作者： chenchen

In 1989, the Cold War victory of the capitalist USA over the communist USSR led Francis Fukuyama to proclaim the ‘End of History’, and the ‘total exhaustion of viable systematic alternatives to Western liberalism [free trade and the “limited state”].’[1] The following decades have not borne this out. Though the realm of historians is the past, that does not preclude them from keeping one eye on the present. Now China, the great repudiator of the ‘Western idea’, has risen as a challenger to the USA’s global power, avoiding the worst of the 2008 recession, and surpassing the USA in PPP-adjusted GDP by 2014.[2] Meanwhile, the strength of Western democracy seems to be at a low ebb: in the UK for example, 69% are inherently dissatisfied with how democracy is functioning.[3] Therefore, the rise of the “Beijing Consensus”

– a state’s political monopoly in return for economic growth – may interest the historian much more than before. Aspects of a “consensually-strong” state – taxation, regulation, state monopoly on violence – are of course necessary for healthy GDP growth.[4] Yet I wish to investigate how far economic growth is fuelled by the accountable, “domineering state”. Three “facets” separate these from consensually-strong states:

1. Political legitimacy not founded on taxpayers’ votes.

2. Economy serves politics, not vice versa.

3. Socially freedoms noticeably restricted.

The historian can isolate the effect of the “domineering state” on economic growth by tracing the parallel transition of Russia and China from communism to capitalism between 1978-91; their divergent political- economic outcomes from 1990-2000; and their recent convergence into domineering states. Though no template “prerequisite” is prescribed, I argue the well-managed domineering state has powerfully challenged the Washington Consensus due to some notable successes in these years.

The Soviet and Chinese states until the 1980s were strong states that would largely satisfy the three facets. In the USSR, the Communist Party (CPSU) had the leading role. Gosplan, a state organ, oversaw the command economy (largely isolated from global markets), and free speech was ultimately restricted by the KGB. Yet, the USSR’s economic growth deteriorated over time: between 1970-80, GDP growth averaged a 1.7% a year, low in comparison to many Western economies.[5] Furthermore, as Miller has argued, the state was strong, but weak enough so that Gosplan lobbying groups began to exert direct power of the running of the economy, instead of the CPSU General Secretary.[6] Business apparently did not serve politics. Gorbachëv, inspired to reform the Soviet state, took steps to reintegrate the Soviet Union into global markets. Perestroika began in 1987-88, involving reduced government control over corporate enterprises. Since no satisfactory socialist market framework was created in such a short time frame, it was estimated that the shadow economy grew to 11% of nominal GDP (i.e., US$150 billion) by 1990, with some earning double their official earnings on the black market.[7] Then in February 1990, Gorbachëv did fatally weaken state control by removing the constitutional article stipulating the “leading role” of the CPSU. This decision effectively rid the USSR of facets I and III; realistically, II was already absent. This positive feedback cycle of political/economic disintegration continued until December 1991, when the USSR itself disintegrated. The USSR, a strong state, failed to deliver the economic growth needed to sustain itself. However, it was the relinquishing of political control that caused it to fall up apart, politically and economically, in a mutually- reinforcing cycle.

In Maoist China, conversely, growth had been similarly mediocre. Between 1953-78, annual real GDP growth was 4.7%, though stability was offset (unlike in the USSR) by the highs of the early Five Year Plans, and the intense lows of the Great Leap Forward (1958-62) and then the Cultural Revolution (1966-76).[8] Between 1952-88, China lagged significantly behind the USSR’s GDP (see Appendix I). However, where China differed was that the Communist Party (CPC) did not resort to political liberalization in order to correct this. The end of the Cultural Revolution in 1976, and the death of Mao and the toppling of the Gang of Four in 1978 strengthened economic reformers in the CPC, notably Deng Xiaoping. They embarked upon a series of reforms mainly increasing financial autonomy of managers in large state-owned enterprises (SOEs). Crucially, these were completed in a much more gradualist manner than Soviet ‘shock therapy’. By 1988, Chinese GDP had exceeded the USSR’s. Yet while the CPC allowed greater autonomy it differed from the CPSU by maintaining supervision of business organs, and absolute control over the Chinese political system. A 1991 party memo gleaned from the fate of the CPSU that ‘the Party must grasp not only the gun but the asset economy as well.’[9] The CPC cemented control by repressing the pro-democracy demonstrations at Tiananmen Square in spring 1989 (while Gorbachëv was visiting Beijing) and all similar movements thereafter. While the CPSU sacrificed political and economic control, the CPC retained political hegemony (I, III), and, despite deregulation, substantial control in economic affairs (II).

Divergent strategies produced divergent economic results between 1978-1999. Post-CPSU Russian politics tobogganed into the economic anarchy unleashed by perestroika. In 1989, crime rates increased by 32% across the Union, a clear indicator of decaying state control.[10] Disintegrating political control led to the August 1991 failed coup, which also placed Gorbachëv – the president – under house arrest. During the Novo-Ogarëvo talks in December 1991 to dissolve the USSR, Gorbachëv was not invited. The comparative weakness of the new Russian Federation spawned geographical disintegration: a number of states declared autonomy (e.g. Chechnya and Tatarstan), and in 1998, the Kaliningrad authorities declared they would no longer remit taxes to Moscow.[11] Moscow was unable to enforce Federation-wide taxation, anti-corruption measures, or efficiency standards in loss-making corporations. These especially had the leverage of providing employment, key to winning votes for Yeltsin, and by 1996 had accumulated arrears of 13.7 trillion roubles.[12] This power of the ex-SOEs in turn constrained Moscow in reducing their share in the economy, increasing liability to recession when energy prices dropped (as in 1997-98). To reduce the huge Soviet consumer subsidies now hindering the Russian economy, Yeltsin was forced to shell the Russian parliament building in 1993. Consequently, the disintegration of political control, and associated fall-out, caused GDP to drop 35% during the 1990s.[13]

In China, by comparison, similar problems failed to appear. Geographical integration was preserved. Suppression of the pro-democracy movements cemented the political domination of the CPC. This allowed the leadership to carry out economically-intense reform to improve efficiency of China’s SOEs (now, not so untouchable as in Russia). Zhu Rongji , for example, laid off as many as 40 million workers from loss-making SOEs between 1997-2003, and reduced their number by 37%.[14] Often, these were later privatised. These sweeping powers, combined with deregulation to increase efficiency, allowed for striking economic growth not possible in Russia largely due to the constraints placed upon its leadership (alongside material and demographic constraints). While the Russian and Chinese economies were almost identical in size in 1993, by 2003, China’s was three times as large.[15] The stronger state cultivated by the CPC, it would seem, has been able to pursue specific reforms while ignoring the disaffected, whereas in Russia’s weaker state, any leader pursuing this might have been voted out.

Perhaps Vladimir Putin recognised these weaknesses. Miller’s ‘three pillars of Putinomics’ are:

1. Strengthen central authority.

2. Prevent popular discontent.

3. Increase business efficiency, solely to serve I and II.[16]

This seems to emulate CPC policies and rejected CPSU ones. While Yeltsin struggled to deal with wealthy rival power blocs, Putin used his links to the security services firstly to discipline rival blocs, and then co- opt them to achieve his political and economic objectives. An example of this was the cashiering of Mikhail Khodorkovskii, previously Russia’s richest man. Owner of the giant energy conglomerate Yukos, he had tried to avoid punitive tax measures in the aftermath of the 1997-98 crisis. Putin’s response was to order his arrest in 2003 and imprison him for eight years. Taxes were raised on the Russian ultra-rich, allowing the budget to re-balance in the early 2000s, and government saving eventually allowed more insulation from the financial crisis of 2007-8. This was mainly achieved by Beijing-style policies which allowed the Russian government to utilise high oil prices in the early 2000s to strengthen state finances.[17] The Russian state currently represents about 35% of GDP, though large increases have been observed in energy and banking, also key strategic areas for Beijing.[18] In Russia, ‘indirect’ state involvement in the economy has enlarged the state’s presence, a more nuanced approach which appears a third way between Soviet over- regulation and Yeltsinite under-regulation. However, it has not automatically produced growth: demographic and diplomatic constraints have limited GDP growth, such that between 2013-18, disposal incomes fell annually.[19] Thus it remains to be seen whether Putin’s new strategies will enhance the economic growth of a stronger Russian state.

