How to Make Immigration Great Again

(Bloomberg Opinion) -- When the community is dysfunctional, alienated individuals need some other way to channel their need to belong. Populist nationalism offers one such appealing vision of a larger imagined community -- whether it is white majoritarianism in Europe and the U.S., the Islamic Turkish nationalism of Turkey’s Justice and Development Party, or the Hindu nationalism of India’s Rashtriya Swayamsevak Sangh.

Populist nationalists identify minorities and immigrants -- the supposed favorites of the cosmopolitan elite establishment -- as usurpers, and blame foreign countries for keeping the nation down. Left unchecked, populist nationalism will undermine the liberal democratic market system that has brought developed countries the prosperity they enjoy. It risks closing global markets down just when these countries are aging and need both international demand for their products and young skilled immigrants to fill out their declining workforces. It is dangerous because it offers blame and no real solutions, and it moves the world closer to conflict rather than cooperation on global problems.

The world can ill afford such shortsighted solutions. At the same time, the populist nationalists do raise important questions. There are costs associated with rising diversity. These include the burden of absorbing poor immigrants initially, which falls disproportionately on poorer domestic communities, and the lower mutual empathy between communities once the nation becomes more diverse, which leads to less support for a national safety net. Ethnically homogenous countries also fear a loss of their cultural heritage.

Populist nationalists recognize that citizens benefit from national borders. Borders protect the rents citizens get from the country’s wealth, institutions and power. In effect, nations are the last of the guilds. By restricting decision-making largely to those living in the demarcated land, borders give citizens a sense of self-determination and political control over their lives, and an ability to protect their cultural traditions.

By only allowing people in who share something in common, such as values or ethnicity, borders allow for collective national efforts and engender the mutual empathy that allows the country to create support structures such as public schools, safety nets and disaster relief. While borders get in the way of productive efficiency, they may be necessary for the structures that help citizens manage modern life.

Difficult economic conditions make the prospect of managed immigration particularly fraught. Surveys of values across developed countries suggest that people tend to have greater trust and affinity for strangers, as well as more concern for the wider world beyond their immediate families, when they are economically secure. As their economic security and social status become more fragile, the moderately educated become less able and willing to accommodate change.

Yet, we also have to recognize that immigration may be necessary in ageing countries, and the associated costs lower if they are already ethnically diverse. What might a country which wants to accommodate both populist nationalists and immigration look like?

First, in such a diverse nation, ethnicity and cultural continuity should be expressed at the community level. If more powers are delegated from the state to the local community, it can shape its own future better and will have more control. Some communities will have a specific ethnic concentration, and community culture will gravitate toward that ethnic group’s culture. A strong local community could satisfy people’s need to live in a cohesive social structure and preserve, celebrate and pass on their heritage.

An interesting historical study by University of Chicago finance professor Luigi Zingales and others highlights the long-term benefits of decentralizing power back to the community. They find that Italian cities that achieved self-government in the Middle Ages have higher levels of social capital today -- as measured by more nonprofit organizations per capita, the presence of an organ bank (indicating a willingness to donate) and fewer children caught cheating on national exams. They conclude that self-governance instilled a culture that allowed citizens to be confident in their ability to do what was needed and to reach goals. Localism, that is, decentralizing powers to communities, may thus reduce apathy and force their members to assume responsibility for their destinies rather than blaming a distant elitist administration. It also allows each community to respond to its specific challenges.

Decentralization doesn’t mean communities are on their own. The state would monitor community governance lightly, investigating and prosecuting grand corruption, and ensuring civil rights are protected. Conversely, communities, aided by new communications technologies, will come together through the democratic process to influence the state and its policies. Finally, the state will provide some central support to communities, not just during periods of widespread economic distress when community resources are overwhelmed, but also to prevent any community from falling too far behind.

This does raise the specter of a country dotted with segregated communities, each with its own race, national origin and cultural traditions, and totally barred to outsiders. We must prevent this, not by forcing people to mix, but by emphasizing -- if necessary, through laws -- that in a nation, all communities are open to flows of people, goods, services, capital and ideas. While nations have the right to control the inward flow of people, communities should not have that right, else that risks perpetuating inequality and segregation within the country.

Some communities will be thoroughly mixed, especially in cosmopolitan cities, because of the myriad advantages of mixing. At the same time, many neighborhoods, even within cities, will be more representative of a certain religion or national origin, simply based on the choices of who moves in and out, without any overt discrimination. The economic costs of being too narrow and parochial, especially given the possibility of benefiting from the flows of trade and people across its borders, will limit how unproductive or oppressive the community will get.

The communities where the majority group is concentrated will be ones where the populist nationalists can emphasize the ethnic aspects of nationalism that they care about. None of this implies exclusion -- having monocultures that satisfy the tastes of those who want monocultures is as important as having multi-cultures.

Unlike ethnically homogenous countries such as Japan that still have a choice of whether to become more diverse or not, civilized democratic countries with sizable immigrant and minority populations really do not. For nations where the majority, because of differential birth rates, is slated to become a minority, populist nationalism is a tempting but mistaken diversion. The real goal should be to decentralize powers to the community, even while encouraging flows of trade and people between communities so that through contact, they eventually appreciate and welcome their differences. Inclusive localism should be the new creed.

This is the second of three essays adapted from “The Third Pillar: How Markets and the State Leave the Community Behind.” Read the first one here.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Raghuram Rajan is professor of finance at the University of Chicago Booth School of Business. He was previously governor of the Reserve Bank of India.

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