Sri Lanka can grow, create jobs, by moving people: Hausmann
May 27, 2018 11:17 AM GMT+0530 | 4 Comment(s)
ECONOMYNEXT - Sri Lanka can fast-track growth, diversify exports and create new jobs by reforming immigration laws to permit know-how and skills to enter the country, an economist who has studied fast growing countries has said.
Many advanced and fast-growing nations from Singapore to the US have open policies that allowed people to migrate easily bringing knowledge and skills creating thousands of new jobs, Ricardo Hausmann, from US-based University of Harvard said.
Doing new things required 'know-how'. Know-how takes a long time to acquire, like becoming a skilled surgeon or an anaesthetist.
He says it is difficult to move know-how into brains. Author Malcom Gladwell had claimed that it took 10,000 hours (about 14 years) to learn, practice and acquire a world class skill.
"So how do you move know-how? How do you get more know-how to Sri Lanka? We know it is difficult to put know-how to brains," Hausmann told a seminar organized by Colombo-based Advocata Institute and Echelon Magazine.
"It is much easier to move brains. It is a fundamental intuition."
In the US, every foreign-born Science, Technology, Engineering and Mathematics (STEM) graduate was found to help create 2.61 additional jobs, Hausmann said.
Technology was not limited to tools and codes, routines and procedures. These can all be easily transferred. What is difficult to transfer is tacit knowledge, knowledge embedded in the human mind through experience, he says.
Allowing brains to move brings skills in faster.
Producing complex goods requires different types of know-how which a single person simply did not have. An advanced society possessed a lot of know-how, but it was in the minds of many different people.
It required a team of people like making a word out of different letters when playing scrabble to produce complex goods. While some letters may be available, other were not.
"So if you are missing a letter, the other letters would become less valuable. So you would give a lot to have this other letter," Hausmann said.
Brains moved through migration, foreign direct investment and also diaspora networks, when people who had originally migrated out, came back.
Moving brains allowed a geographical region to move into entirely new products and boost productivity in established sectors, he said.
In Sri Lanka, Camso-Loadstar, now a global solid rubber tyre company was founded by a foreign national teaming up with a local partner.
US car companies Ford, GM and Chrysler were founded by people who worked for Oldsmobile. Oldsmobile was founded by a German who worked for Daimler-Benz.
Apparel manufacture in Bangladesh was pioneered by a Desh Garments in 1977, in a joint venture with Daewoo, who took 126 workers of various disciplines to train in their country. By 1988 ex-Desh workers had set up 56 companies.
Silicon Valley, in California was founded by an ex- AT &T Bell Labs worker in New Jersey who founded Shockley Semiconductor. Ex -workers of that firm they founded many others including Intel.
About 57 percent of Silicon Valley workers are now foreign born, 25 percent were out of state.
"Only 18 percent were born in California, even though it has a population of 40 million, twice as big as Sri Lanka," Hausmann said. "Silicon Valley would not exist if was based on locally grown talent."
Hausmann himself is originally from Venezuela.
In India an entire information technology sector was started by diaspora who had moved abroad.
Sri Lanka's IT sector is small and not growing as fast as countries that had easier access to foreign talent. Wages were found to be lower in Sri Lanka than in India, he says.
However IT wages are higher than in other sectors in the island. IT graduates could find work easily suggesting that skills were in short supply. Mp> Sri Lanka was a net exporter STEM workers, Hausmann says. About 23 percent of Engineering and Science graduates and 20 percent of computer science graduates leave the country to work abroad each year he says.
The low inflow of foreign workers does not compensate for outflow, he says.
Panama, had seen a spectacular boom in services, which was very skill intensive.
The country had built special economic zones with tax holidays. The Panama wanted to attract international headquarters.
But investors who wanted come wanted exemption from immigration laws.
"So Panama has a horrible immigration policy as bad as that of Sri Lanka," Hausmann says.
"They had closed the door on immigration but the opened two windows. People came in through the windows.
"So foreigners came in and there was a boom in construction and everything else and wages of Panamanians skyrocketed," he says.
Only 4.7 percent of the population is foreign-born in Panama.
"It is one foreigner in 27. Not like one is 7 in the US, or one it two in Singapore," he says. "And everybody complaints about that.
"It doesn't matter what level of migration is. Australians are at 27 percent migration and they think it is too high. Panamanians are at 4.7 percent migration and they think it is too high.
"Sri Lankans are at 0.1 percent migration and they think it is too high."
Low Hanging Fruit
Sri Lanka could grow fast with immigration law reform, he says.
Though board of investment companies were allowed to bring some foreign workers, their spouses are not allowed to work.
Typically professionally qualified people married, qualified people, who would be useful to a country.
A BOI foreign worker also cannot choose a different job after they come.