The CPC views control of business as crucial to its survival. Although between 1978-2017, SOE employment/population dropped by 80%, and share of output by two-thirds, Xi Jinping has committed to improving both the efficiency and wealth of SOEs. Incidentally, the private sector’s share of profits have declined steadily since 2015, and in 2018 – the first time since 2011 – SOEs surpassed private enterprises in gross profits.[20] SOEs constitute 50% of the 500 largest manufacturing companies in China. Meanwhile, 14/16 largest Chinese companies operating outside China are SOEs.[21] Subjecting them to CPC political prerogatives – enriching China, increasing FDI stocks, and thus China’s global power – has often been a mutually-beneficial arrangement. The CPC has also extended political control into the private sector, creating monopolies or leverage for Chinese companies: e.g. bankcard company UnionPay, whose monopolisation of the Chinese bankcard sector the CPC sponsored against American rivals until 2014. 68% of Chinese private enterprises had party bodies in 2016, and 70% of foreign enterprises; meanwhile, corporations such as L’Oréal, Disney and Dow Chemicals all have party committees, and display the hammer and sickle in their Chinese offices.[22] Furthermore, degree of CPC affiliation has affected the ability of private enterprises to accumulate bank loans (see Appendix V). The deregulation of the 1980s-2000s undoubtedly produced astonishing economic growth, averaging 9.5% GDP growth p.a. 1979-2018.[23] However, amidst forecast of declining growth rates past 2020 (see Appendix VI), the CPC seems to be strengthening its involvement in the economy to preserve its power, and direct these assets abroad to build power globally: the key example is the risk-laden Belt and Road Initiative (BRI), a potential $8 trillion investment.[24] It is thus hard to deny that the CPC is the ‘silent partner’ of business, an economically as well as politically strong state, but in a much more subtle form than the communist states of the previous century. Corruption and inefficiency are not rare, and have hindered economic growth to some extent. However, Russia has noticed China’s successes: just recently, United Russia delegates have begun visiting China to learn how it opened up its economy without sacrificing political control.[25]

Ultimately, I would not prescribe a strong state as a “prerequisite” for economic growth because, as seen in the USSR and Maoist China for decades, political strength hindered growth. Furthermore, the laissez-faire approach of the USA, and neoliberal policies in the UK, have aided growth in those countries. Yet, a strong state is not necessarily an obstacle. Maintaining political control, while cultivating a more nuanced and decentralized approach to political ownership of business has hitherto benefited the CPC. Domineering states in today’s world are increasingly challenging the idea that Western liberal ideas will herald the ‘End of History’. Naturally, corruption and party interest groups undermine growth, as was seen in the late USSR when it economically diverged from China, despite reform.[26] However, under Xi Jinping, the CPC has taken a hard-line attitude to corruption.[27] Regardless, should China’s BRI[28] succeed in establishing the global influence the CPC seeks from it, Washington might find that its political and economic prescriptions will begin to be successfully challenged worldwide by power blocs with very different values.

Footnotes

1 F. Fukuyama, ‘The End of History?’, The National Interest, no. 16 (1989), pp. 3-18: 1.

2 W.M. Morrison, ‘China’s Economic Rise’, Congressional Research Service (2019), p. 10.

3 R. Wike & S. Schumacher, ‘Satisfaction with democracy’, Pew Research Centre, 27 February 2020. Available at: https://www.pewresearch.org/global/2020/02/27/satisfaction-with-democracy/.

4 See D. Acemoglu, ‘Politics and Economics in Strong and Weak States’, NBER Working Paper 11275 (2005), pp. 19-25. Acemoglu gives as examples the United Kingdom (with its NHS and welfare system), and Sweden.

5 P. Hanson, The Rise and Fall of the Soviet Economy: Economic History of the USSR 1945-1991, Routledge (Abingdon, 2003), p. 131.

6 C. Miller, The Struggle to Save the Soviet Economy: Mikhail Gorbachev and the Collapse of the USSR, North Carolina U.P. (Chapel Hill, NC, 2016), p. 57: ‘In theory, the CPSU controlled the economy, but in reality the industries controlled the party.’

7 R. Parker, ‘Inside the Collapsing Soviet Economy’, The Atlantic, June 1990.

8 A. Maddison, Chinese Economic Performance in the Long Run, 960-2030, OECD Development Centre (2007), p. 150.

9 Quoted in R. McGregor, ‘How the state runs business in China’, The Guardian, 25 July 2019.

10 A. Ogushi, ‘The disintegration of the Communist Party of the Soviet Union’, PhD thesis (University of Glasgow, 2005), p. 231. See also Appendix II.

11 M. Gilman, No Precedent, No Plan: Inside Russia’s 1998 Default, M.I.T. Press (Cambridge, MA, 2010), pp. 192-3.

12 Miller, Putinomics: Power and Money in Resurgent Russia, North Carolina U.P. (Chapel Hill, NC, 2018), p. 15.

13 A. Aslund, Building Capitalism: The Transformation of the Former Soviet Bloc, Cambridge U.P. (Cambridge, 2002), pp. 118, 308. Russian male life expectancy dropped nearly 10%, and suicides rose 60%, showing the extent of economic stress.

14 Economist Intelligence Unit, ‘Are state-owned enterprises reformable?’, 18 December 2018.

15 World Bank, Sodruzhestya nezavisimykh gosudartsv v 2005g (Moscow, 2006).

16 Miller, Putinomics, p. xiii.

17 It can also go the other way: the political subjection of the Venezuelan state oil company, PDVSA, means that its workers are hired on a basis of political allegiance to the United Socialist Party of Venezuela. In 2002, when PDVSA employees went on strike to protest the policies of Chávez, 19,000 were fired, and Intevep, the research and development arm of PDVSA lost 80%, reducing its ability to innovate and compete globally. 1976-92, 29% of PDVSA revenues went towards costs, and 71% to the government. Because of this, Chávez and his successor Nicolás Maduro have been accused of treating it like a ‘piggybank’.

18 See G. Di Bella, O. Dynnikova, S. Slavov, ‘The Russian State’s Size and its Footprint: Have They Increased?’, IMF WP 19/53 (2019). See also Appendix III.

19 Miller, ‘Russians Lower Their Standards’, Foreign Policy, 11 February 2019.

20 EIU, 2018. See also Appendix IV.

21 ‘Chinese Multinationals Gain Further Momentum’, Vale Columbia Centre and Fudan University survey, 9 December 2010. Available at: https://emgp.org/wpcontent/uploads/2018/07/China_2010.pdf.

22 McGregor, ‘How the state runs business’.

23 Morrison, ‘China’s Economic Rise’, summary.

24 A. Bruce-Lockhart, ‘China’s $900 billion New Silk Road. What you need to know’, World Economic Forum, 26 June 2017. Available at: https://www.weforum.org/agenda/2017/06/china-new-silk-road-explainer/. It is estimated that 80% of funds invested in Pakistan, 50% in Myanmar, and 33% in Central Asia will be lost (J. Kynge, ‘How the Silk Road plans will be financed’, Financial Times, 9 May 2016). However, the trade off for this is an increase in Chinese hard power: land collaterals for debt in Kyrgyzstan (where per capita debt was $703 in 2018) or the entire Hambanthota Port in Sri Lanka (See M. Abi-Habib, ‘How China Got Sri Lanka to Cough Up a Port’, New York Times, 25 June 2018. Available at: https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html). In addition, it may prove to be a boon for the Chinese workforce, since 89% of BRI contracts will go to Chinese corporations.

25 J. Kurlantzick, State Capitalism: How the Return of Statism is Transforming the World, O.U.P. USA (New York, NY, 2016), p. 111.

26 Miller, The Struggle to Save the Soviet Economy, p, 178: ‘Where the Soviet Union diverged from China, it was because powerful interest groups obstructed Gorbachëv’s policies’. Elsewhere, a school of thought argues that the new “interest group” in Russian politics is not economic, but military-political: the old guard of the KGB, the new FSB and SVR security services. For the best piece on this, see C. Belton, Putin’s People: How the KGB Took Back Russia and then Took on the West, William Collins (London, 2020).

27 In 2016, Xi Jinping released a statement saying that ‘one million’ Chinese officials had been punished for corruption between 2013- 16 (https://www.bbc.co.uk/news/world-asia-china-37748241).

28 For an interesting and suggestive investigation of the Belt and Road Initiative, refer to P. Frankopan, ‘The Roads to Beijing’, in The New Silk Roads: The Present and Future of the World, Bloomsbury (London, 2019), pp. 87-151.

Graphs

29 Maddison, Chinese Economic Performance, p. 61.

30 V. Popov, ‘China’s rise, Russia’s fall: Medium term perspective’, TIGER Working Paper Series No. 99 (2007), p. 10.

31 A. Abramov, A. Radygin & M. Chernova, ‘State-owned enterprises in the Russian market: Ownership structure and their role in the

economy’, Russian Journal of Economics, vol. 3, no. 1 (2017), pp. 1-23, fig. 6.

