By Dr Paola Giuliano and Dr Marco Tabellini
Recent immigration flows to Europe and the US are usually associated with heated political backlash. Yet, little is known on the long run impact of immigration on political ideology and natives’ preferences. In our paper, we seek to fill this gap, and analyze how European immigrants moving to the US between 1900 and 1930 shaped American political ideology and views on the role of government among natives today. We show that the historical presence of European immigrants is associated with a more liberal political ideology and with stronger preferences for redistribution among US born individuals today. This is driven by the transmission of immigrants’ preferences and political ideology to natives – a process reinforced by inter-group contact.
Immigration is one of the most important political and social issues around the world. The political discourse is often reflected in the rise of anti-immigrant, right-wing parties that emphasize the lack of immigrants’ assimilation, painting it as a vital threat to host societies. While a large and growing body of work has examined the short run political impact of immigration (Dustmann et al. 2019; Halla et al., 2017; Tabellini, 2020), much less is known about the effects of immigration on natives’ political ideology in the long run. And yet, the long run effects of immigration on natives’ political preferences can vastly differ from their short run counterpart. First, consistent with the “contact hypothesis” (Allport, 1954), natives can change their attitudes towards minorities after prolonged interactions, which may gradually eliminate initially negative stereotypes. Second, although the immigration literature typically views the process of immigrants’ assimilation as one sided – with immigrants converging towards the new, local culture (Abramitzky et al., 2020; Fouka, 2020; Lazear, 1999) – it is possible for immigrants’ culture to spill-over into that of natives, eventually creating a diverse and “melting pot” society.
Our recent work (Giuliano and Tabellini, 2021) explores these ideas, by studying the long run effects of the 1900-1930 migration of millions of Europeans on political ideology of US born individuals today, which we measure using nationally representative survey data from the Cooperative Congressional Election Study (CCES). This historical period, also known as the Age of Mass Migration, offers several advantages.1 First, as today, also at the time natives’ concerns about the lack of immigrants’ assimilation loomed large (Abramitzky and Boustan, 2017; Higham, 1955). Second, the composition of immigrants changed dramatically during these 30 years, thereby allowing us to leverage variation in the cultural background and in the political preferences of different European groups. Third, we can estimate the effects of immigration on American ideology over more than a century.
The 1900-1930 decades also represent an almost ideal “quasi-natural” experiment to causally identify the effects of immigration (Abramitzky and Boustan, 2017; Abramitzky et al., 2019a; Tabellini, 2020). Between 1910 and 1930, immigration from different European countries was differentially impacted by nation-wide shocks – World War I and the Immigration Acts – that were arguably unrelated to cultural, political, or economic conditions prevailing in individual US counties at the time.2 Because immigrants tend to concentrate in areas with larger ethnic enclaves, the differential effect of these shocks across European countries generated significant variation in the number as well as in the “cultural mix” of immigrants received by US counties between 1910 and 1930.
Born respondents who today live in counties with higher historical immigration are significantly more likely to vote for the Democratic Party and to support more generous welfare spending. These effects are quantitatively large, and comparable to those of key determinants of political preferences in the United States. For instance, a 5 percentage point increase in the average immigrant share has an impact that is roughly equivalent to that estimated in other work for the effects of race or that of moving from an income of 100,000 to an income of 20,000 US dollars per year (Alesina and Giuliano, 2011). We obtain similar findings for several other proxies of left-leaning political preferences and preferences for redistribution, such as party identification or support for an increase in the minimum wage.
Our results have important policy implications:
The long run effects of immigration and diversity can differ from their short run counterparts. To the best of our knowledge, our paper is the first to document that immigration is associated with a higher desire for redistribution and a more left leaning political ideology, contrary to studies showing the opposite for the short run. (Alesina et al., 1999; Dahlberg et al., 2012; Tabellini, 2020)
Assimilation is not a one-way process. While immigrants likely converge towards natives’ culture, they might also transmit their values and ideology to locals. In our context, European immigrants imported their political preferences and desire for the welfare state, transmitting them to US born individuals.
Consistent with our conjecture, we find that higher exposure to social welfare reforms in immigrants’ countries of origin is predictive of stronger preferences for redistribution and a more liberal ideology today among US born respondents.
