Refugee Economics

Reuters/Yannis Behrakis

paul collier, a former director of development research at the World Bank, is professor of economics and public policy at the Blavatnik School of Government at Oxford University and a senior fellow at the Milken Institute. He has been advising the government of Jordan and the WANA Institute in Jordan on policy toward refugees.

Published May 2, 2016.


There are more refugees now than at any time since 1945. Yet to date, public policy responses, both international and national, have been abysmal. Politicians have paraded their consciences along the spectrum from headless compassion to heartless cruelty. Still missing from the public debate is discussion about what the private sector could do to cope with the looming problem.

I believe there is both a pressing need and an unprecedented opportunity for global business to demonstrate that it can deliver solutions. That missing role of business is not charity; it is business – in a word, jobs. Jobs are central both to the immediate humanitarian duty of rescue and to the long-term prospects for future stability in crisis-torn regions. Here, I consider these horizons in turn.

The Duty of Rescue

First, let's focus on the need. Half the entire population of Syria – around 10 million people – has been displaced by the current conflict. Some five million of them are displaced within Syria, lacking the resources or opportunity to get across a border. They are the ones in most desperate straits. Another five million have managed to depart Syria for Turkey, Lebanon and Jordan. Most are still there. They are in the next category of need, safe but with their lives on hold. Finally, a few hundred thousand, mainly young men, have seized on a spontaneous invitation from Chancellor Merkel to migrate to Germany.

As these young men have flocked to Sweden as well as Germany without official preparation, they have behaved much as might be expected of young men denied purposeful activity, socialized into violence and released from the restraint of family. This has created rising panic across Europe, accentuated by ISIS, which has taken the opportunity to infiltrate terrorists among them. As a result, they are receiving far more attention than the displaced left behind.

For example, Sweden has diverted half of its global aid budget to serve the needs of its new Syrian immigrants. Yet they are in the lowest category of need, and not only because they are now out of danger. Most are young professionals from middle- and upper-income families, who are better prepared to look after themselves. Moreover, since they were already safe in Turkey, Lebanon or Jordan before going to Europe, they are essentially migrants rather than refugees. Those who made it to Sweden will be generously assisted at the expense of the global displaced poor whose futures are highly problematic.

Evidently the focus of need should be switched. Relatively little can be done for the five million displaced still in Syria, beyond reopening closed borders. But much can and should be done for the millions in neighboring countries. To get from here to there, public policy needs a complete rethinking.

Ever since 1945, policy toward refugees has been framed as a "duty of care." The legal responsibility for care is shared between the first country of arrival, which must provide safe haven, and the United Nations refugee agency, the UNHCR. Placing this duty on the first country of arrival is vital, since it is the easiest place for refugees to reach. It is also the easiest place from which to return home once the violence is over.

The mandate of UNHCR is exclusively humanitarian: it provides food and shelter. This makes sense if individual refugees are transient, en route to better lives – as was briefly the case with those freed from Nazi death camps at the end of World War II. But these were the exception: most refugees remain displaced for years.

Both inviting refugees to Germany, on the one hand, and reducing their needs to food and shelter, on the other, radically mistake the condition of the current wave. Refugees are not natural migrants: their goal is not the conventional migrant ambition of uprooting life from a past pattern in order to transform it through new opportunities. On the contrary, most refugees want first and foremost to return to the lives they know, once peace makes it possible. Meanwhile, they aim to preserve as much normality as possible.

The normality they have lost is primarily related to community and personal autonomy. To preserve their community while away from home, people need to cluster, like with like, restoring the familiar. But the offer of permanent resettlement in Germany suddenly trumped this modest goal. Germany, the United States, Britain and a few other paradise destinations are irresistibly attractive for many poor people around the world. Beyond the comfortable reality, they offer an imagined existence of affluence, glamor and prestige: some arrivals find Porsches parked in the street and send back photos of themselves standing in front of them.

Since many refugees share this perception, Chancellor Merkel's invitation effectively changed their aspirations from refugees to migrants. However, that won't stop those intending to be migrants to try for the best of both worlds – to cluster together once in Germany to preserve vestiges of normality. And this is the antithesis of what the German government wants to happen: the official mantra is of social integration so that immigrants can learn to be Germans.

Then there is the issue of autonomy. To preserve autonomy, refugees need jobs. Without jobs people lose dignity and a sense of purpose. A United Nations system in which people are expected to live in camps for years, being fed by international donations while living in enforced idleness, is a travesty – one that's deeply degrading to the human spirit. But it is unreasonable to expect the neighboring haven countries to provide employment: they are usually themselves quite poor and suffer from serious underemployment. Their governments are naturally reluctant to permit a surge of immigrants to work for fear that this would depress the earnings of their poorest nationals with whom many refugees would be competing in the labor market. Hence, the legal duty of care does not extend to permission to work.