32 EIU, 2018.

33 N.R. Lardy, ‘State Sector Support in China Is Accelerating’, PIIE, 28 October 2019.

34 V. Nee & S. Opper, ‘On politicized capitalism’ (2006), p. 41, table 7.

35 Morrison, ‘China’s Economic Rise’, p. 9; EIU database.

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United States President Donald Trump recently voiced the concerns of many citizens when he proclaimed, “Illegal immigration hurts American workers; burdens American taxpayers; and . . . costs our country billions and billions of dollars each year.”[1] Similar sentiments are expressed in the United Kingdom, where native workers fear the “Polish plumber,”[2] and in Australia, where Australian Labor Party leader, Bill Shorten, warns that work visas “undercut local jobs, wages and conditions.”[3] At first glance, it may seem reasonable to conclude that, with a fixed number of jobs available, immigrants present a threat to native workers. However this Malthusian logic incorrectly assumes immigrants are perfect substitutes for locals and that the demand for labor is static.

Recent empirical work demonstrates that firms, workers, and markets are dynamic and able to adapt to an expanded workforce.[4] While large-scale immigration may have distributional implications, there is little evidence to support claims that, on a macro level, immigration depresses wages, drives up unemployment, or burdens taxpayers.[5] In fact, economic theory and empirical studies demonstrate that in the long run immigration raises productivity, wages, and living standards.[6] At the global level, researchers estimate that the removal of all barriers to labor mobility would double world GDP.[7] Staggering gains of this order suggest that international immigration policy deserves careful consideration.

Immigration is a complex and emotion-charged matter, but any serious examination of this issue must be grounded in fact. Fortunately, existing economic literature provides the empirical evidence and the analytical framework to rationally examine the issue, starting with the impetus behind approximately 260 million[8] immigrants in the world today and another 750 million[9] who would move permanently to another country if given the opportunity. In his seminal work first published in 1932, Nobel Laureate John Hicks posits, “Differences in net economic advantages, chiefly differences in wages, are the main cause of migration.”[10] In 1987 Harvard economist George Borjas employed a selection model, based on the work of Andrew Roy, to demonstrate that potential migrants consider relative return to skill and skill transferability in addition to relative income levels.[11]

Individuals weigh the benefits of emigrating against the often-significant costs and barriers presented by such an endeavor. For instance, policy in the host country may target specific individual attributes or restrict the total number of immigrants. Legal immigrants must pay passport, visa, and transportation fees. Undocumented migrants who seek illicit entry may pay a smuggler or incur significant physical risk. Once inside the host country, new immigrants may lack the local network, credentials, or labor market expertise needed to find suitable employment in a timely manner. There are also psychic costs that may arise from the language barrier, unfamiliar cultural norms, and social isolation.

Despite these challenges, the potential productivity gains from migration are significant. In a perfectly competitive labor market, each worker is paid a wage commensurate with the value he produces. Migration allows workers to seek higher wages by moving to a location where they are more productive. This yields a more efficient allocation of labor that economists estimate is worth as much as 130 trillion dollars in additional global output.[12] If even 5% of the world’s poorest were to migrate to developed nations, the increase in world GDP would be greater than the increase from the complete elimination of all international barriers to the movement of goods, services, and capital flows.[13] Yet, in spite of the potential gains, nearly every developed country places restrictions on immigration.[14]

One factor driving these restrictions is that many presume immigrants depress natives’ wages.[15] However in practice, because of differences in language, vocational, and technical skills, most immigrant workers are not close substitutes for native workers and, therefore, do not compete for the same jobs.[16] In fact, immigrants often are complements in production, rather than substitutes. In an oft-cited paper, economists Giovanni Peri and Chad Sparber, present a dynamic process where natives respond to an influx of immigrants by shifting into jobs that leverage their comparative advantage.[17] This occurs across the education spectrum; less-educated natives respond to an increase in less-educated immigrants by shifting from manual-intensive to communication-intensive jobs, and college-educated natives move into managerial roles when high-skilled engineers and scientists enter the country.[18]

Of course, the gains from immigration are not evenly distributed. Harvard economist George Borjas grouped U.S. workers into skill cells based on their education and experience. Borjas found that, within certain skill cells, immigration has a statistically significant negative impact on weekly earnings, particularly among the less educated.[19] Studies in Canada, Germany, and Norway yielded similar results.[20] Although the skill cells technique does not capture the possible benefits to natives who change their skill sets over time in response to immigration, it does offer empirical evidence that in the short run weekly earnings of less-educated natives are hurt by an inflow of immigrants with similar skills.

However in the long run overall wages will rise with productivity, and studies show a positive relationship between immigration and productivity gains. High-skilled immigrants attract capital investment and foster innovation, both of which boost labor productivity.[21] Less-skilled immigrant workers, such as landscapers and childcare providers, encourage more high-skilled natives, especially women, to enter the workforce.[22] Immigrants who are investors or entrepreneurs boost native employment and expand the set of available goods and services.[23] And because immigrants have knowledge of the available products, business norms, and regulations in their home country, they are able to facilitate welfare improving international trade by lowering transaction costs[24] and providing greater product variety.[25]

In addition to concerns about the labor market, many citizens of developed countries harbor fear that immigrants are a burden to native taxpayers.[26] However, here too the evidence suggests that such concerns may be unfounded. Estimates of immigration’s fiscal impact vary but a survey of the relevant literature reveals a number of clear patterns. To begin with, the fiscal impact of immigration tends to be positive and relatively small.[27] For example, a comprehensive study undertaken by the Organization for Economic Cooperation and Development, using static accounting in 2013, found that in twenty out of the twenty-seven member nations studied, the net fiscal contribution by immigrants was between zero and 0.5% of GDP.[28] In general, empirical studies show a greater positive net fiscal impact in countries with more highly skilled immigrants and a lower or even negative impact in countries with large humanitarian immigrant inflows.[29] Younger immigrants tend to have a more positive fiscal impact because they are healthier, participate in the labor force longer, and assimilate more successfully than older immigrants.[30]

The benefits of migration extend to the sending country as well. The most direct benefit comes from remittances which, according to the World Bank, often exceed total foreign aid and, in nine countries, account for more than 20% of GDP.[31] Furthermore, although early research from distinguished economists such as Jagdish Bhagwati and Koichi Hamada warned of dire consequences for origin countries losing highly skilled immigrants—so-called brain drain—the data show these fears to be largely unfounded provided emigration rates do not exceed 35%.[32] Brain drain fails to materialize because, in addition to cash payments and investments, high-skilled emigrants return expertise and institutional reform to the sending country.[33] Furthermore, the mere prospect of emigration incents the population, only a fraction of whom will ultimately leave, to attain greater levels of education and training.[34] All these factors raise total factor production and living standards in the sending country.[35]

Despite the benefits for both the origin and host countries, constructing fair and effective immigration policy is a complicated normative process that must allow for historical, political, and social considerations. As such, current immigration policy varies greatly across the globe from family-based policy in the United States to point-based systems in Australia to guest worker programs in the United Arab Emirates. Family-based immigrants tend to have lower earnings at entry but experience faster wage growth because of better social networks and greater incentive to acquire locally valued human capital.[36] Point-based systems favor immigrants with specified characteristics such as education, occupation, or language skills. These systems result in more high-skilled immigrants but often these skills do not transfer well to the host country, and the criteria may not be flexible enough to keep pace with the dynamic needs of an ever-changing business environment. Guest worker programs offer greater flexibility to meet labor shortages and may discourage illegal immigration, but workers typically return home after a specified period of time and have limited access to social services.[37]

Every policy has relative strengths and each situation is unique, but there are proven measures host nations may take to enhance immigrants’ odds of success, beginning with language training. Language skills are critical, and immigrant-focused language programs lead to greater economic success and social integration.[38] Active labor market programs, such as job search assistance and counseling, workplace introduction, and on-going mentoring, increase employment rates for immigrants.[39] Lastly, immigrants tend to achieve greater success in countries with flexible labor markets and effective anti-discrimination law.[40]

Sound policy must also account for the native workers negatively impacted by immigration, especially older and less-educated individuals.[41] This is a particularly vulnerable group and many government run programs designed to retrain and re-employ this cohort are ineffective.[42] However programs that leverage the power of the private sector are often more successful. For example, Swedish industries and unions jointly established the Job Security Councils,[43] and in Germany the Federal Employment Agency provides vouchers to cover the cost of privately run retraining and job placement services.[44] These programs are more effective because they better identify the skills most in demand and more quickly adjust to changes in the economic environment.[45]