We provide supportive evidence for our argument that immigration left its footprint on American ideology via cultural transmission from immigrants to natives by constructing an index of exposure to historical social welfare reforms in immigrants’ countries of origin. This index counts the number of years elapsed between the introduction of the different reforms and the year in which an individual emigrated. It includes reforms on education, pension, health, unemployment, insurance, and occupational injuries. Consistent with our conjecture, we find that higher exposure to social welfare reforms in immigrants’ countries of origin is predictive of stronger preferences for redistribution and a more liberal ideology today among US born respondents.
We dig deeper into the possibility that immigrants could have transmitted their ideology to natives, by exploiting differences in intergroup contact, proxied for by using inter-marriage and residential integration – We show that the effects of immigration on natives’ ideology are stronger in counties where, historically, intergroup contact –was higher, and where immigrants’ preferences could thus be more easily transmitted to natives.
We conclude by showing that European immigrants’ support for social welfare started to influence the attitudes of US-born individuals soon after the end of the Age of Mass Migration in the election of 1928, the year when Alfred Smith, a Roman Catholic with immigrant background, ran as candidate for the Democratic Party, against the Republican opponent, Herbert Hoover, who emphasized the idea of “rugged individualism” (Bazzi et al., 2020). The 1928 increase in support for the Democratic Party in places with a higher immigrant share persisted until today, suggesting that the initial political mobilization of immigrants (Andersen, 1979) was an important factor behind the positive association between historical immigration and left-leaning ideology today. In addition, and consistent with political realignment, we find that the presence of European immigrants, with their strong support for government spending and redistribution, influenced the allocation of New Deal spending across US counties.
Findings in this paper highlight the importance of distinguishing between the short and the long run effects of diversity and immigration on political preferences and ideology in receiving countries. Although immigrants might be opposed, generate backlash, and reduce natives’ preferences for redistribution upon arrival, they might eventually lead to higher social cohesion and stronger desire for generous government spending over a longer horizon of time. Moreover, our results indicate that immigrants’ assimilation is not a one-sided process and that, instead, immigrants’ preferences might spill over and be transmitted to natives, thereby contributing to a diverse and complex culture, and to the development of a “melting-pot” society.
We conclude reflecting briefly on the extent to which our findings apply to other contexts, and the recent inflow of refugees to Europe in particular. First, at the time of our study, the US was a relatively young country, and its culture may have been more “malleable” than that of many European countries that, today, are experiencing large influx of immigrants and refugees. For this reason, one might expect immigration to Europe to have a smaller effect on long-run ideology and culture today relative to what we found for the Age of Mass Migration in the US context. Second, we focused on a specific set of beliefs: political ideology and preferences for redistribution. More evidence is needed to tell whether our results apply to other cultural and socio-economic domains, since different cultural traits may be more amenable to horizontal transmission than others. Finally, the setting considered in our work entailed two groups – Anglo- Saxon descendants and European immigrants – that were relatively “similar” along many dimensions. It is thus possible that at higher levels of diversity (ethnic, religious, and racial), as those prevailing today between Europeans and incoming refugees, the transmission mechanism identified in our work might be less likely to operate.
About the Authors
Dr Paola Giuliano is a Professor of Economics at the UCLA Anderson School of Management. Her main areas of research are culture and economics and political economy. She holds a B.A. from Bocconi University (Milan) and a Ph.D. in economics from the University of California, Berkeley.
Dr Marco Tabellini is an Assistant Professor at Harvard Business School. Marco focuses on topics in political economy and economic history to study the economic, political, and social effects of migration and diversity. Marco holds a PhD in economics from the M.I.T.
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The Age of Mass Migration is typically defined as the period between 1850 and 1920. However, the largest migration flows occurred between 1900 and 1914, and the immigrant share of the US population peaked at 14% in 1920 (Abramitzky and Boustan, 2017).
Most notably, the Immigration Act of 1921 introduced country-specific quotas that were based on the population of each country living in the United States in 1910. With the National Origins Act of 1924, the “baseline year” was moved to 1890, when very few immigrants from Eastern and Southern Europe were living in the US, with the goal of restricting immigration from these regions even further (Goldin, 1994).
References
- Abramitzky, Ran, Leah Platt Boustan, and Katherine Eriksson. “Do Immigrants Assimilate More Slowly Today Than in the Past?” American Economic Review: Insights, 2020, 2 (1), 125-141.
