Andrea Tealdi, ESSEC Business School MiM student and runner up in the 2019 CSR change-maker competition, puts the question of migration flow under the microscope to study their impact on innovation and economic growth.

Migration and Cities: Big losses and bigger gains by Andrea Tealdi.

Shenzhen’s startling modernity shoots up high in its hyper-futuristic skyline and stretches deep underground in the form of gleaming metro stations. There, commuters find themselves queuing neatly on spacious platforms and buying tickets exclusively from electronic kiosks. Without the hanzi maps and hodgepodge of accents from all over China, it might be hard to tell this all apart from Tokyo’s celebrated subways.

Yet, just over three decades ago, you would be hard-pressed to find anything more than a market town where Shenzhen now sits. Since then, the city’s population exploded from 30,000 to 20 million, with about half its residents today consisting of unregistered migrant workers[1]. While the metropolis’s uncanny success was owed in large part to its business-friendly environment as China’s first Special Economic Zone (SEZ)[2], cities are ultimately built by people, not tax policies. The Shenzhen phenomenon happened on the backs of young migrants hailing from the Chinese hinterland, eager to escape poverty with the opportunities birthed by China’s entry to the global market. Few expected the astronomical boom that gripped what is today known as the Pearl River Delta—the world’s biggest and most populous megalopolis[3].

Urban triumph: why rural-urban migration works

Shenzhen’s story is scarcely unique. From Rome to Baghdad, settlements across history have looked to immigrants for labor, skills, new ideas and consequently, development. Migrants too are drawn to urban centers seeking opportunities and a better life. Movement into cities had long given humanity the proximity needed for trade and innovation in the way of progress.

By the late 20^th Century, however, this trend reached new heights in a wave of cities rising to global prominence. From Bangalore to Cape Town, urban specializations arose from a series of global trade agreements, improved technology, enlightened policy as well as the intensive agglomeration of firms[4]. Immigration to a city creates a positive feedback loop for its labor market: migrants move in for opportunities and add to its labor pool, starting and attracting businesses looking to capitalize on the growing market, thereby creating more jobs that, in turn, attract more talent. Talent begets opportunities beget talent. In our world of growing connectivity and internationally-mobile capital, this process can happen at a breakneck pace, with the dramatic growth and modernization of cities like Bangalore and Shenzhen as testament. Both have attracted steep levels of internal migration (from the rest of India and China respectively) and large volumes of investment. As a result, the former is now an ecosystem of tech start-ups growing alongside global monoliths, and the latter, a vibrant hub of both Chinese and foreign firms.

For most migrants, the proximity of firms offers a suite of benefits, such as diverse goods and services, varied career possibilities as well as more competitive salaries. For idea-based industries like tech and finance, clustering also facilitates innovation. A heightened rate of face-to-face interaction and the increased likelihood of employees shifting between firms encourage innovation and idea transfer[5]. Even for the least skilled of workers, the dense, prolific metropolis often offers more jobs and better pay than the isolated countryside[6]. Yet, it is true that skilled professionals disproportionally reap the benefits of urban booms, enjoying far higher wages, better job security and still, more mobility. The rosy experience of migration-fueled urban prosperity is awe-inspiring but it is far from being enjoyed by all.

The losers: low-skilled natives

Low-skilled natives in the West are being out-competed by immigrants—immigrants to cities far away from theirs. 7 million of Shenzhen’s fluctuating population consist of factory workers[7]. Millions more from across China have moved to other cities in the Pearl River Delta, working a plethora of manufacturing jobs from apparel sewing to appliance assembly. Half a century ago, these jobs were still located in Western industrial cities, when multinational firms could not shift factory operations to the developing world due to closed markets and enormous logistic costs. This changed quickly with the liberalization of economies across Asia and rapid improvements to technology. With costs being driven down, increasingly complex manufacturing was moved East, where labor was more abundant and far cheaper. Today, leading corporations like CISCO and Foxconn locate their biggest factories in Chinese manufacturing cities. In what economist Jeffrey Sachs coins “the labor effect”, China and India’s entries to the global market meant the introduction of hundreds of millions of citizens into an increasingly integrated global labor pool[8]. Western de-industrialization had since been inevitable. The decline of developed industrial cities like Detroit and Liverpool was fueled by rural-urban migrants to cities like Donggshan and Zhuhai, who easily out-competed the highly unionized workers of the West. With fast-improving connectivity, even back-end office processes like accounting and customer support have been offshored to fast-growing cities like Manila and Bangalore.

Low to middle-skilled Americans in these declining industries envy the generation preceding them for not needing a college degree to live a middle class life. Many think immigrants to the US are a threat to this security, with twice as many Americans believing that they steal jobs as believe they improve them, according to the Gallup Pools[9]. This arises from the fallacious belief that the supply of jobs in an economy is fixed. As the Oxford Migration Observatory points out, immigrants generate greater demand for goods and services, hence creating new jobs. They also have little to no impact on average wages, with any drops in wage from low-skilled competition being largely short-term[10]. While the woes of stagnation are understandable, Mexican immigrants are simply not culpable for the loss of jobs in manufacturing and heavy industry. As these sectors increasingly move East, governments have to invest more in education and job training, as well as channel low-skilled labor to alternative industries like hospitality or healthcare.