Although economic models predict monumental gains from unrestricted international labor mobility, this is not politically feasible in the near term. An incremental approach to such a grand, and largely irreversible, endeavor is more pragmatic. That said, there is a compelling argument for immigration policy driven by market forces rather than bureaucratic rules. An example of such an approach, first proposed by Nobel Laureate Gary Becker, calls for the daily sale of a set number of visas in an open market, at a price determined by the laws of supply and demand.[46] Economist Benjamin Powell proposes the annual sale of 5 immigrant visas for permanent residency per 1,000 of host country population.[47] The cost of the visa may be paid by the immigrant worker, the employer, or a third party such as a charitable foundation. Payment could be financed with a traditional loan or even an Income Share Agreement.[48]

A market-based approach may be more politically feasible because it attracts immigrants with more productive and entrepreneurial potential, and visa payments contribute to government revenue.[49] It is arguably more fair than existing policy because entry into the country is not determined by family ties, country of origin, inflexible point-based systems, or other Byzantine regulation. Market-based policy could be augmented with a procedure that allows current undocumented workers to purchase a visa, in the open market, after successful completion of a non-trivial amnesty program. In some cases the needs of a nation may be better served by selling two types of visas, permanent and seasonal, in the open market or by making a relatively small number of free visas available to refugees from political or religious persecution. However, regardless of the particulars, free markets depend on the rule of law,[50] and therefore successful market-based policy must—some might say regrettably―include credible and sufficiently harsh consequences for illegal immigrants and their employers.

A robust body of empirical analysis over the last several decades challenges the notion that immigrants, in aggregate, undermine local labor markets or strain government budgets. Rather, the data suggest that in the long run immigration raises living standards for natives as well as immigrants. A further reduction in barriers to international labor mobility could add tens of trillions of dollars to global GDP.[51] Although immigration is often an emotional and politically contentious issue, potential immigrants and future generations deserve thoughtful policy based on sound principles and empirical evidence, not knee-jerk reactions and political pandering.

Footnotes

1 Donald Trump, “Remarks by President Trump on the Illegal Immigration Crisis and Border Security,” The White House, Roosevelt Room, Washington DC, November 1, 2018, https://www.whitehouse.gov/.

2 Daniel Pimlott, “Migration: Why we need Polish plumbers,” Financial Times, February 22, 2006, https://www.ft.com/.

3 William Richard Shorten, “Protecting Local Workers – Restoring Fairness to Australia's Skilled Visa System,” Bill’s Media Releases, April 23, 2019, https://www.billshorten.com.au/.

4 Giovanni Peri, “Do Immigrant Workers Depress the Wages of Native Workers?” IZA World of Labor, (May 2014), 2.
5 Benjamin Powell, The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy (New York: Oxford University Press, 2015), 11-70.
6 Giovanni Peri, “Do Immigrant Workers Depress the Wages of Native Workers?” IZA World of Labor, (May 2014), 1.
7 Michael A. Clemens, “Economics and emigration: Trillion-dollar bills on the sidewalk?” Journal of Economic Perspectives 22, no. 3 (2011), Table 1.

8 United Nations, Department of Economic and Social Affairs, Population Division, International Migration Report 2017: Highlights, (New York, 2017) Table 1, https://www.un.org.

9 Neli Esipova, Anita Pugliese, and Julie Ray, “More Than 750 Million Worldwide Would Migrate If They Could,” Gallop, (December 10, 2018), https://news.gallup.com/

10 John R. Hicks, The Theory of Wages, 2nd ed. (London: Macmillan, 1963), 76.
11 George J. Borjas, “Self-selection and the Earnings of Immigrants,” American Economic Review 77, no. 4 (1987): 551-52.

12 Michael A. Clemens, “Economics and emigration: Trillion-dollar bills on the sidewalk?” Journal of Economic Perspectives 22, no. 3 (2011), Table 1.

13 Benjamin Powell, The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy (New York: Oxford University Press, 2015), 2.

14 Ibid., 11.

15 Giovanni Peri, “Do Immigrant Workers Depress the Wages of Native Workers?” IZA World of Labor, (May 2014), 2.

16 Ibid., 8.

17 Giovanni Peri and Chad Sparber. “Task Specialization, Immigration and Wages.” American Economic Journal 1, no. 3 (2009): 135-69.

18 Gianmarco I. P. Ottaviano and Giovanni Peri, “Rethinking the Effect of Immigration on Wages.” Journal of the European Economic Association 10, no. (2012): 191.

19 George J. Borjas, “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market,” Quarterly Journal of Economics 118, no. 4 (2003): 1346-48.

20 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 183.

21 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 188-204.

22 Patricia Cortes and Jose Tessada, “Low-Skilled Immigration and the Labor Supply of Highly Skilled Women,” American Economic Journal Applied Economics 3, no. 3 (July 2011): 110-11.

23 Jennifer Hunt, “Which Immigrants Are Most Innovative and Entrepreneurial? Distinctions by Entry Visa,” Journal of Labor Economics 29, no. 3 (2011): 419-22.

24 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 201-02.

25 Chen Bo and David S. Jacks, “Trade, Variety, and Immigration,” Economics Letters 117, no. 1 (March 2012): 243-46, doi:10.1016/j.econlet.2012.04.007.

26 Giovanni Peri, “Do Immigrant Workers Depress the Wages of Native Workers?” IZA World of Labor, (May 2014), 2.

27 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 232.

28 Organization for Economic Cooperation and Development, International Migration Outlook 2013 (Paris: OECD Publishing, 2013), doi.org/10.1787/migr_outlook-2013-en.

29 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 230-32.

30 Ibid., 230-34.

31 World Bank, Global Economic Prospects 2006 : Economic Implications of Remittances and Migration, (Washington DC: World Bank, 2006), 85-127.

32 Frederic Docquiera and Hillel Rapoport, “Quantifying the Impact of Highly-Skilled Emigration on Developing Countries,” Centre for Economic Policy Research (May 16, 2009): 77.

33 World Bank, Global Economic Prospects 2006 : Economic Implications of Remittances and Migration, (Washington DC: World Bank, 2006), 25-72.

34 Michael Beine, Frederic Docquier, and Hillel Rapoport, "Brain drain and human capital formation in developing countries: winners and losers," Economic Journal 118, no. 4 (2008): Table 1.

35 Benjamin Powell, The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy (New York: Oxford University Press, 2015), 23-31.

36 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 281-324.

37 Ibid., 313-318.

38 Barry Chiswick and Paul Miller, Handbook of the Economics of International Migration, Volume 1A: The Immigrants (Oxford: Elsevier, 2015), 213-70.

39 Ulf Rinne, “The Evaluation of Immigration Policies,” IZA Discussion Paper 6369 (February 2012): 19-20.

40 Cynthia Bansak, Nicole B. Simpson, and Madeline Zavodny, The Economics of Immigration, (London and New York: Routledge, 2015), 167, 325.

41 Ronald D'Amico and Peter Z. Schochet, The Evaluation of the Trade Adjustment Assistance Program: A Synthesis of Major Findings, Prepared for U.S. Department of Labor, Employment and Training Administration. (Oakland, CA: Social Policy Research Associates and Princeton, NJ: Mathematica Policy Research, December 2012) iv..https://www.mathematica-mpr.com/.

42 Jeffrey Selingo, “The False Promises of Worker Retraining,” The Atlantic, January 8, 2018, https://www.theatlantic.com/.

43 Thomas K. Grose, “The Worker Retraining Challenge,” U.S. News and World Report, February 6, 2018, https://www.usnews.com/.

44 Julia Lang and Thomas Kruppe, “Labour Market Effects of Retraining for the Unemployed - the Role of Occupations,” German Economic Association Conference Paper, (August 2014): 26. http://hdl.handle.net/10419/100420.

45 Council of Economic Advisers. Addressing America’s Reskilling Challenge. (July 2018): 22. https://www.whitehouse.gov/.

46 Benjamin Powell, The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy (New York: Oxford University Press, 2015), 146-54.

47 Benjamin Powell, The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy (New York: Oxford University Press, 2015), 147.

48 Ibid.,152

49 Robert W. Fairlie, Kauffman Index of Entrepreneurial Activity, 1996-2011 (Kansas City, MO: Kauffman Foundation, 2013), 10-13.

