Clipped from: https://www.thehindubusinessline.com/opinion/repeating-an-old-indian-mistake/article70287814.ece
The West is capping immigration just as India capped capital flows
Immigration: Challenges from within and without | Photo Credit: anyaberkut
The West, or every country to the West of Vladivostok, is now starting to protest ever more vociferously against immigration, or what economists coyly call factor movement. These are countries largely inhabited by people with white skins who are also Christians.
These people ruled large portions of the world for five centuries and amassed unimaginably massive wealth. They still produced huge amounts of weapons and still possess financial power. Their main instrument was investment abroad.
These countries have what they call a ‘way of life’ which, they say, is under threat from migrants who come from different cultures. It should be noted, en passant, that mostly they mean Muslim migrants.
So now they want to revert to how things were before AD 2000 when there weren’t so many migrants, especially Muslim migrants. In America now Hindus are also being targeted.
The ‘way of life’ argument against mitigation is a very strong and valid one. It evokes nostalgia.
It’s also the soft way of expressing an unacknowledged hard truth, namely, the tribal instinct that Arthur C Clarke talked about half a century ago. We all have it, every one of us.
But underlying all this guff about ‘way of life’ there is a hard economic truth: wage rates because migrants, whether white or coloured, are willing to work for less and produce more than the natives. We have seen this with Bihari migrants into other Indian States.
What India did
Way back in 1962 Paul Samuelson and Wolfgang Stolper had said if there were no restrictions on factor movements, i.e. labour and capital, factor prices would tend to equalise. This is known as the Stolper-Samuelson Theorem.
Vested interests have always tended to oppose this sort of equalisation, thereby giving rise to a major paradox: labour scarce countries oppose inward migration of labour and capital scarce countries oppose the inflow of foreign capital. Prejudice thus trumps economic sense. It’s a global phenomenon, varying only in degree. But its consequences are clear, even if they take time to play out.
Unlike other de-colonised countries, after 1955 India more-or-less forbade the inflow of private foreign capital unless technology was transferred. That was like denying water and food to the thirsty and hungry because tech wasn’t on offer. National pride was paramount.
The West is now making the same mistake of banning or greatly restricting labour inflows which it needs as badly now as India needed capital then. India paid the price with low growth. This is exactly what will happen to the West.
It has already happened to Japan. Growth has been around 1 per cent since the early 1990s. Xenophobia is an important contributor.
The US and EU, on the other hand, have not discouraged inward migration and even encouraged it for skilled labour. That’s why they have been doing quite well for the last 50 years.
China has hugely encouraged foreign capital but not foreign labour because it’s a labour surplus country. It provides a sharp contrast to India. Its economy is now five and a half times as big as India’s.
The point is this: capital and labour are complementary factors of production which combine in different proportions. It’s called the capital-labour ratio. You can’t have policies that make one or the other zero or nearly zero.
West’s alternatives
Russia has solved the labour problem by importing Chinese workers. There are around a million of them in Russia working in different industries and farms.
But as you go further west, the number per country starts going up till it reaches almost 35 million in the US. Amongst the many factors that explain the US being a $30-trillion economy, this labour augmentation is an important one.
But there’s a complication. Along with every skilled migrant come their dependents. These can be as many as five per family who are also entitled to the full monty of benefits. That imposes a huge draft on public services and the informal job market.
So, on the one hand, the Western companies get cheaper skilled workers, who the white workers resent. And, on the other, the dependents consume public resources without contributing anything to the tax revenues. The whites resent them as well because, as the song goes, it’s “money for nothing and chicks for free”.
After three decades of this a reaction has set in, which short-sighted Western politicians are exploiting. If Indian politicians resented western capital, the Western ones now resent non-western labour unless they have high-end skills. That’s the long and short of it.
Where do things go from here? Only down, I fear. To tweak what Edward Grey said in 1914, the shutters are coming down all over the West. This could lead to a very poor outcome: by the end of this century there won’t be any West left to speak of. It would be the exact equivalent of the non-West rejecting all Western capital.
The West thinks the threat to its way of life comes from immigrants and climate change. But it actually comes from itself.
Published on November 17, 2025
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