The Regulatory Policy Institute Research Group

Regulating net migration flows: the wisdom of Econ101? 

Major regulatory innovations often start with a new way of looking at a problem, establishing a new mindset or ‘gestalt’ (a holistic understanding of the situation).  An example is the UK privatization programme of the 1980s and 1990s.  The idea of private ownership of utility monopolies was not new: the new understanding was that the relevant sectors need not be so comprehensively monopolised.  De-monopolisation (introducing competition) thus became a strategic objective.

The regulation of UK migration flows is a policy area in need of a shift of gestalt. It is   currently based on monopolistic, administrative processes.  An individual’s right to residency is established/created according to a mix of (i) complex sets of rules and (ii) discretionary implementation judgments/decisions made by public officials.  Its ineffectiveness has proved a thorn in the side of successive governments of different political stripes. 

So, let’s look at the situation from a simple Econ101 perspective, acknowledging that Econ101 is full of fairy tales whilst also noting that “If you want your children to be intelligent, read them fairy tales. If you want them to be more intelligent, read them more fairy tales.” (Attributed to Einstein)  

The most immediate problem to be addressed is that more people want to live and work in the country than its citizens would, in some collective sense, wish to see.  From an economic perspective, there is excess demand for residency rights 

An economics student might therefore well ask:  if there’s excess demand, why is a pricing mechanism not more heavily utilised to address this issue?  It’s a good, simple question.  While economic incentives already play a small role in the UK system and while contributions from the administrative side of government are unavoidable (allowing criminals and terrorists to buy their way to residency would not be a good idea), a major shift in the balance merits close examination.

The next question is:  how might this be done?  And one, broad-brush answer from the cap-and-trade line of thinking and practice familiar in environmental regulation (e.g. carbon emission trading schemes) is as follows. 

Establish a base, tradeable right in ‘permanent residency’ (distinct from citizenship).  By ‘tradeable’ is meant that the right can, subject to criminality tests and the like, be bought from and sold to a central public agency, and only from and to that agency.  Through its sales and purchases the agency could then control the number of residency rights in circulation. 

The ability to re-sell renders the right an asset to any holder of it, and this is a critically important aspect of the suggestion.  It becomes akin to a house purchase and sale, self-financed or purchased via a mortgage with repayments spread over time.  It establishes appropriate incentives for emigration of residents, thereby addressing immigration and emigration together in an economically consistent way. The value of the right can be cashed in by departure from the country.

A system based on tradeable rights also opens up means to address a range of more specific problems.  As Sun Tzu put it: “Opportunities multiply as they are seized”.  Preliminary ideas include:

      • Requiring detected, unlawful residents to either (a) acquire a residency right at the going rate plus a substantial premium (and maybe face a discounted cash-in value), or (b) leave the country immediately.  It’s a choice, but it renders unlawful entry significantly more expensive than (controlled) lawfully acquired residency (even before taking account of payments to criminal facilitators).  There would be little call for forced expulsions.  Revenue collection would be an ‘inland’ activity (not a border activity), as it is for customs duties on goods.

      • Bundling a purchase with a simultaneous forward sale for those who want a form of temporary resident status (e.g. students). 

      • Facilitation of financing the acquisition of a residency right for those fleeing persecution or war.

    There are many bells and whistles that could be developed from the base system, which would obviously require a form of digital/biometric recognition to provide a means of distinguishing citizens and residents. Old objections to such arrangements seem to be fading now that cards in wallets and mobile phones make their use an everyday activity.

    Following the economics of Professor Ronald Coase (successfully applied in radio spectrum allocation), we think that such a tradeable rights approach is worth a close look. The biggest difficulty is probably the challenge of getting those familiar with an established system to contemplate alternative gestalts.  Metanoia (in the Greek sense of a fundamental shift in how things are seen) is difficult at the individual level, and achieving it for whole, hegemonic organisations (like the Home Office) is more difficult still. As Professor J.K. Galbraith once put it, “… we adhere, as though to a raft, to those ideas which represent our understanding.”

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