June 24, 2016

Migrants and Europeans Need EU Commitment to Infrastructure Investment 1

The notable rise in the inflow of migrants from developing countries into Europe since 2014 has apparently caught policy makers from the EU completely off guard, and ill prepared to formulate appropriate measures for member states to share the burden of the additional social and economic costs in a fair and legal manner. Growing immigration is undoubtedly one of the main reasons for Brexit. Faced with an increase of more than a million migrants and refugees crossing into Europe by sea alone in 2015, with approximately two thirds originating from Syria, Afghanistan and Iraq, potential host countries from the EU have chosen to react cautiously and slowly to the unfolding humanitarian drama. It is somewhat paradoxical that most Europeans, including public decision makers, could not foresee such large influxes of inward migration of poor people on the horizon. After all, these are clear symptoms of the Global development gap. Migration from poor to rich countries has been growing steadily over the past two decades. The novelty here however is that the escalation of violence that started with the civil war in Syria in the spring of 2011, within the context of the Arab Spring, and extended into the summer of 2014 with ISIS attacks in Iraq has exacerbated outward migration on a much wider scale, and this destabilizing effect has been felt more acutely in the EU. This is not to say that the preceding two decades have been void of migration shocks. Countless tragedies have taken place, resulting in the loss of lives of children and adults while attempting to cross the Mediterranean from North Africa. However, recent events are clearly rooted in violent and military conflicts taking place in the “Greater Middle East,” to paraphrase the much involved second Bush administration. The critical point being made here is that war not only puts human lives at risk, but it also results in the destruction of physical infrastructure within countries and therefore pushes populations out at a rapid pace because the compound effects of these two negative forces severely undermine the prospects for rebuilding, both in the short-run as well as the long-run. While it has taken several decades for many countries that participated in World War II to complete the reconstruction phase, it is quite conceivable that populations in Syria, Afghanistan, and Iraq will have a much gloomier outlook with respect to how long it will take them to first end conflicts and then to rebuild their respective countries.

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Sanjay Peters is a Research Fellow at the Center for Global Economic Governance at Columbia University and Patrick Pintus is Professor of Economics at Aix-Marseille University.

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June 24, 2016

If one tries to imagine what the mentioned developing countries with unstable governments may look like once land mines stop exploding and bombs stop dropping on them, one is left with a view of a broken landscape, of human lives, families, roads, schools and hospitals that have been completely destroyed and in need of urgent rebuilding. It is hardly possible to see any future for both migrants and refugees without a clear commitment by host countries, by the EU and the G20 in particular, to be part of the needed reconstruction plans. This effectively means that the EU should formulate a clear strategy for financing infrastructure in countries where large populations have had to flee war, poverty and various forms of political abuses. While the current migration pattern has reached crisis proportions, because of the accelerating pace and large numbers of people involved in trying to escape desperate and humanly intolerable conditions, one should not overlook the fact that large number of people, for example, from Africa, Asia and Latin America countries, are also migrating to developed countries simply to seek a brighter future. It is time for rich countries, to face some harsh realities. The rise in populism in some parts of Europe, as exemplified in the recent presidential elections that took place in Poland and Austria, has largely to do with a fear of poor foreigners provoking a collapse of the social welfare system. The lack of political and economic stability and wars in countries from where many of the recent migrants originate tend to suggest that migration and asylumseeking flows are likely to expand, and subsequently that the intentions of poor migrants and asylum seeking refugees are to reside in the EU permanently. Recent research based on historical data points to the contrary pattern. About half of the original migrating cohorts has left their countries of relocation after a decade. The immigration outmigration rate rises to about 70% after 25 years. 2 More than one third of PhDs in science and engineering in the US in 1999 were made up of residents born in China and India. When asked in a sample survey whether it was their intention to stay on, most reported yes, largely because the research laboratories they had access to at US universities were unimaginable to them in their home countries. Conditions and opportunities have since then improved substantially in both China and India, particularly for skilled professionals, due to an increase in R&D spending and improvements in infrastructure. Return migration to these Asian giants is now widespread on account of domestic returns on education abroad being higher. Another example is the entirely unfounded fear that internal migration flows from economically periphery to core countries within the EU would undoubtedly rise if full membership were to be offered to many Eastern Europe countries and also to Spain, Portugal and Greece. Most people prefer to reside in countries where they were born and where they have deep rooted cultural and family links.

