The global economy works as a relatively well-oiled machine because of the free flow of five resources across nation-states: goods, services, investment, capital and skilled labour.

But the truth is that these flows are not entirely free, and are actually rather heavily regulated. These regulations exist because governments use trade as a way to manage their domestic economies.

When a high-tech German machine is exported to India, Germany benefits because of the jobs that are supported and the income taxes that are paid to it by its workers. The Indian company importing the machine purportedly gains because of improved efficiencies in its manufacturing process, potentially making its own goods more competitive globally. And the Indian government gets to collect valuable customs duties from the trade.

But with human capital, the asymmetry in the exchange is pronounced, and yet often escapes notice.

Unfair equation

The World Trade Organisation, however, has done a poor job of regulating skilled labour flows across boundaries. On its website, the word “labour” does not even appear as an item under the topic of trade. The export and import of skilled individual labour are, therefore, completely free and unregulated — and all trade is at a huge loss to countries that export human capital.

Consider a newly minted engineering graduate from India who has received an offer of admission to study in the US. Higher education is big business in the US, the UK, Canada, Australia and New Zealand. According to the Institute of International Education, foreign students in the US contribute nearly $21 billion a year to the national economy.

During the last 14 years, India has been the top place of origin of international students in the US each year except in 2009-10 when China took that spot. In 2013-14, there were 1,02,673 students from India studying in the US, with 60 per cent studying at the graduate level. Without Indian students who pay fees that are three times the fees that US locals pay, the entire US higher education system would collapse.

Burdened by student loans that are easier paid off by earning in foreign currency and attracted by the living standards abroad, the majority of these students never return to India to become productive citizens here.

Instead, these highly skilled resources begin paying taxes to the US government as soon as they land their first job. This is after the relatively poor Indian government spends heavily on educating these students for nearly 21 years. The cost of attending a prestigious engineering college in most Indian States for merit students is heavily subsidised.

What did the Indian government get for investing in this student? Nothing. How much did the US spend to train this highly skilled resource who is a productive member of the work force from Day 1? Again, nothing. Something is not right here.

Compensating system

It is little wonder then that advanced countries fight over each other for the world’s best and brightest by heavily promoting new, relaxed immigration policies. President Obama recently announced rules to retain foreign students who earn US Masters and PhD degrees in the science, technology, engineering and math (STEM) fields.

In January, Canada refined and relaxed its rules to launch a new electronic system called Express Entry to manage applications for permanent residence under “certain economic immigration programs” — code for importing readily available skilled human labour. Last July, the New York Times published a story that said it all: “Needing Skilled Workers, a Booming Germany Woos Immigrants”.

There is a need to explore systemic solutions. One solution could be that an advanced nation such as the US could share the diaspora person’s income taxes with India on a graduating scale for a certain period: 50 per cent of taxes during year 1, 45 per cent during year 2, and so on for a 10-year period.

No one is advocating that countries begin to implement Soviet style emigration visas where the state heavily regulated the outflow of people to force them to stay back and work. But some kind of reasonable economic mechanism, overseen by the WTO, where poorer countries are officially compensated for the human capital they export is certainly fair. This should be a topic of discussion at the 2015 G-20 Antalya summit in Turkey later this year.

The writer is MD, Rao Advisors LLC

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