But, unsurprisingly, despite the offer of subsistence without effort in the camps and the fact that working in their host societies is illegal, most refugees prefer to take their chances in illegal employment on the margins of the cities. In Turkey this is not a major problem: it has two million Syrian refugees in a population of 90 million. But in Jordan and Lebanon the proportions are far higher and far beyond the capacity of the local economy to absorb without disruption.

Superficially, the German invitation may seem part of the solution to this problem: Germany has plenty of jobs. But Germany also has labor laws – ones that are strictly observed. In particular, the nation has very high minimum wages. German workers earn well, but they return the favor with high productivity because most have the benefit of good education followed by long apprenticeships. But this is feasible only for adult refugees who are already skilled and likely to integrate well. Germany may thus prove to be less an El Dorado than an unemployment cul-de-sac for many.

EPA/Zoltan Balogh
As young Syrian men have accumulated in Sweden as well as Germany without official preparation, they have behaved much as might be expected of young men denied purposeful activity, socialized into violence and released from the restraint of family. 
The Jobs Agenda

The primary focus of enabling refugees to get jobs should not be the thousands in Germany, but the millions in the safe havens of neighboring host countries. Camps, instead of being the repositories of human tragedy, should be job havens. In effect, they should be portable cities rather than cruel imitations of holiday camps. To see how this might work, consider the Syrians currently in Jordan.

Jordan alone has around a million Syrian refugees. Its largest camp, Za'atari, is only minutes away from a virtually empty industrial zone large enough to employ more than the entire labor force of the camp. Jordan has over 40 such industrial zones and many camps across the country, all of which could potentially provide jobs for refugees near temporary housing.

The core of the jobs strategy would be to bring new manufacturing to these zones that would employ both refugees and Jordanians. It is, of course, essential that sufficient numbers of these jobs go to Jordanians; otherwise, the host population would have good reason to be resentful and so the Jordanian government would not permit it.

Over and above their economic functionality, using zones as the core of the jobs strategy is politically attractive. The process of setting up new firms in the zones and thereby creating new jobs is easily recognizable by ordinary Jordanian citizens as a positive-sum process in which Jordanian workers gain directly and indirectly along with the refugees.

Politically, providing jobs in zones is sharply distinct from simply lifting the restriction on refugees competing for jobs anywhere in Jordan. Economists might like to claim that such generosity would be mutually beneficial, but try telling that to the locals.

Jordan, like Lebanon and Turkey, has met its international obligations to provide safe haven for unlimited numbers of refugees. But richer nations have not met their corresponding obligation to cover the costs. By 2014, the citizens of many rich nations had lost interest in the plight of Syrian refugees: they were safe in these havens and so had become someone else's problem. For example, Germany halved its contribution to the cost of food provided by UNHCR in the camps. Jordan was left to finance much of the cost of the refugee influx: the government estimates that as a result of this extra burden, the national debt has risen to 90 percent of GDP from 60.

The crisis of Syrian migration to Europe has forced all parties to reconsider policy-as-usual. And to its great credit, the Jordanian government has agreed that as long as international donor financial support is forthcoming, it will permit very large numbers of Syrian refugees to work.

Bringing jobs into zones is critical, which is why business involvement is essential. Only international business has the requisite experience; after all, managing multiple offshore stages of production has become standard operating procedure in manufacturing and some services. For example, over the past two decades German firms have created millions of jobs in the "near offshore" – first in Poland, then in Turkey. What has been done in Turkey could be done in Jordan. Indeed, many firms are already operating there.

Mandel Ngan/AFP/Getty Images
The enormous Za’atari Syrian refugee camp is now Jordan’s fifth-largest city.

These firms cannot be expected to commit financial suicide. Hence, production in Jordanian industrial zones using refugee and Jordanian labor must be made financially viable. This is likely to be easier than finding jobs for refugees in Germany because wages can be set to levels appropriate for Jordanian and Syrian levels of productivity. But other elements must mesh – and quickly – to give foreign business adequate incentives to participate.

The obvious market for goods produced in Jordan is the European Union. This would require a modest amendment to the rules of market access on the part of the EU. But there is a clear precedent for this in the European Union's emergency trade response to the earthquake in Pakistan. And make no mistake: the refugee crisis is clearly no less of an emergency.

So, given Europe's evident interest in stemming the influx of refugees, acceptance of refugee-produced goods made elsewhere is highly likely to be part of the overall agreement. Setting up production in Jordan would require firms to bear some initial additional costs, and it is reasonable that these be covered by subsidies from foreign sources. In practice, this would best be implemented by one-time grants proportional to the number of jobs generated.

Consider, too, that the policy environment for business in Jordan warrants improvement – the economy ranked 113th out of 189 countries in the latest Ease of Doing Business Index published by the World Bank. This unique opportunity for Jordon to attract a major influx of international business would be a timely moment for reform. Recognizing this, Amman has already committed to making significant changes.