- Abramitzky, Ran, et al. “The Effects of Immigration on the Economy: Lessons from the 1920s Border Closure”. NBER Working Paper 26536, 2019.
- Abramitzky, Ran, and Leah Platt Boustan. “Immigration in American Economic History.” Journal of Economic Literature, 2017, 55 (4): 1311-1345.
- Abramitzky, Ran, Leah Boustan, and Katherine Eriksson. “To the New World and Back Again: Return Migrants in the Age of Mass Migration.” ILR Review, 2019, 72.2, 300-322.
- Alesina, Alberto, Reza Baqir, and William Easterly. “Public Goods and Ethnic Divisions.” Quarterly Journal of Economics, 1999, 114 (4): 1243-1284.
- Alesina, Alberto and Paola Giuliano, “Preferences for Redistribution”, in “Handbook of Social Economics,” Vol. 1, Elsevier, 2011, pp. 93–131.
- Allport, Gordon W., The Nature of Prejudice, Oxford, England: Addison-Wesley, 1954.
- Andersen, Kristi, The Creation of a Democratic Majority 1928-1936, University of Chicago Press, 1979.
- Bazzi, Samuel, Martin Fiszbein, and Mesay Gebresilasse, “Frontier Culture: The Roots and Persistence of ”Rugged Individualism” in the United States,” Econometrica, 2020, 88 (6), 2329 – 2368.
- Dahlberg, Matz, Karin Edmark, and Heléne Lundqvist, “Ethnic Diversity and Preferences for Redistribution,” Journal of Political Economy, 2012, 120 (1), 41–76.
- Dustmann, Christian, Kristine Vasiljeva, and Anna Piil Damm, “Refugee Migration and Electoral Outcomes,” Review of Economic Studies, 2019, 86 (5), 2035–2091.
- Fouka, Vasiliki. “Backlash: The Unintended Effects of Language Prohibition in US Schools after World War I,” The Review of Economic Studies, 2020, 87 (1), 204-239.
- Giuliano, Paola, and Marco Tabellini. “The Seeds of Ideology: Historical Immigration and Political Preferences in the United States,” NBER Working Paper 27238, 2020.
- Goldin, Claudia, “The Political Economy of Immigration Restriction in the United States, 1890 to 1921,” in “The Regulated Economy: A Historical Approach to Political Economy,” University of Chicago Press, 1994, pp. 223–258.
- Halla, Martin, Alexander F. Wagner, and Josef Zweimüller, “Immigration and Voting for the Far Right,” Journal of the European Economic Association, 2017, 15 (6), 1341–1385.
- Higham, John. Strangers in the Land: Patterns of American Nativism, 1860-1925. Rutgers University Press, 1955.
- Knudsen, Anne Sofie Beck, “Those Who Stayed: Selection and Cultural Change during the Age of Mass Migration,” Working Paper, 2019.
- Lazear, Edward P. “Culture and Language.” Journal of Political Economy, 1999, 107, S6: S95-S126.
- Meltzer, Allan H. and Scott F Richard, “A Rational Theory of the Size of Government,” Journal of Political Economy, 1981, 89 (5), 914–927.
- Sequeira, Sandra, Nathan Nunn, and Nancy Qian, “Immigrants and the Making of America,” Review of Economic Studies, 2020, 87(1), 382–419.
- Tabellini, Marco, “Gifts of the Immigrants, Woes of the Natives: Lessons from the Age of Mass Migration,” Review of Economic Studies, 2020, 87 (1), 454–486.
Can Cryptocurrencies Challenge the Dollar’s Global Dominance?
By James A. Fok
The rapid growth of cryptocurrencies in recent years has been viewed by many as a speculative bubble. However, it also reflects growing scepticism in fiat currencies and fears that prevailing monetary policies are debasing their value. While few today can imagine cryptocurrencies challenging the global dominance of the dollar, with its backing of the full faith and credit of the US Government, private currencies issued by commercial banks, railroad companies and even religious institutions had been widespread in the US until the 1860s. It was the National Bank Acts of that decade that imposed government supervision over the banking sector and helped establish a national currency. Ultimately, anything can serve as a currency – from cowrie shells or lumps of metal to bits of data on computer servers – so long as people believe in it. Where faith in a state-issued currency is undermined, the private sector will inevitably innovate to create substitutes.