50 Samuel Bufford, “International Rule of Law and the Market Economy - An Outline,” Southwest Journal of Law and Trade in the Americas 12, (2006): 311.

51 Michael A. Clemens, “Economics and emigration: Trillion-dollar bills on the sidewalk?” Journal of Economic Perspectives 22, no. 3 (2011), 87.

Author’s Note

Unless specified otherwise, this paper will use the word “immigrants” to denote individuals who are not born a citizen of the country where they currently reside. This includes voluntary and humanitarian immigrants, who enter the host country with or without proper documentation, and stay on a temporary or permanent basis.

Bibliography

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In this essay, it is argued that the socially efficient level of crime is actually significantly above nil, despite rampant social costs, due to the necessary trade-off between prevention expenditure and costs inflicted by crimes, as well as the potential beneficial effects of crime.[1] However, it must be recognised that there is no ‘simple relationship’ between crime and social costs derived from it, although cost-benefit analysis supplemented by case studies provides an indication.[2] Firstly, there are the social costs of crime with an added opportunity cost dimension. Secondly, there are prevention costs followed by the potential social benefits. Finally, the use of fines may help to determine a socially efficient level. Here, crime refers to various acts that imply a transgression of social norms and are punishable by law, from financial crimes to homicide, although naturally “crime” can have varying definitions, within different legal systems.

In this context, ‘social efficiency’ can be characterised as taking all the consequences of crime on all economic agents into consideration.[3] Specifically, social efficiency can be defined as: marginal social costs totalling marginal social benefits (MSC=MSB) with social costs divided into preemptive prevention costs and the social costs of the crimes expenditure and costs inflicted by crimes, as well as the potential beneficial effects of crimes themselves.[4] Therefore, in order to minimise overall social costs, the marginal cost of preventing crime should equal the marginal social cost of crime (MCp=MSC). If MCp>MSC of crime, then crimes are more costly to prevent than allowing them to occur, thus contributing to a higher overall social cost. Contrastingly, if MCp<MSC, then crime could have been prevented at a lower social cost than the social cost inflicted by the crime.

​

However, it can be argued that the socially efficient level of crime is nil as it is ‘the primary source of inefficiency in the economy,’ effectively ‘bypassing the market.’[5] [6]Principally, external costs involved in crime can be so considerable that it should not be present at all. This includes costs attached to crime which can be divided into apprehension, conviction and punishment costs.[7] Firstly, apprehension costs can be estimated using UK police spending, which was £14,063m in 2019-20. [8]Secondly, average unit conviction costs range from £200 for commercial theft to £800,980 for homicide. [9]Thirdly, incarceration cost the taxpayer £2,753,747,261 in the UK in 2015, i.e. £32,510 per prisoner. [10]In 2018-19, the total Ministry of Justice operating expenditure was £10 billion, with an income of £1.6 billion.[11] Similar statistics in the US are even more alarming with criminal justice system expenditure in 2012 amounting to $210 billion.[12] Such sums exemplify the huge social costs of crime, suggesting that the optimum level is close to nil, if not absolute zero.

Additionally, there are considerable social costs as consequences of crime, such as the lost output of crime victims. For example, in the UK, the average cost of lost productivity for violent crime victims is £2,060 (5 hours off work and 36 reduced productivity hours).[13] The same rationale can be used to estimate the social costs of crime regarding healthcare costs. For the same crime, average unit costs of healthcare amount to £920.[14] Moreover, there are also large anticipatory and reactionary social costs, notably defensive precautions taken by potential victims. This includes a range of measures such as insurance, locks, doors, private CCTV and alarms, with UK cost estimates ranging from £3bn to £4bn to around £25bn.’[15] This allocation of resources to hinder crime naturally inflicts significant monetary and psychological costs to society, although it does provide employment and other economic benefits. Similarly, resources used to commit a crime also represent costs to society.[16] [17]Here, an opportunity cost dimension must be added to fully capture the argument.[18] Principally, the criminals’ human and physical capital could have been utilised to contribute to the productive potential of the economy, creating potential social gains instead of inflicting high social costs through crime. This opportunity cost also includes the resources expended by potential victims to protect themselves from crime. The next best alternative may have been expenditure on goods and services to improve real living standards.

However, it can also be argued that the socially efficient level of crime is relatively high because resources allocated towards prevention can generate an even greater burden on society than if some crimes were allowed to occur (MCp<MSC). This is corroborated by Friedman stating that ‘theft is inefficient, but spending $100 to prevent a $10 theft is more inefficient.’[19] The following analysis can be divided into the high monetary and non-monetary costs of prevention.

On a monetary level, such high costs would take the form of expenditure on human and physical resources such as enhanced police presence and surveillance. Although this creates employment, an opportunity cost is still presented. In order to estimate the expenditure required to bring crime levels close to 0, the example of Singapore can be used where high penalties are coupled with high policing expenditure of over $200 US per capita[20] to achieve a relatively low crime rate of 617 per 100,000 with an intentional homicide rate of 0.7 per 100,000.[21] [22]This also implies that innumerable resources would be required to achieve a point where crime was virtually nil, inflicting even greater social costs through taxation than the crimes themselves.

Non-monetary costs of prevention also suggest that the socially efficient level of crime is well above nil. These social costs focus on the infringements of citizens’ rights and liberties, such as freedom of assembly and movement, which would undoubtedly be restricted by a police state seeking extremely low levels of crime. A relevant example for this is the former GDR where the Secret Police crushed crime and dissent through ‘increased social control, draconian state sanctions and reduced opportunity structures.’[23] However, this inevitably led to spiralling long-term social costs with recent articles stating that ‘memories of the police state continue to exact a profound psychological toll,’ even 30 years after German reunification.[24] As a consequence of the actions of the Stasi, psychologists have diagnosed various conditions, including post-traumatic stress disorder, anxiety and depression.[25] Overall, this case study demonstrates how efforts to reduce crime to very low levels tend to lead to far greater social costs than those actually created by crimes themselves. This example shows the lasting harm of such measures. Even if a more social-liberal rather than authoritarian approach was taken, as in Scandinavian countries, whereby the incentive to commit crime is reduced through redistributive measures, costs would remain high and crime would probably persist. Even today, economists argue that in the USA, ‘spending less on policing would increase social welfare.[26]

However, the idea that prevention is better than cure can also be applied with regard to crime. Although it is very difficult to calculate the social benefit stemming from preventative measures, a study of CCTV (closed-circuit television) suggests that the trade-off between infringement on civil rights and liberties and reducing crime is not as great as commonly perceived. Firstly, it is accepted that ‘CCTV can, when properly implemented and monitored, be effective at reducing crime.’[27] However, Roman and Farrell also argue that ‘there is evidence that CCTV can be introduced without infringing upon people's freedoms.’[28] Similarly, the argument regarding the infringement on civil liberties is weakened by the fact that it is arguing ‘for a right to anonymously commit crime.’[29] Therefore, as technology develops, it can be argued that the trade-off between prevention and social costs created is becoming less applicable, suggesting that the socially efficient level will decrease in the long-term.

Secondly, it can be claimed that the socially efficient level of crime in some circumstances is perhaps surprisingly high, due to the potential social benefits. This is particularly significant in relation to redistributive crimes such as theft and fraud which are effectively transfer payments. From a utilitarian perspective, if some resources are reallocated from wealthier agents to poorer agents, then total utility for the overall population increases. This is explained by the law of diminishing marginal utility which states that less affluent agents have higher levels of marginal utility, i.e. an increase in their resources will dramatically improve living standards. If crime can have this effect, then this may be able to improve development outcomes. From a macroeconomic perspective, the transfer will increase consumption, a key component of aggregate demand (AD=C+I+G+(X-M)) (AD-AD1) due to poorer individuals’ higher marginal propensity to consume which could, in turn, lead to an expansion of GDP (Y-Y1). This suggests that a certain type and level of crime can lead to economic benefits. However, the net improvement is likely to be marginal and will reduce long-term consumption trends. From a microeconomic perspective, if a poor thief were more likely to purchase merit goods and the wealthy were more likely to buy demerit goods, then crime would be contributing to correcting market failures caused by negative externalities.