One attraction of international business is that it can move fast. For example, new production jobs in Mexico have been established by American firms in only six weeks. Even before the official donor conference to endorse the new policy package, CEOs of major companies are traveling to Jordan to see what is practical; the subject was also on the agenda at World Economic Forum at Davos this year.

Direct employment by international firms in zones, it's worth noting, would be only the beginning. Jobs producing exports trigger a multiplier process through which many other jobs can be created.

As refugees get jobs, they get paychecks and hence spending power. This will create a much bigger market for consumer goods and services, providing incentives for enterprising Jordanians and refugees alike to create businesses (and more jobs) within the zones that serve them.

All that is needed for this is straightforward facilitation by the Jordanian government and UNHCR. Currently, the informal shops run by refugees that have sprung up in the camp are excluded from the official system of food distribution. Refugees are given money to purchase food, but the money is a restricted token currency that can be redeemed only in one of two official food shops. But that could be easily changed. By the same token, permission to employ refugees in the zones would make it far easier for Syrian businesses to relocate to them. Like the Syrian people, Syrian businesses need safe havens.

Reuters/Muhammad Hamed
Reuters/Muhammad Hamed

The Long View

Violent conflicts, even those as dispiriting as the civil war in Syria, eventually end – or at least peter out. But they leave wrecked economies in their wake, which are slow to mend. To date, the recovery of economies post conflict and the humanitarian duty of rescue have been treated as entirely distinct challenges, both conceptually and institutionally. Economic recovery has been seen as a development problem and, as such, the bailiwick of the international development agencies like the World Bank only after the conflict subsides.

What's needed is an integrated approach to displacement and recovery. Indeed, by limiting the challenge of recovery to the provision of post-conflict assistance, development agencies have missed distinctive opportunities generated by refugees for incubating recovery during conflict.

The refugee economy described above could, if adequately supported, constitute an economy in exile. Once peace is restored, the businesses that employ Syrian refugees could relocate to Syria with their Syrian employees. Obviously, it would be in Jordan's interest to retain these firms, but, happily, post-conflict location is not a zero-sum game. As long as operations in Jordan remained profitable, firms would presumably remain there, but might well choose to start up satellite operations in Syria to take advantage of their knowledge of the market. This would help to stabilize the post-conflict economy and speed recovery.

trends syrian refugees image 02
Reuters/Marko Djurica

From this perspective, relocation in Germany could slow rather than speed the solution to the refugee problem. Recall that the exodus has disproportionately attracted the youngest, most affluent and most skilled. These are the very people the recovering economy will most need. Yet once in Germany they will probably never return, except as visitors. Many have sold their Syrian property at massive discounts in order to finance the cost of paying the criminals who run the boats to Europe, and return would be humiliating. The exodus to Germany has thus inadvertently deepened the long-term problems of the region.

The economic agenda of providing jobs also feeds back to the humanitarian agenda of rescue. Note that current funding for humanitarian relief depends upon ad hoc appeals for donor money. It does not work well for the simple reason that donor support depends upon political support, which in turn depends upon public attention and concern. But this is intrinsically problematic since chronic refugee problems rapidly cease to be newsworthy. Without jobs at the core of a humanitarian strategy, human needs simply cannot be met.

There may also be a more subtle feedback mechanism between the economic and humanitarian agenda: the narrative of business incubation can be psychologically supportive. The refugees working in zone enterprises, whether international businesses or relocated Syrian businesses, might get a sense of purpose from rebuilding their normal lives not just individually for the present, but collectively for the future. Finally, by improving the prospects of the country now in conflict, successful incubation of jobs in refugee camps would make the future of the neighboring host economy more secure.

Metalshop trainees at work in the vocational center at Al Za’atari.
Reuters/Muhammad Hamed
Division of Labor

For decades, governments have devised solutions to international problems that have been cast in terms of government initiatives. But governments are not agile; nor are they especially adept at finding common ground with other sovereign states. Even in the best of circumstances, they aren't much good at productive activities that are otherwise left to the private sector. International refugee policy fits this mold all too well: it is essentially an inheritance from the late 1940s, a time when international business barely existed and could hardly be expected to fill the gap.

As demonstrated by the World Economic Forum and the United Nations Global Compact (a voluntary group of corporations seeking to advance common societal goals), the leaders of international business are now very much aware that they remain aloof from international public policy at their peril. The refugee crisis is the here-and-now issue, so business is inclined to engage. But it needs to have a well-identified role. Supplying blankets to the refugee camps or offering training to refugees in Germany is best left to public agencies. Multinational business is needed to do what only it can do: integrating refugees in the neighboring havens like Jordan into global production chains.

main topic: Region: MENA
related topics: Economy: Global, Workforce