In this post, I’m going to ridiculously plagiarize a book by famed I’m-not-a-free-market-economist Ha-Joon Chang. The book is called “23 Things They Don’t Tell You About Capitalism” – and everyone should read it*.
*Which is not to say that he has it right – some of his data is a bit loosely interpreted. But he’s a rebel from Cambridge – and who doesn’t love a rebel?

One of his big themes is the argument that Free Markets are just regulated markets where we’ve become blind to the regulation (and/or we accept it implicitly). And then he brings up Immigration Control…

Having grown up in a Greek community, I’ve developed a well-hardened ear to the woes of immigrants in the Motherland, especially the Albanians and the gypsies travellers, who are stealing over the border into Greece and stealing things and generally spoiling the pristineness that would be Greece were it not for them*.
*Prejudice Patriotism is such a lovely, rational thing.

Which is obviously the reason to be in favour of Immigration Control.

But if forced to think about it, I’d have to recognise that Immigration Control is actually to the Labour Market what Capital Controls are to the Capital Market.

In general, economists decompose the process of economic growth into changes in three factors: the labour market, the capital market, and the factors of production*. The first world has spent the last 40 years fighting for the freedom of capital flows (the capital market), whilst continuing to ratchet up controls over the labour market. Which seems like a strange position to have – because if we’re serious about globalization, then you need to free up everything.
*Which is the economic euphemism for “everything else”.

But this does answer the question of: “why is a bus driver in Sweden paid fifty times more than a bus driver in India?”*
*This is the start of the plagiarized example.

The answer that’s often given for the discrepancies in wages is “productivity”: as though first world workers are significantly more productive than their third world counterparts. And maybe this could be an explanation when it comes to factory workers and miners and those jobs where there is a grey area with regard to skill.

But when it comes to bus drivers, there is hardly a difference in the skills required. Certainly, we cannot say that the Swedish bus driver is fifty times better at driving than Mr. India. If anything, the Indian bus driver is likely to be more skilled: he, after all, spends his day avoiding potholes, cows, and families of six travelling by scooter.

So then, if the answer is not productivity, we need to turn to some other explanation.

In normal circumstances, this discrepancy in wage rates would cause some action in these economic agents. The higher wage rates would attract the Indian bus driver to move to Sweden, and get a job as a bus-driver there. And he would be prepared to take a wage that was lower than the Swede’s, as long as it’s sufficiently higher than his original paycheck back in India. This would lower the Swedish wage rate, causing the two wage rates to start converging.

The real obstacle in this process is Swedish Immigration Control. Which is highly protectionist: because it means that the Swedes collectively are forced to have a higher cost of living as a result of their higher cost of labour.

Meanwhile in India, the lower cost of labour makes it a highly attractive destination for investment of those free capital flows. Oh – and outsourcing.

It’s the problem with being protectionist about immigration and not protectionist about capital flows – you have to be protectionist all the way, or you end up fueling the economic growth of other countries to the detriment of your own.

And also: your salary is a general function of immigration control.

Just remember that if you’re prone to preening about success.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at