However, redistributive crimes are also committed by prosperous individuals and firms through tax evasion. Additionally, the proceeds of organised crime are unlikely to be invested in social capital but tend to be used to fund further crime. Moreover, crimes such as counterfeiting, ‘theft by false pretenses,’ can have significant social costs such as resulting demand-pull inflation and the inefficient use of resources required for counterfeiting, undermining the redistributive effect.[30] At the core of the redistributive argument, which states that the private benefits to the criminal partially negate the private cost, lies the ethical dilemma that the ‘criminal’s illicit gain should not count as a social benefit.’[31] Furthermore, if crime is allowed to rise to dangerous levels, then the incentive to accumulate wealth legally may erode, increasing the risk of capital and labour flight, inflicting vast social costs. To summarise, it is inefficient to allow ‘pure coercive transfers of wealth.’[32]

However, social costs can be minimised in many cases by applying fines, the most common form of punishment used today.[33] Primarily fines do not consume social resources, but act as a transfer payment. Acting as a Pigouvian tax, fines can internalise the externality and correct the inefficient outcomes caused by crime. This is illustrated by the diagram below, with the social optimum being: MPC+ fines = MSC. Moreover, fines may avoid an expensive prison system. ‘Indeed, fines are so cheap to administer that they yield a profit to the state.’[34] Overall, this suggests that minor offences sanctioned by fines generate a small social cost, supporting the argument that the socially efficient level is greater than nil. Alternatively, community service could be used more extensively to offset crime-induced social loss.

However, the use of fines to determine a socially efficient level of crime is ethically questionable,  inflicting  potentially  long-term  social  costs  as  they  ‘permit  offences  to be bought  for  a  price.’[35] Additionally,  debates arise as to how fines should be calculated, inevitably causing government failure and further inefficiencies. Furthermore, some crimes are arguably ‘so heinous that no amount of money could compensate for the harm inflicted,’ making fines unsuitable.[36] This also exposes further difficulties when attempting to establish a socially efficient level as the value is wholly dependent on the types of crime committed. However,  while redistributive crimes can imply some inefficiencies,  so-called  ‘efficien crimes’[37] do exist, suggesting that the social optimum is not absolute zero. Reasoned speeding is a common example used to justify this argument as there may be times where the potential cost of an accident is less than the benefits of speeding. However, this can be ethically doubtful, due to the subjectivity of this concept.

Overall, despite best attempts, crime is an inevitable social evil. Hence, instead of devoting more resources to combat it, increasing the burden on the taxpayer, criminal law should ensure that crime delivers as few social costs as possible through efficient punishments or perhaps through the legalisation of some acts such as the possession and supply of Class B drugs such as cannabis. Accordingly, the socially efficient level of crime varies according to the offence, but is perhaps greater than commonly assumed, although it is impossible to give a conclusive value.

​

Footnotes

1 Friedman, D., n.d. Crime. [online] Econlib. Available at: <https://www.econlib.org/library/Enc/Crime.html> [Accessed 30 April 2020].

2 Skogh, G. and Stuart, C., 1982. An Economic Analysis of Crime Rates, Punishment, and the Social Consequences of Crime. Public Choice, [online] 38(2), p.171. Available at: <https://www.jstor.org/stable/30023585?seq=1> [Accessed 30 April 2020].

3 Bohm, P., 1987. Social Efficiency: A Concise Introduction To Welfare Economics. 2nd ed. [ebook] London: Macmillan Education Ltd., p.xii. Available at: <https://link.springer.com/content/pdf/bfm%3A978-1-349-18786-7%2F1.pdf> [Accessed 30 April 2020].

4 Cooper, R. and Ulen, T., 2013. AN ECONOMIC THEORY OF CRIME AND PUNISHMENT CHAPTER 11. [ebook] Pearson, p.471. Available at: <http://web4.uwindsor.ca/users/m/mfc/41240.nsf/831fc2c71873e46285256d6e006c367a/10ff8b04ff3a317885256d88005720f6$FILE/C&U4thchpt11.pdf> [Accessed 30 April 2020].

5 Ferraz, E. and Soares, R., 2018. Socially Optimal Crime And Punishment. [ebook] p.13. Available at: <https://www.fea.usp.br/sites/default/files/anexoevento/socp_ferraz_soares.pdf> [Accessed 30 April 2020].

6 Posner, R., 1985. An Economic Theory of the Criminal Law. Columbia Law Review, [online] 85(6), p.1195. Available at: <https://pdfs.semanticscholar.org/6448/aee7b1aaa0785667ee8f0ba4fb7e9fe0a3c0.pdf>.

7 Becker, G., 1968. Crime and Punishment: An Economic Approach. Journal of Political Economy, [online] 76(2), p.207. Available at: <http://links.jstor.org/sici?sici=0022-3808(196803/04)76:2%3C169:CAPAEA%3E2.0.CO;2-I> [Accessed 30 April 2020].

8 Home Office, 2019. Police Funding For England & Wales 2015-2020 Statistical Bulletin. London, p.6.

9 Home Office, 2018. The Economic And Social Costs Of Crime Second Edition Research Report 99. London, p.58.

10 Ministry of Justice, 2016. Costs Per Place And Costs Per Prisoner By Individual Prison National Offender Management Service Annual Report And Accounts 2015-16 Management Information Addendum. London: Ministry of Justice Press Office, p.3.

11 House of Commons Library, 2019. The Spending Of The Ministry Of Justice Debate Pack. London, p.3.

12 Ferraz, E. and Soares, R., 2018. Socially Optimal Crime And Punishment. [ebook] p.1. Available at: <https://www.fea.usp.br/sites/default/files/anexo-evento/socp_ferraz_soares.pdf> [Accessed 30 April 2020].

13 Home Office, 2018. The Economic And Social Costs Of Crime Second Edition Research Report 99. London, p.42.

14 Ibid. p.46.

15 Ibid. p.23.

16 Skogh, G. and Stuart, C., 1982. An Economic Analysis of Crime Rates, Punishment, and the Social Consequences of Crime. Public Choice, [online] 38(2), p.171. Available at: <https://www.jstor.org/stable/30023585?seq=1> [Accessed 30 April 2020].

17 Ibid.

18 Cooper, R. and Ulen, T., 2013. AN ECONOMIC THEORY OF CRIME AND PUNISHMENT CHAPTER 11. [ebook] Pearson, p 471. Available at: <http://web4.uwindsor.ca/users/m/mfc/41240.nsf/831fc2c71873e46285256d6e006c367a/10ff8b04ff3a317885256d88005720f6/$FILE/C&U4thchpt11.pdf> [Accessed 30 April 2020].

19 Friedman, D., n.d. Crime. [online] Econlib. Available at: <https://www.econlib.org/library/Enc/Crime.html> [Accessed 30 April 2020].

20 Farrell, G. and Clark, K., 2004. WHAT DOES THE WORLD SPEND ON CRIMINAL JUSTICE?. [ebook] Helsinki: The European Institute for Crime Prevention and Control, p.16. Available at: <https://www.heuni.fi/material/attachments/heuni/papers/6KtlkZMtL/HEUNI_papers_20.pdf> [Accessed 13 May 2020].

21 Ibid.

22 Hirschmann, R., 2020. Singapore: Crime Rate 2019 | Statista. [online] Statista. Available at: <https://www.statista.com/statistics/628339/crime-rates-in-singapore/> [Accessed 13 May 2020].

23 Kury, H. and Smartt, U., 2001. The Changing Face Of Germany's Crime Rate Since Unification. [ebook] Centre for Crime and Justice Studies, p.47. Available at: <https://www.crimeandjustice.org.uk/sites/crimeandjustice.org.uk/files/09627250108553673.pdf> [Accessed 30 April 2020].

24 Bailey, C., 2019. The Lingering Trauma of Stasi Surveillance. The Atlantic, [online] Available at: <https://www.theatlantic.com/international/archive/2019/11/lingering-trauma-east-german-police-state/601669/> [Accessed 30 April 2020].

25 Ibid.

26 Ferraz, E. and Soares, R., 2018. Socially Optimal Crime And Punishment. [ebook] p.31. Available at: <https://www.fea.usp.br/sites/default/files/anexo-evento/socp_ferraz_soares.pdf> [Accessed 30 April 2020].

27 Roman, J. and Farrell, G., n.d. COST-BENEFIT ANALYSIS FOR CRIME PREVENTION: Opportunity Costs, Routine Savings And Crime Externalities. [ebook] pp.80, 81. Available at: <http://www.socialvalueuk.org/app/uploads/2016/03/cba%20for%20crim%20prevention.pdf> [Accessed 30 April 2020].

28 Roman, J. and Farrell, G., n.d. COST-BENEFIT ANALYSIS FOR CRIME PREVENTION: Opportunity Costs, Routine Savings And Crime Externalities. [ebook] pp.80, 81. Available at: <http://www.socialvalueuk.org/app/uploads/2016/03/cba%20for%20crim%20prevention.pdf> [Accessed 30 April 2020].