There was no path to permanent residency or citizenship. It was much more difficult for a non-BOI firm to access foreign talent.
Hausmann's team had done a comparative study reviewing immigration law s of Hong Kong, Singapore, Indonesia, Thailand and Vietnam. They had also looked at Saudi Arabia. More economically advanced have sophisticated immigration system that have moved from being systems that strictly authorized the entry of foreign workers, talent, and capital, to systems that promote their entry, he says.
They had a wide variety of visas for skilled, semi-skilled, trainees, managers and entrepreneurs. There were talent visas.
He says immigration reform should be part of an overall effort to draw talent, foreign direct investment and export diversification.
If here is a path to residency more skilled workers will come.
"Sri Lanka may have the talent and the people for the current economy, but does it have the talent and the people for the economy it wants to have?," Hausmann says.
"To get there, Sri Lanka will need to open up for more inflow of foreign know-how the way all prosperous countries have done already. This means more FDI, more return diaspora and higher inflow of foreign workers."
Hausmann says he is not a 'one policy econonimist; but immigration reform is a 'low hanging fruit' that can be implemented easily unlike infrastructure which needs lots of money. Though there are also many other areas that needs improvement.
Sri Lanka is 'weird' he say because there is no path to citizenship unlike countries that have become prosperous fast.
Hausmann say Sri Lankans who live in the country may not realize how 'weird' the immigration law was.
Analysts say Sri Lanka's nationalist immigration laws using European tools such as citizenship, visas and passports and a law-making assembly were enacted after independence from British rule.
Political philosophers generally speak of nationalism, as chauvinism, xenophobia, or ant-minority hate that is given legal effect usually under an ethno-religious fascist or national socialist ideology as in Europe in the run to World War II.
Nationalist hate is seeing a rise in Europe and also in Trump's America now.
Analysts say inward immigration had been easy under Sri Lanka's ancient kings, when the country was a prosperous trading hub, and also under later European rule for skills ranging from weaving to managing and growing tea.
They say Sri Lanka's nationalist immigration law is more 'weird' that people realize.
Foreign spouses of Sri Lanka's own citizens only get a one year resident visa.
To renew the visa the Sri Lankan spouse has to give a letter every year. Sri Lanka's banking laws are also nationalist. The ATM card of a bank account of foreign spouses - which only works within the country - are locked at the end of the visa period, forcing them to maintain a foreign bank accounts for emergencies.
Analysts say Japan's Meiji Restoration in the mid-1800s was an early case of 'moving brains'. The architects of the Meiji restoration imported thousands of 'foreign experts' to the government and private sector transplanting European technology and also military practices en-mass into what was a closed country earlier.
However, influenced by Bismarks Germany where nationalism was rising, Japan later sent most of them back, but forunately after they had done their job. By the turn of 1900, Japan was an industrial power. Nationalists ultimately took control of the polity in Japan, militarising the country and alinging it towards Nazi Germany by World War II, they say.
Being Like Singapore
Meanwhile Hausmann says in Singapore now 45 percent of the population is foreign born.
"People say we want to be like Singapore," Hauseman said. "But they would not have gotten where they were with only home grown 'letters'. They had to attract 'letters'.
The foreign born population of Hong Kong was 40 percent, he said.
However analysts say Sri Lanka has other barriers to becoming a Singapore, Hong Kong or Panama, which can become a stable service sector 'hub' with high real wages.
One of the top barriers, they say is the lack of sound money, which has been denied by a money printing central bank which operates an unstable soft-peg, generating BOP crisis and currency collapses every three to four years.
The soft-peg has given fuelled import protection and a Mercantilist focus on the trade and current account deficit.
Hong Kong has a currency board (fixed exchange rate or hard peg with the US dollar) which means currency collapse and BOP crises are not practically possible as money printing is outlawed.
In 2017 Hong Kong posted a trade deficit of 61.7 billion dollars and a service surplus of 27.1 billion US dollars. In the first quarter of 2018 Hong Kong had a trade deficit of 16.7 billion dollars and a service surplus of 9.7 billion US dollars.
Countries with strong financial and capital inflows (FDI or government borrowings) may have a current account deficit in the external balance of payments, while a country with capital ouflows may end up with a surplus.
Singapore has a modified currency board involving long term appreciation of the currency since the break-up of the Bretton Woods system.
Panama is dollarized, which means it has no monetary authority (not even a currency board) and simply uses dollars and BOP crises are not possible either.
Several oil rich Middle East nations like Dubai have currency-board like systems, involving piggy-backing on US policy rates.
Hausmann's own country, oil-rich Venezuela has one of worst central banks in the world, perhaps after that of Iran, another oil - rich nation.
Venezeula's central bank is now generating hyper-inflation and Iran's central bank is not far behind. (Colombo/May27/2018 - Update II)