The Rise of Decentralised Money
Invented as the Global Financial Crisis was roiling markets in 2008 by a so-far-unidentified individual or group of people using the name Satoshi Nakamoto, the cryptocurrency Bitcoin began use in 2009. Bitcoin operates as a decentralised digital currency on a peer-to-peer network, with no single administrator or central bank. Transactions are verified cryptographically through ‘nodes’ on the network and recorded on a public distributed ledger called a ‘blockchain’. The anonymised nature of Bitcoin transactions and the impracticability for any individual or group to cancel or amend a transaction that has taken place renders it difficult – if not impossible – for any government to control or manipulate the currency. Further, the total number of Bitcoins that can be issued is capped at 21 million, ensuring their value cannot be diluted by expanding their supply beyond that cap.
Hidden in the jumble of code of the first 50 Bitcoins, known as the ‘genesis block’, was the text: ‘The Times 03/Jan/2009 Chancellor on the brink of second bailout for banks’. This referred to articles in The Times of London about the breakdown of the banking system amidst the Global Financial Crisis and has been interpreted as a ‘battle cry’ against the fiat money system. Astonishingly, this movement caught on and spawned a market that has since topped $2.5 trillion in size. The first known commercial transaction took place in 2010, when 10,000 Bitcoins were used to purchase two Papa John’s pizzas. Since then, the value of the cryptocurrency (as expressed by its conversion rate into US dollars) has seen meteoric rises and falls, surpassing $69,000 per Bitcoin in November 2021.
The surge in interest in Bitcoin has spawned the creation of a raft of other cryptocurrencies. As of February 2022, there were more than 12,000 cryptocurrencies in existence, and a large number of cryptocurrency exchanges have been launched to facilitate trading in them. In December 2017, both the CBOE and the CME launched trading in Bitcoin futures, further endorsing Bitcoin’s status as part of the mainstream financial system. When the cryptocurrency exchange Coinbase listed on Nasdaq in April 2021, its market value briefly topped $100 billion, making it the largest exchange in the world by market capitalisation. In June 2021, El Salvador even passed legislation to make Bitcoin legal tender.
Bitcoin’s Challenges
Nevertheless, Bitcoin is beset by challenges that make it unlikely to pose any serious challenge to the dollar.
First, the lengthy processing time required to complete a Bitcoin transaction renders it impractical as a currency for everyday payments. The Bitcoin network has a capacity of just 7 transactions per second (TPS). By comparison, Visa’s network handles around 1,700 TPS and the payments company claims to be able to handle up to 24,000 TPS.
Second, its high level of price volatility makes Bitcoin an unreliable store of value. Having surpassed $60,000 for the first time in April 2021, its price had more than halved just three months later before touching a new high and then falling again.
Third, a large amount of electricity is required to create (or ‘mine’) new Bitcoins, making it both costly and environmentally unfriendly. The Bitcoin network’s annualised electricity consumption of 130 TWh exceeds that of even some advanced countries, including the Netherlands and Norway.
Fourth, its role in facilitating illicit transactions undermines state authority and, for this reason, governments are likely to intervene to limit Bitcoin’s use.
However, it is one of Bitcoin’s greatest attractions that is likely to prove its fatal flaw in achieving universal adoption. The absolute limit on supply to 21 million Bitcoins means that the supply of the currency cannot increase to keep pace with economic expansion – a key defect of the now-defunct gold standard.
Bitcoin’s shortcomings do not necessarily rule out other cryptocurrencies from posing a serious challenge to the dollar though. This is a relatively nascent technology and there will likely be further innovations and design improvements over time. Notably, Ethereum, the second most popular cryptocurrency by market value, already features significant modifications compared with Bitcoin to improve its attractiveness as a currency. By employing a different cryptographic protocol, Ethereum is set to become far more energy efficient than Bitcoin. Through a technology called ‘sharding’, whereby the blockchain is split up into multiple parts to process transactions, and ‘Layer Two’ solutions that work via ‘side chains’ off the main Ethereum blockchain, Ethereum’s transaction capacity could eventually be increased to around 100,000 TPS. Crucially, Ethereum is also designed to allow it to be inflationary. In time, other more credible challengers are likely to emerge. This has started to make governments and central banks nervous.
