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Risk and returns

1 September 2015 By John Foley

Uncontrolled migration is emotive, terrifying and complicated. It is also analogous to an age-old test of finance. In both spheres, high returns attract new entrants who threaten incumbents’ comfortable state. The possible responses are also similar: shut out competition, or find new, better ways to benefit everyone.

For the desperate people fleeing war-ravaged countries like Syria, prosperous Europe has obvious appeal. It also does for economic migrants seeking better jobs – even with the European Union’s 1.3 percent growth and 9.5 percent unemployment rate. While the two kinds of movement are different, they are hard to tell apart. Slovakia’s prime minister, Robert Fico, believes 95 percent of migrants are economic rather than political.

In the financial world, industries with perceived high returns attract competition, which creates fear. Slovakia’s defensive approach to migrants follows the same logic. Its population has barely increased since 2000, but wages have increased at a relatively comfortable 2.6 percent a year over that time.

Where industries are concerned, shutting borders is sub-optimal. Think of France’s defence of industries like yoghurt and online video from foreign buyers, or provision of illegal tax breaks to its energy sector. Allowing investment to move freely, companies to be bought and unsuccessful businesses to fail – as happens more in Britain and Germany – is better.

Voters and politicians have more complex worries than investors, like protecting cultural identity and living space. But their options are similar: shut out competition, or live with it. Hungary’s razor-wire fence along its border with Serbia, an example of the former, is unlikely to succeed. German Chancellor Angela Merkel seems to have a better approach. While calling for other member states to share the burden, she asked her own citizens on Aug. 31 to be flexible and open.

Europe is not helpless. Further economic gains can be created by advancing the single market in services and corporate finance. Smaller countries with less developed financial systems – like Slovakia – would benefit disproportionately. The migration crisis could yet create economic divisions and dangerous political extremism. But if leaders can look beyond xenophobic rabble-rousing, it could also act as a spur to better productivity – and stronger economies.


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