The dilemma: circular migrants

Things are even more complicated for migrant workers in Asia, and in particular, China. For one, many do not leave home with the intention of resettling permanently, with ‘circular migrants’ moving to the city for work and returning home periodically. There are real benefits to this. Higher-paying jobs in cities allow migrants to spread the risk of income failure from agriculture. Remitted earnings from the city also last longer in villages, where costs are far lower. In the bigger picture, wealth can be redistributed from urban areas to peripheries, which often do not receive other forms of direct investment. Some argue that this has allowed for a more even urbanization of China outside a few economic hubs. Unfortunately, systemic divides are created between city natives and newcomers. The Chinese hukou system divides households into rural and urban. It is notoriously difficult for poor and uneducated migrants to ‘upgrade’ to an urban hukou, even if they have worked in a particular city for years. As citizens receive location-specific benefits according to their hukou status, migrants are left to fend for themselves when natives are receiving pensions, better education and healthcare. Consequently, 80% of migrants leave their families in their hometowns or villages while they work in larger urban centers[11]. While this system is being reformed, it has long prevented most migrants from settling permanently in the cities where they worked. More pressing challenges are also posed by the rising costs that come alongside development, with housing in Shenzhen quickly becoming too expensive for the workers who built it[12].

One can find parallels of this in other Asian cities with systems in place differentiating migrants and locals. In certain countries, citizenship is highly exclusive but heavily determine access to services. Global “gateway” cities like Dubai and Singapore are attractive to their very large migrant populations because of abundant job opportunities and high wages, but do not promise much in the way of permanent resettlement. In the United Arab Emirates (UAE), naturalized citizenship is nearly impossible, whereas Singaporean citizenship is highly selective. This means key benefits, including education and healthcare subsidies, are not promised to migrants. While highly-paid managerial expatriates might well be able to afford bringing their families and settling long-term, many migrants remain circular and have to decide whether better economic prospects outweigh the social cost of being separated from family.

The winners: MNCs and destination cities

Despite the woes of circular migrants and low-skilled workers in the developed world, high rates of migration into cities have generated unquestionable profit and growth. In the case of Chinese industrial cities, the inflow of vast volumes of migrant factory workers and dense agglomeration of firms have led enormous economies of scale. Multinational corporations (MNCs) with the capital and logistic competence to leverage on cheaper labor and low tax environments (in the case of SEZs) have profited greatly through sub-contracting to Chinese manufacturers or entering into partnerships with Chinese stakeholders. The Chinese government has, in many sectors, restricted access to China’s growing market by forcing foreign firms and governments to form partnerships with local firms[13]. The migration of highly skilled (and highly-paid) Western expatriates into Chinese cities for these lucrative projects have led to technological transfer[14], gradually contributing to the rise of Chinese competitors even in specialized fields. Today, Chinese manufacturers compete with Western counterparts in everything from computers to cars to renewable energy.

It is in this way that migration and urbanity are virtuous—they accelerate the exchange of ideas between people and, consequently, encourage innovation. In recent decades, this has prompted the “leapfrogging” of technologies in emerging economies. When technical and managerial knowledge is transferred by skilled migrants, countries like India and China have been able to absorb and implement the newest, most relevant technologies, allowing them to skip investments in transitional and outdated technology[15]. Beyond that, these countries become better-placed to invest and innovate, enabling further development and, subsequently, diffusion of expertise. A prime example of this can be seen in Shenzhen, where mobile payment methods are ubiquitous. Having developed in the era of smartphone technology, this city has made a direct change from cash to mobile payment, largely skipping intermediary debit and credit card technology.

Migration: a catalyst for innovation and growth

Migration is valuable because it entails the movement of talent and ideas. As it seems, cities are also excellent conduits for the pooling of this talent and the exchange of these ideas. Shenzhen’s whirlwind emergence illustrates the powerful effect migration has on economic growth and development. The broader, global imbalances that have resulted from migration also tell us more has to be done to make this prosperity equitable. Still, that a metropolis can be built in four decades reminds us we live in dynamic times. By being open to the movement of people and ideas, we are staying open to rapid innovation and fast-emerging possibilities. We should not fear migration, but instead find ways and strategies to let it spark innovation and incite growth.

Sources:

• [1] (Shanshi, 2016)
• [2] (Stoltenberg, 1984)
• [3] (Mead, 2015)
• [4] (Clark, 2016)
• [5] (Glaeser, 2011)
• [6] (Hugo, 2015)
• [7] (Erickson, 2018)
• [8] (Sachs, 2011)
• [9] (Gallup Pools, 2019)
• [10] (The Migration Observatory, 2018)
• [11] (Hugo, 2015)
• [12] (Erickson, 2018)
• [13] (Cai & Elmer, 2019)
• [14] (Andreosso-O’Callaghan & Wei, 1999)
• [15] (Gallangher, 2006)

Andrea Tealdi 

Useful links:

• Link up with Andrea Tealdi via LinkedIn
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• Download this article and others in Global Voice magazine issue #10
• Read a related article: How Tightening Visa Policies can Hurt Knowledge Flows.

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