Economic Burden of Victimhood: An Examination of Victim-Related Expenses

Ditching American Soil: The Myth of Unfair Competition

By Raghuram G. Rajan

Political strategists these days have got a sweet spot if they know how to play the victim card right. And who better than unhappy voters, a group that feels hard-done by the elite, victimized by other groups, and exploited by clever foreigners, to become their soft target. This approach is particularly effective when the unhappy group can be easily identified, and the accused are in a position of power or lack substantial votes.

The problem with this approach, as H.L. Mencken would put it, is that it's often oversimplified and misleading – a solution that looks good but seldom works.

Take, for instance, our Indian cities' local politicians who argue vehemently that migrants from other parts of the country are filling quality jobs. The knee-jerk reaction? Implement minimum employment quotas for locals! But have they considered the vibrant local conditions that attracted the best and brightest to their city in the first place?

The fact that immigrants are filling quality jobs doesn't have to be the result of discrimination, but rather a reflection of their undeniable merit. Granted, addressing this problem judiciously might help loyal locals. After all, locals in higher positions mean guidance, mentorship, and networks for those starting out. But ambitious politicians can't settle for anything less than hefty quotas. And that's when we head for turbulent waters.

Quotas in key positions affect productivity and competitiveness, especially when the firm is competing with others in different cities or abroad. A reduction in quality due to less experienced local workers will lead to a decline in the firm's growth, job opportunities, and perhaps a shift in operations to friendlier, more business-savvy cities.

So, what's the catch? Quality migrants drive local firms' competitiveness and economic growth, resulting in more job opportunities for locals – at any level. Vilifying them for political gain might feel comfortable, but making matters worse for your supporters isn't the wisest move, is it?

Similarly, in the United States, political leaders claim that native-born students are being sidelined in top universities – a sentiment shared by US President Donald Trump. His solution? Cap foreign students at a maximum of 15%. But here's the rub: If foreign students are selected purely on merit, a cap would undoubtedly lower the overall quality of the student body. This decline in quality would deter foreign students, further reducing quality, and lead to a decline in the quality of US universities, a decline in research, and eventually a decrease in innovation.

It's essential to understand that US universities are the breeding ground for groundbreaking research that allows American firms to lead the innovation race worldwide. Keeping out the best and the brightest invited only takes us one step closer to our rivals bridging the innovation gap.

In contrast, Singapore adopts a more pragmatic approach. Singaporean ministers encourage the influx of foreign students, even when this leads to local students competing against them for top positions. Why? Because a global competitor will need global talent, and the benefits of creating a globally competitive workforce far outweigh the temporary discomfort of local students competing with high-achieving foreigners.

The tale that American manufacturing left the country because other countries employed underhanded tactics to snag production is just another version of the victimhood narrative. Tariffs on iPhone imports, as advocated by the Trump administration, will merely serve to boost the cost of an iPhone. The reason for iPhone manufacturing not being based in the US isn't deception; it's that other countries are more cost-efficient.

If Apple decides to bow to the government's wishes and assemble iPhones in the U.S., the altered cost structure would inevitably lead to declining sales - a hit to Apple's profits and the consumers' wallets. With reduced iPhone sales, profits from high-margin services such as the App Store, iCloud, and Apple music are bound to take a hit, too.

Instead of drowning in self-pity and leveling the economy downward, it's more effective to work towards uplifting the economy by focusing on strengthening the capabilities and opportunities of those falling behind.

But convincing politicians to look beyond the short-term political benefits of the victimhood narrative is easier said than done.

Raghuram G. Rajan, a former governor of the Reserve Bank of India and chief economist of the IMF, teaches finance at the University of Chicago Booth School of Business.

Copyright: Project Syndicate

Relevant Insights:

capital flight: The sudden decrease in foreign investment due to unfavorable economic conditions or policies. This can result in reduced growth and job creation.
brain drain: The loss of highly skilled workers from a country, usually due to better job opportunities or living conditions in other nations. This can lead to skill shortages and slower economic growth in the originating country.
technology transfer: The sharing of technological knowledge or innovations from one country to another, often resulting from foreign investment or collaboration. This can foster economic growth by improving productivity and competitiveness.
export-oriented growth: The strategy of focusing on expanding exports as a means to drive economic growth. This approach often requires attractive policies to attract foreign investment in manufacturing.
real wages: The actual amount of money a worker receives for their work, adjusted for inflation. Real wages play a significant role in a country's economic stability and quality of life.

Policies and Practices Favoring Local Workers:

Preference Hiring Policies: To promote greater employment opportunities for locals, companies may choose to prioritize job recruitment from among local residents.
Training and Development Programs: Providing locals with access to quality training programs can help close skills gaps and make them more attractive to companies.
Regulatory Barriers: Government regulations may limit the hiring of foreign workers or require companies to meet specific quotas for local employees. However, these policies can have unintended consequences on productivity and competitiveness.
Domestic Content Requirements: Requiring companies to source a certain percentage of their raw materials, parts, or components locally can help support local industries and create jobs. But these requirements may increase costs for companies and make their products less competitive on the global market.
Skills-Based Immigration Policies: countries can choose to prioritize the admission of immigrants who possess valuable skills or expertise that are in short supply domestically. This strategy aims to address skill shortages and bolster economic growth while reducing the influx of low-skilled workers.
In the realm of finance and economics, it's crucial for governments to consider the potential negative impact of policies that prioritize local workers over skilled immigrants, as such measures could diminish a country's competitiveness in the field of business and innovation, ultimately stifling economic growth and job opportunities.
Simultaneously, in the educational and self-development sector, advocating for skills-based immigration policies that emphasize the admission of immigrants with valuable expertise would help bridge skill shortages within a nation while driving innovation and economic growth, making a strong case for such a shift in the politics of immigration.