankings.
3.  Interestingly, seven countries have a labor force participation rate lesser than the global average of 60% despite that fact that almost all countries have even a tertiary education rate[iii] well  above the global average (Again conservative Saudi is just above the global average and no data available for UAE).

These trends reinforce the following facts:

1. Countries with high migrant population are generally very well off economically and on growth potential. Migrants mainly move for jobs and hence do play a very important role in the economic development. If the migrants aren`t contributing then they would be out of work very soon. Migrants imbibe the same attitude in their children and hence this competitive urge is built up in the next generation as well.
2. If a nation is high on the competitive index, then certainly the labour force effectiveness would be on the higher side whether it is local or migrants. Again migrants would have to be on the higher side of competitiveness to survive and hence would be playing a major role in enhancing the    competitiveness of the work force.
3. The innovation rankings of the top countries are slightly lower as compared to competitiveness rankings. The lowest ranks go to the Muslim conservative countries Saudi Arabia and UAE which are highly dependent on oil and associated service businesses respectively and hence aren`t inclined to move much on the innovation curve. Secondly, these two countries are lower on the tertiary education also which is a key driver for innovation. On an average the top 10 countries on innovation rankings average about 60% in tertiary education.
4. Most of the developed nations like USA, UK, etc. are battling lower labor force participation due to various factors like ageing population, social benefits, etc. With declining and lower child birth rates, these countries have to follow a pro-active immigrants’ policy to drive their economy   as well as productivity. A few months back US president Barrack Obama announced a new immigration polic on the same lines.

The basic resistance to migrants flow comes from the domestic political compulsions in a nation. Free movement of people will be brutal to any labor force as it would necessitate constant upgradation of skill sets to survive and social implications also. Politics will dictate how much migrant flow will happen.

Practically, the basic things that a country can do to encourage movement of migrants are

1. Allow free movement of labor across industries. Restrictions of any sort will only impede growth.
2. Build up legal systems to protect rights of migrants.
3. Keep xenophobic tendencies under control.

Finally, to answer the question whether the world should allow free movement of people the answer theoretically is a big yes. Migration has a definite positive effect directly and indirectly on the GDP growth and the competitiveness of a nation. The top nations in terms of competitiveness and innovation have a higher proportion of migrants. Secondly, the top migrant recipient countries have very good indicators in terms of GDP, GDP growth, competitiveness and innovation indices. A higher ratio of female migrants also has a higher degree of correlation with the development indices.

Thomas Friedman in his famous book “The world is flat” encourages free movement of goods across the countries without barriers. The next wave is free movement of people. Tougher to implement but will lead to a better world!

References

1. Ekrame Boubtane and Jean-Christopher Dumont. Immigration and economic growth in OECD countries 1986-2006: A panel data analysis
2. Bloomberg (27^th Mar`15) Here's One Way to Double the World's $80 Trillion Economy: Scrap Migration Restrictions
3. Global Competitiveness Report 2013-14 – World Economic Forum
4. The Global Innovation Index 2014 – Human factor in Innovation : Johnson Cornell University, INSEAD and WIPO
5.  Economic Effects of Migration – SUNY 2015, The Levin Institute
6. The economic implications of changing age structures – Ronald Lee, University of California at Berkeley.
7. International Migration 2013 (chart)- United Nations, Department of Social and Economic Affairs, Population Division
8. Is Migration good for the economy- Migration Policy Debates, 2014
9. Population Facts, 2013 – United Nations
10. World Bank database – www.worldbank.org

 

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[i] Migrants; International migrant stock is number of people born in a country other than that in which they live. It also includes refugees. 

[ii] Labor Participation Rate; Labor force participation rate is the proportion of the population ages 15 and older that is economically active: all people who supply labor for the production of goods and services during a specified period.

[iii] Tertiary Education Rate ; Total is the total enrolment in tertiary education (ISCED 5 and 6), regardless of age, expressed as a percentage of the total population of the five-year age group following on from secondary school leaving.