29 Ibid.

30 Posner, R., 1985. An Economic Theory of the Criminal Law. Columbia Law Review, [online] 85(6), p.1198. Available at:

<https://pdfs.semanticscholar.org/6448/aee7b1aaa0785667ee8f0ba4fb7e9fe0a3c0.pdf

31 Cooper, R. and Ulen, T., 2013. AN ECONOMIC THEORY OF CRIME AND PUNISHMENT CHAPTER 11. [ebook] Pearson,

p.471. Available at: <http://web4.uwindsor.ca/users/m/mfc/41-240.nsf/831fc2c71873e46285256d6e006c367a/10ff8b04ff3a317885256d88005720f6/

$FILE/C&U4thchpt11.pdf> [Accessed 30 April 2020].

32 Posner, R., 1985. An Economic Theory of the Criminal Law. Columbia Law Review, [online] 85(6), p.1196. Available at: <https://pdfs.semanticscholar.org/6448/aee7b1aaa0785667ee8f0ba4fb7e9fe0a3c0.pdf

33 Becker, G., 1968. Crime and Punishment: An Economic Approach. Journal of Political Economy, [online] 76(2), p.193. Available at: <http://links.jstor.org/sici?sici=0022-3808(196803/04)76:2%3C169:CAPAEA%3E2.0.CO;2-I> [Accessed 30 April 2020].

34 Cooper, R. and Ulen, T., 2013. AN ECONOMIC THEORY OF CRIME AND PUNISHMENT CHAPTER 11. [ebook] Pearson, p.474. Available at: <http://web4.uwindsor.ca/users/m/mfc/41-240.nsf/831fc2c71873e46285256d6e006c367a/10ff8b04ff3a317885256d88005720f6/

$FILE/C&U4thchpt11.pdf> [Accessed 30 April 2020].

35 Becker, G., 1968. Crime and Punishment: An Economic Approach. Journal of Political Economy, [online] 76(2), p.196. Available at: <http://links.jstor.org/sici?sici=0022-3808(196803/04)76:2%3C169:CAPAEA%3E2.0.CO;2-I> [Accessed 30 April 2020].

36 Ibid.

37 Friedman, D., n.d. David Friedman, Price Theory: Chapter 20: The Economics Of Law And Law Breaking. [online] Daviddfriedman.com. Available at:

<http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_20/PThy_Chapter_20.html> [Accessed 30 April 2020].

Bibliography

Becker, G., 1968. Crime and Punishment: An Economic Approach. Journal of Political Economy, [online] 76(2), pp.191, 193, 196, 207. Available at:

<http://links.jstor.org/sici?sici=0022-3808(196803/04)76:2%3C169:CAPAEA%3E2.0.CO;2-I> [Accessed 30 April 2020].

Bohm, P., 1987. Social Efficiency: A Concise Introduction To Welfare Economics. 2nd ed. [ebook] London: Macmillan Education Ltd., p.xii. Available at:

<https://link.springer.com/content/pdf/bfm%3A978-1-349-18786-7%2F1.pdf> [Accessed 30 April 2020].

Cooper, R. and Ulen, T., 2013. AN ECONOMIC THEORY OF CRIME AND PUNISHMENT CHAPTER 11. [ebook] Pearson, pp.445, 47, 474. Available at:

<http://web4.uwindsor.ca/users/m/mfc/41-240.nsf/831fc2c71873e46285256d6e006c367a/10ff8b04ff3 a317885256d88005720f6/$FILE/C&U4thchpt11.pdf> [Accessed 30 April 2020].

Farrell, G. and Clark, K., 2004. WHAT DOES THE WORLD SPEND ON CRIMINAL JUSTICE?. [ebook] Helsinki: The European Institute for Crime Prevention and Control, p.16. Available at:

<https://www.heuni.fi/material/attachments/heuni/papers/6KtlkZMtL/HEUNI_papers_20.pdf> [Accessed 13 May 2020].

Ferraz, E. and Soares, R., 2018. Socially Optimal Crime And Punishment. [ebook] pp.1, 2, 13, 31. Available at: <https://www.fea.usp.br/sites/default/files/anexo-evento/socp_ferraz_soares.pdf> [Accessed 30 April 2020].

Friedman, D., n.d. Crime. [online] Econlib. Available at: <https://www.econlib.org/library/Enc/Crime.html> [Accessed 30 April 2020].

Friedman, D., n.d. David Friedman, Price Theory: Chapter 20: The Economics Of Law And Law Breaking. [online] Daviddfriedman.com. Available at:

<http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_20/PThy_Chapter_20.html> [Accessed 30 April 2020].

Hirschmann, R., 2020. Singapore: Crime Rate 2019 | Statista. [online] Statista. Available at: <https://www.statista.com/statistics/628339/crime-rates-in-singapore/> [Accessed 13 May 2020].

Home Office, 2019. Police Funding For England & Wales 2015-2020 Statistical Bulletin. London, p.6.

Home Office, 2018. The Economic And Social Costs Of Crime Second Edition Research Report 99. London, pp. 23, 42, 46.

House of Commons Library, 2019. The Spending Of The Ministry Of Justice Debate Pack. London, p.3.

Ministry of Justice, 2016. Costs Per Place And Costs Per Prisoner By Individual Prison National Offender Management Service Annual Report And Accounts 2015-16 Management Information Addendum. London: Ministry of Justice Press Office, p.3.

Posner, R., 1985. An Economic Theory of the Criminal Law. Columbia Law Review, [online] 85(6), pp.1195, 1196, 1198. Available at: <https://pdfs.semanticscholar.org/6448/aee7b1aaa0785667ee8f0ba4fb7e9fe0a3c0.pdf

Roman, J. and Farrell, G., n.d. COST-BENEFIT ANALYSIS FOR CRIME PREVENTION: Opportunity Costs, Routine Savings And Crime Externalities. [ebook] pp.80, 81. Available at:

<http://www.socialvalueuk.org/app/uploads/2016/03/cba%20for%20crim%20prevention.pdf> [Accessed 30 April 2020].

Skogh, G. and Stuart, C., 1982. An Economic Analysis of Crime Rates, Punishment, and the Social Consequences of Crime. Public Choice, [online] 38(2), p.171. Available at:

<https://www.jstor.org/stable/30023585?seq=1> [Accessed 30 April 2020].

Introduction

In a world where our common future looks increasingly uncertain, humanity needs a measure of collective potential: social cohesion. Using GDP as a proxy for progress is outdated, as purely economic measures are neither sustainable nor sufficiently holistic. Academics have previously dismissed "additional indicators [as] a fundamentally political question" (Feigl, Hergovich and Rehm). However, social cohesion is neither “additional”, nor solely “political”. Instead, it provides a central focus for the necessary shift in global mindset away from perpetual economic growth. Social cohesion is imperative as humanity moves towards the ecological and societal sustainability embodied in initiatives such as the UN Sustainable Development Goals.

Referring to the “bonds” that hold society together, social cohesion can be defined as “the willingness of members of a society to cooperate with each other in order to survive and prosper” (Stanley). This concept was born of Emilie Durkheim’s attempt to define the quality lost during the “social erosion” of early industrialization. He baptized it the “consciousness collective; the belief held by citizens of a nation-state that they share a moral community, which enables them to trust each other” (Larsen). In the present day, Durkheim would notice striking parallels to his lifetime: great technological change in an increasingly connected yet polarized world. As Durkheim’s perspective can be used to defend forced homogeneity, his concept must evolve to reflect modern liberal values. The trusting community he mentions must originate organically in order to reach its full potential. While he refers to the “nationstate”, moving towards the ecological ceiling of our biosphere requires genuine cooperation on a much greater level. The infrastructure to improve measurements of cohesion should likewise be globally developed, encompassing factors such as: “life satisfaction, trust, prosocial behaviour, suicide and voter turnout” (OECD). Social cohesion’s utilitarian value lies in determining the factors necessary for the future prosperity of the human race.

Reimagining Development

Humanity needs to start measuring and appreciating the social qualities required to move into ecological and societal balance. In On Liberty, Mill argues for the ability of any person to do what they want provided they do not hurt others. Today, this capability to “hurt” includes future generations – redefining the individual as part of an interconnected system, where affecting others is the rule, not the exception. As “Identity is socially constructed” (World Bank), the independence and sense of fulfilment required for peace is only possible through the opportunities afforded by a socially cohesive state. It encompasses the social structure necessary for individual development and group identity, remaining deeply utilitarian in nature. It is a measure of “inclusion…trust… and mobility” (Fonesca, Lukosch and Brazier). Liberal values and cohesion are mutually supportive: respect of individual freedom makes people more willing to work together, and less likely to abuse others’ rights. In addition, the empathy and collaboration of a cohesive society increases altruism, serving general utility. Merely replacing “citizen” with “consumer” changed survey respondents’ values, causing “reduced social involvement” (Bauer, Wilkie and Kim). A holistic system to measure fulfilment and cooperation would be even more powerful than reversing this semantic change. It could transform the individual’s role from that of a narcissistic homo economicus to a cooperative member of humanity.

