Tag Archives: Nations

Firms & Cities Have Open Borders

Cities usually don’t much limit who can move there. If you can find someone in a city to give you a job, to rent you an apartment, to sell you food and other stuff, and to be your friends, etc. and if you can pay for your move, then you can move to that city from anywhere in a much larger region. Of course individual employers, landlords, and stores are mostly free to reject you, but the city doesn’t add much in the way of additional requirements. Same for other units smaller than a nation, such as counties and states.

Large firms also don’t usually much limit who can work there. Oh each particular small work group is usually particular about who works there, but the larger firm will mostly defer to local decisions about hires. Yes, if the larger firm has made commitments to trying never to fire anyone, but to always find someone another place in the firm when they are no longer wanted in any one part, then that larger firm may put more limits on who and how many folks can be hired by any one small group. But when the larger firm has few obligations to local workers, then local groups are also mostly free to hire who they want.

The obvious analogies between cities, firms and nations make it somewhat puzzling that nations are much more eager to limit who can enter them. The analogy is strongest when those who enter nations can only do so in practice if they can find local employers, landlords, suppliers, friends, etc. willing to deal with them. And when the nation assigns itself few obligations to anyone who happens to live there.

Yes, in principle there can be externalities whereby the people who enter one part of a nation effect the enjoyment and productivity of people in other parts of a nation. But those same sort of effects should also appear within parts of a city or of a firm. So why don’t cities and firms work harder to limit local choices of who can enter them?

You might claim that cities and firms don’t need to attend to limiting entry because nations already do it for them. But most nations already have a lot of internal variation; why is none of that variation of interest to cities and firms, yet the variation between nations would supposedly be of huge interest, if nations were not handling that? And firms and cities within the nations that hold all those bad people that you think good nations are focused on excluding don’t have firm- or city-wide exclusion policies either.

Furthermore, many multinational firms today already have employees who are spread across a great many nations, nations that vary a lot in wealth, development, etc. Yet such multinationals usually don’t have much in the way of centralized limits on who can be hired by their divisions in different firms, nor on who can be transferred between such divisions. These firms may face limits imposed by nations, but they seem to mostly lament such limits, and aren’t eager to add more.

Firms and cities live in more competitive environments than do nations. So we should expect their behavior to be shaped more by competitive pressures. Thus we can conclude that competitive entities tend not to create entity-wide limits on who can enter them; they are mostly content to let smaller parts of them made those decisions.

So if nations act differently from firms and cities, that should be because either:
1) there are big important effects that are quite different at the national level, than at firm and city levels, or
2) nations are failing to adopt policies that competition would induce, if they faced more competition.

My bet is on the latter. In that case, the key question is: is there a market failure that makes the entry policies that competition pushes lamentable? If not, we should lament that competition isn’t inducing more free entry into nations. That is, we should lament that competition isn’t inducing national open borders, like we mostly have for cities and firms.

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Commitments Explain Gaps

Consider trying to predict the details of unattached people’s kisses. That is, you might have data on who such people have actually kissed when, where, and how, and data on who they say they would be willing to kiss under what circumstances. From such data you make models that predict both the kisses that actually happen and the kisses they say they are willing to join. For example, you may notice that they kiss more when they are awake, are not busy with other activities, and feeling frisky. They kiss more when they and their partner are clean and well groomed. They kiss more when they are more attractive to others, and when other willing partners are more attractive to them according to their preferences.

Now consider doing the same exercise for people who are married. When you fit this sort of data, you will find one new big factor: they almost always kiss only their spouse. And if you try to explain both these datasets in the same terms, you’d have to say spouses are in some strange way vastly more attracted to each other than they are to everyone else. This attraction is strange because it isn’t explained by other measurable features you can see, and no one else seems to feel this extra attraction.

Of course the obvious explanation here is that married people typically make a commitment to kiss only each other. Yes there is a sense in which they are attracted more to each other than to other people, but this isn’t remotely sufficient to explain their extreme tendencies to kiss only each other. It is their commitment that explains this behavior gap, i.e., this extra strong preference for each other.

Now consider trying to predict policies and public attitudes regarding limits on who can migrate where, and who can buy products and services from where. And consider trying to predict this using the foreseeable concrete consequences of such policy limits. In principle, many factors seem relevant. Different kinds of people and products might produce different externalities in different situations. Their quality might be uncertain and depend on various features. One might naturally want a process to consider potential candidates and review their suitability.

Such models might predict more limits on people and products that come from further away in spatial and cultural distance, more limits on things that have lower quality and higher risks, and more limits when there is more infrastructure to help enforce such limits. And in fact those sort of models seem to do okay at predicting the following two kinds of variation: variation on limits on people and products that move between nations, and variation on limits on people and products that move within nations.

However, if we compare limits between nations and limits within nations, these sort of models seem to me to have a big explanatory gap, analogous to the kissing attractiveness gap in models that predict the kisses of married spouses. Between nations, the default is to have substantial limits on the movement of people and products, while within nations the strong default is to allow unlimited movement of people and products.

Yes, the context of movement between nations seems to be on average different from movement within nations, and different in the directions predicted to result in bigger limits on movement. At least according to the models we would use to that explain such variation between nations, and variation within nations. But while the directions make sense, the magnitudes are strangely enormous. A similar degree of difference within a nation results in far smaller limits on the movement of people and products than does a comparable degree of difference between nations.

We are thus left with another explanatory gap: we need something else to explain why people are so reluctant to allow movement between nations, relative to movement within nations. And my best guess is that the answer here is another kind of commitment: people feel that they have committed to allowing movement within nations, even if that causes problems, and have committed to being suspicious of movement between nations, even if that makes them lose out on opportunities. That is part of what it means to have committed themselves to by joining a nation.

If this explanation is correct, it of course raises the question of whether this is a sensible commitment to make. For that, we need a better analysis of the benefits and costs of committing to joining nations, an under-explored but important topic.

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