Government Responses
In June 2019, a Facebook-led consortium, including some of the biggest names in payments technologies, announced plans to launch a new digital currency called Libra. Libra was designed as a ‘stablecoin’ – meaning that it was to be fully asset-backed, rather than fiat-based as Bitcoin and Ethereum are. The assets backing Libra were to be a basket of national currencies. Given Facebook’s billions of users, Libra had the potential to achieve widespread international uptake and, therefore, posed a considerable threat to national currencies and governments’ monetary sovereignty. After both US and European regulators expressed serious concerns, a number of the consortium members, including both MasterCard and Visa, backed out. Eventually, Facebook announced significantly scaled-back digital currency plans in late 2020 under the brand ‘Diem,’ before ultimately abandoning the project altogether.
Facebook’s Libra proposal catalysed central banks around the world to begin taking digital currencies far more seriously, and to launch a series of efforts of their own. By January 2021, 86 percent of central banks were actively investigating the possibility of launching central bank digital currencies (CBDCs), 60 percent were already conducting experiments or proofs-of-concept on them, and 14 percent had moved onto development and pilot arrangements.
National currencies have significant advantages over private ones. Not only do they enjoy the backing of accountable public institutions, but governments’ power to require payment of taxes in the national currency creates substantial natural demand that private currencies cannot easily replicate. The advent of CBDCs could bring about a wide range of public benefits, including lowering the cost of payments across the economy; improved ability to monitor inflation and transmit monetary policy; and greater ability to combat tax evasion, money laundering and other financial crime. Nevertheless, there are also significant challenges associated with them.
The key risks associated are: (i) they could give governments unprecedented levels of insight into individual citizens’ private transactions, which gives rise to civil liberty concerns; (ii) they could disintermediate commercial banks, undermining the market’s ability to price and create credit; and (iii) the use of CBDCs across borders could exacerbate the risk of national currencies being displaced.
The renminbi has long been viewed as an emerging rival to the dollar due to the scale and rapid growth of China’s economy and international trade. China is also among the front runners in the development of CBDCs. In a step towards promoting greater international adoption of the renminbi, in 2019 the PBOC launched the digital renminbi (e-CNY), the first digital currency to be issued by a major economy. Use of e-CNY to invoice and settle payments in Chinese international trade could substantially reduce transaction costs by disintermediating banks and other financial intermediaries, thereby encouraging adoption. This could reduce the dollar’s role in international trade settlement. However, a more profound impact of the transition to digital currencies could be a shift in the balance of power in the global financial system.
The Path Ahead
Digital currencies have the potential to radically transform the global monetary system and pose the greatest threat to the dollar’s global dominance in at least a generation. The new technology could well challenge the incumbency of key pillars of the plumbing of international finance. For example, digital currencies might operate on new messaging protocols, and messaging and settlement could be carried out as a single process. This could displace the SWIFT messaging network, undermining America’s ability to impose financial sanctions. Further, new international financial infrastructures that emerge around digital currencies could transfer significant influence over the financial system to the parties that control them. It was surprising, therefore, that in a June 2021 speech Federal Reserve Governor Randal Quarles appeared to caution against the US rushing to develop its own CBDC, due to the risk that this might pose to the dollar. Perhaps recognising the folly of burying its head in the sand, the US is now playing catch-up, with President Biden recently issuing an executive order to develop a regulatory framework for digital assets.
In the global marketplace for commerce and investment, it will ultimately be futile to try and hide from the forces of technological creative destruction. The race to define the future of money could well determine the leadership of the institutions governing a wide range of global rules and conventions over the coming decades. It also presents an interesting test of the effectiveness China’s responsive one-party governance model versus America’s ‘free market’ democracy. China’s present lead in CBDCs is no guarantee of ultimate success.
But perhaps the issue is not which major power takes the lead. Given the smooth functioning of the global monetary system is of vital importance to everyone, the real issue is how America and China can collaborate, rather than compete, in designing the future pillars of the international financial system.
About the Author
James A. Fok, author of Financial Cold War, is a veteran financial and strategic advisor to corporations and governments, who served as a senior executive at Hong Kong Exchanges and Clearing during a decade of rapid internationalization in China’s capital markets. Among other roles, he is a member of the Advisory Board of the digital custodian Hex Trust. Financial Cold War: A View of Sino-U.S. Relations from the Financial Markets is published by Wiley. For more information, visit: jamesafok.com.