Cohesion and the State

Social cohesion provides a lens through which to objectively analyse the rise of countries culturally dissimilar to the West. It is a defining component of development, more important than historical similarities or differences. Locke justifies the state through tacit consent: the acceptance of state systems and benefits. High social cohesion measures citizens’ acceptance of and willingness to work with one another and the state, thus embodying tacit consent. As any country’s potential for development is contingent on its legitimacy and contemporary political situation, cohesion also constitutes the essence of sustainable growth. This sheds light on the significance of high trust levels present in China “across … the last couple of decades” (Ortiz-Ospina and Roser). The constituent elements of social cohesion, from prosocial behaviour to high voter turn-out, justify the Chinese government, enabling it to mobilize the population towards its common goals.

Although social cohesion is criticized as “vague enough to follow political meanderings” (Stanley), this applies to political misuse of the term, not its essence. Independently evaluating alleged social cohesion clarifies this distinction. In Greece, the “cost of protecting
insiders falls largely on ‘outsiders’” (The Economist), as the bloated public sector excludes younger citizens from economic participation. While undertaken in the name of cohesion, this leads to social stratification – eroding organic trust and undermining cooperative potential. Greece is blatantly misusing the term. Nevertheless, elements of social cohesion are open to interpretation. For example, Plotke questions whether competitive elections are the only valuable method of political representation. He broadens “representation” to include interest and “type” representation and “suggests that modern understandings of political representation are to some extent contingent on political realities” (Dovi). Explaining the importance of cohesive inclusion in representing a diverse society, he recommends analysing of contemporary political systems. Their effect on representation can be extended to their ability to support social cohesion. For example, within Western democracies, first-past-thepost and plurality systems are markedly different. The latter cultivates a culture of compromise, while the former, used in the UK and USA, is more divisive. Countries relying on a winner-takes-all system must strengthen their true cohesiveness or remain susceptible to partisan division. Any government desirous to retain power must understand the significance of social cohesion.

Focusing on social cohesion makes any state accountable for its citizens’ welfare, no matter the form of government. The feedback loops of political participation incentivize the incumbents to do more for their citizens. This is clearly shown in the democratic process of voting, as “average life satisfaction is significantly related to the vote share [of the incumbent party]” (Ward). If social cohesion were an accepted measure of success, it would incentivize authoritarian regimes like the government of Equatorial Guinea to polish their international image by developing their country and society, instead of chasing oligarchical economic gains, touting a deceptively high GDP per capita and “spending huge sums on public relations” (Birrell) to “prove” their development. The presence of moral norms, with the “expectations of a social contract backed up by public accountability” (Raworth 125) can have tangible effects on objective measures of welfare. A Ugandan hospital’s public noticeboard and results reporting led to “33% fewer children dying under the age of five” (125). Note that the phrase “social contract” is imperfect as it does not imply common ownership of solutions, unlike the inclusive concept of “society [as] a joint-stock company” (Emerson 3). Nevertheless, social cohesion can prevent a transactional, economic worldview, holding governments accountable for all their actions.

Cohesion and Development

Social cohesion within countries is paramount to measuring the potential for successful international aid. According to William Easterly, the IMF and World Bank’s efforts to fix long-term economic issues have been less successful than their crisis control. Attempting to forge societal development using economic tools, they block the “circuitous route to a free market” (Easterly). This route implies that social cohesion must grow organically to reach the minimum level of trusting co-operation required to implement economic plans. Working through corrupt governments, organizations cannot mobilize the population or increase vertical trust required for the country’s self-sufficiency. Willingness to cooperate must be present for economic tools to successfully encourage sustainable development.

Social cohesion can correspond to social homogeneity. Economically developed Botswana, unlike many African countries, has a dominate ethnic group, language and a relatively intact traditional hierarchy. Linguistic and social diversity pose a barrier to trusting interaction. They have a negative correlation with societal development as “Countries with high social capital…tend to be linguistically homogenous” (Prospero). Perceived cultural and linguistic norms allow for conversion of social capital into tangible benefits, as outlined by Bourdieu. However, Botswana is a case of naturally occurring homogeneity, comparable to monocultural countries like Japan and Iceland. Cultural homogeneity should be seen as a possible contributing factor to social cohesion, not a desirable end in itself.

Just as social cohesion’s value lies in serving general utility, homogeneity’s value lies solely in its ability to generate social cohesion. Utility is served by social inclusion; “The process of improving the ability, opportunity, and dignity of those disadvantaged on the basis of their identity to take part in society” (Bordia Das). Durkheim attempted to artificially recreate natural homogeneity. However, he mistakenly neglected to acknowledge that marginalizing minority groups strips social cohesion of its utilitarian value. Today, modern academics recognize that “[forced] social homogeneity may be detrimental to social cohesion” (Stanley). For instance, destabilizing legal initiatives to create social homogeneity leave minorities like the Rohingya “lack[ing] basic rights” (Blakemore). This diminishes incentives to cooperate, breeding a culture of fear inconducive to the trust that forms the essence of social cohesion. With the ensuing power imbalance, authoritarian states lack the fluidity to respond to threats to their social and group identity. Considering current migratory pressure and the importance of inclusion for utility, social homogeneity becomes an unworthy goal.

Our Common Humanity

Inter-group, pro-social behaviour is arguably a greater source of legitimate power than any monopoly on physical force. Bourdieu argues that owners of social capital could become much stronger if owners of economic capital did not pit them against each other. Though such solidarity is difficult to maintain, moments of collective human identity and purpose can inspire group action. Grassroot efforts, personified in protests like Occupy and Extinction Rebellion, are imperative in raising awareness of our shared humanity. Similarly, according to Roger Griffins, counter-movements in less cohesive states succeed because they rely on shared, inextinguishable moral ideas. These commonalities establish trust, increasing group efficacy. A tendency towards self-interest does not prevent unifying goals from nurturing the horizontal trust necessary for social cohesion.

Just as the technological change and inequality of the industrial revolution worried Durkheim, so should the current power of social media merit a greater focus on social cohesion. Social media algorithms confirm, not challenge, extremist views as various groups discuss complex issues “within politically homogeneous ‘echo chambers’” (University of Pennsylvania). This creates a dichotomy between collective human identity and divisive factions, accelerating polarization. However, "egalitarian social networks, in which no individual is more powerful than another” utilize the “remarkably strong effects of bipartisan social learning on eliminating polarization" (University of Pennsylvania). By refocusing, governments and media companies can not only accelerate, but also mitigate polarization. Even technicalities such as “the shade of blue and the size of buttons” (The Economist) greatly impact people’s
willingness to listen to each other and empathize with other groups. Social media can facilitate constructive interaction, as long as it aims to promote social cohesion.

Social cohesion is a fragile, long-term goal that requires a sense of our common future. Focusing on interaction and present similarities facilitates this understanding. Inter-group exchange enables cohesion to grow organically in a larger, inclusive moral community. It is infinitely preferable to denying the presence of minority groups or persecuting them in misguided attempts at creating homogeneity. Mill argued “The only people who need to concern themselves regularly about … society in general are those few whose actions have an influence that extends that far” (Mill 13). The interdependence of 21st century society means that every individual’s actions reverberate globally in some regard, solidifying the importance of a cohesive human identity and global awareness.

Conclusion

There is no single panacea for the challenges facing humanity. Solutions are not solely technological, political, economic or cultural, but complex webs of vertical and horizontal cooperative effort. Social cohesion is a crucial measure of our propensity to cooperate,
focusing on stability and holistic development as opposed to short-term economic gain. Only by appreciating its essence can we harness our collective potential to achieve harmony within the limits of our shared planet.

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Birrell, Ian. The Observer: Equatorial Guinea. 23 October 2011. 27 July 2019. <https://www.theguardian.com/world/2011/oct/23/equatorial-guinea-africa-corruptionkleptocracy>.

Blakemore, Erin. Who are the Rohyinga People? 8 February 2019. 13 July 2019. <https://www.nationalgeographic.com/culture/people/reference/rohingya-people/>.

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