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Wednesday, November 30, 2005

A market destroyed by government: and I think it’s good economics!

Economic models pop almost constantly to better understand just about everything, but every now and then it’s a good idea to get back to basics.  Instead trying to make it more costly for illegal immigrants it seems a far easier to after the human smugglers on their home court: their business.  This is the idea in an article (Decapitating the Snakeheads) in the October 6th’s Economist (subscription).
Why not beat them at their own game?  That’s the question that seems to have come to the mind of International Centre for Migration Policy Development’s Michael Jandl.  Human smuggling may be hard to be considered a business but consider these facts found in the article:
Damaging and dangerous it may be, but illegal immigration is also good business. Smugglers rake in around €4 billion ($4.7 billion) a year from the EU alone…Smugglers charge €3,000-8,000 to convey people from Pakistan to Europe. But that is not all they can do. They will fix a British marriage for £5,000 ($8,800); and falsify an Italian residence permit for €4,500. Some outfits even offer warranties (if the first attempt to cross the border fails, the second one is free) and money-back guarantees. Smuggling, Mr Jandl says, has evolved into a sophisticated service industry.
While much of this business may just be someone trying to shuttle a dozen people across a border, but a business it still is.  If there is one thing governments know how to do is to wreck businesses and that’s what Mr. Jandl suggests.
The people smuggling market can be attacked in two ways: cut demand for it, and increase the cost to supply it.  Much of the attention has been to crack down on the borders but as the article says, “Border crackdowns and mass deportations have populist appeal, but they are clumsy, costly and cruel.”  So how to go about reduce the demand for people smuggling services?  Mr. Jangl has a plan:
Governments, he suggests, should sell temporary, two- or three-year visas in the smugglers' best markets. The visas should be priced to compete with the smugglers' rates. One-third of the visa fee could be returned to immigrants when they depart the country, and anyone who had bought a visa in the past would be free to buy another one, provided they did not break the rules. These features would be powerful incentives not to overstay. Some fraction of the fee could also be refunded to immigrants who pay social-security taxes, giving them a reason to keep out of the underground economy.
This is a plan that I think shows the power incentives have.  This plan provides many incentives for people to shun the high risk of illegal methods border crossing and immigrate legally, while at the same time providing incentives to remain in the formal economy.  On the other side smugglers would have incentives to seek employment in other (hopefully legal) activities.  This is one instance where I stand with government devastating a market and maintaining their own monopoly.

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