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C. Dustmann and J.-S. Görlach, 2016. "The Economics of Temporary Migrations", Journal of Economic Literature, 54(1), pages 98-136, March.

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June 24, 2016

While diplomatic and political efforts have been effective and will hopefully continue to foster progress, significantly large amounts of financial resources will be required to rebuild infrastructure. The world needs to increase its investment in infrastructure by nearly 60 percent until 2030. To attain those aggregate targets, investment in infrastructure will have to increase from an accumulated total of $36 trillion over the past 18 years to $57 trillion over the next 18 years. New innovations in finance will be thus be needed to fund such laudable initiatives, which do not deplete national resources required to respond to internal shocks provoked by the current global economic crisis. One possible strategy worthy of consideration could be to earmark corporate tax revenues on repatriated profits earned by foreign multinational in developing countries to finance infrastructure development in the host country. This amount could be sizeable: A study of the Securities and Exchange Commission (SEC) filings from the 500 largest American corporations, for example, estimated that these companies hold at least $2.1 trillion in accumulated profits offshore, which could generate $620 billion in U.S. taxes if they repatriated the funds. 3 Tax revenues from repatriated profits could be earmarked for specific infrastructure investments while companies repatriating profits could be minority investors in such long-term infrastructure projects. If even half of the $2.1 trillion were repatriated, the resulting $310 billion could go a long way in rebuilding the crumbling U.S. infrastructure as well as investing in infrastructure in developing countries. Sources for infrastructure funding within the eurozone and in developing countries could be generated in the same way. Developing country governments could also utilize a somewhat similar approach to incentivize up-front tax payments on estimated corporate profits. Thus far, most multinational corporations have been making use of public infrastructure at zero cost. Creating partnerships between corporate investors and host governments may provide urgently needed funds to finance infrastructure development. Due to the recent media attention generated by public scandals such as the Swiss Leaks, Luxembourg Leaks, and more recently, the Panama Papers, and the ensuing mandate by the G20 to the OECD to reform international tax standards, MNEs are under heavy scrutiny to provide full disclosure on earnings, transfer pricing, profits, adhere to regulations and comply with local and international laws. The positive publicity derived from corporate social responsibility by investing in infrastructure in poor countries could therefore substantially compensate MNEs for the diversion of tax payments to an infrastructure fund. In addition, this option would allow private corporations to gain a minority stake in a longterm investment linked to infrastructure, which potentially can serve them as an important savings vehicle. To avert risk of corrupt host country governments usurping the funds specifically directed towards infrastructure, regional development banks could guide such funds via an infrastructure investment platform or a special purpose vehicle. RDBs could play a more active role to monitor, enhance transparency, improve governance, serve as guarantor in the 3

Citizens for Tax Justice and U.S. PIRG Education Fund, “Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies,” available at http://www.uspirg.org/sites/pirg/files/reports/USP%20ShellGames%20Oct15%201.3.pdf.

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event of default on a loan and to fulfill an advisory function in such areas as project preparation in private, public partnerships in infrastructure. The European Investment Bank (EIB) and the World Bank’s Global Infrastructure Facility could serve as examples, in addition to the newly created Asian Infrastructure Investment Bank, led by China. Even though we do not know whether the current migration waves will take on a different composition, be temporary in scope or voluntary or forced, there is no denying the formidable challenges they pose. This means that the well-being implications of commitment to rebuild infrastructure in countries of originating large migration flows are extremely large. In contrast, the EU response cast solely in terms of immigration quotas is disappointingly myopic. Surely there are benefits for both migrants, refugees, the EU and G20 countries to undertake large scale investment in infrastructure, such as in electrification, transportation networks, education and health facilities, so as to restore what are key pillars in any society. It is our view that such an issue should be addressed and seriously discussed in policy circles, and especially at the highest levels of the european political decision process.

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