Immigrants Are Not Miracle Workers Who Can Fix Any Broken Economy

Lessons from Detroit, Baltimore, and other struggling cities

Many U.S. cities caught in a spiral of economic decline think they have a rescue plan: an influx of immigrants. Officials are carrying out policies aimed at attracting foreigners in hopes that their energy and drive will reverse decades of population losses and set the stage for a revival.

Such thinking is a breath of fresh air—and the polar opposite—of the restrictionist rage that has led Arizona and other states to adopt draconian tactics to chase away such people. But immigrants aren't miracle workers who can fix any broken economy. Their absence often signals that cities have taken a wrong turn. But that doesn't mean that rolling out the welcome mat will get a place back on track without fundamental reform.

The notion that immigrants can revive dying cities isn't new. Cleveland started trying to get its "fair share" of the foreign-born from traditional immigrant magnets such as Los Angeles, New York, San Francisco and Houston about a decade ago.

Its efforts petered out, but other struggling cities have recently jumped on the immigrant bandwagon.

In Baltimore, Mayor Stephanie Rawlings-Blake wants to attract 10,000 new families, including foreigners, within 10 years. To this end, she has barred authorities from asking city residents about their immigration status. The mayor, a Democrat, is also offering nutrition and exercise programs in Spanish, an overture that was anathema to her predecessor.

Dayton, Ohio, is also courting immigrants, offering legal services to people with visa-related questions and connecting them with local businesses and community groups interested in hiring or helping them.

In Michigan, a former Democratic state representative, Steve Tobocman, runs a nonprofit group, Global Detroit, that has raised $4 million to investigate ways to attract and retain immigrants. The group is experimenting with programs to connect low-income immigrant and minority entrepreneurs with lenders who offer loans without collateral. Tobocman is also seeking ways to keep foreign students in local universities from moving away.

"No one strategy will, by itself, revitalize the Detroit regional economy," he says. "However, nothing is more powerful to remaking Detroit as a center of innovation, entrepreneurship and population growth, than embracing and increasing immigrant populations."

The problem with this thinking is that it misunderstands the role that immigrants play in an economic revival. They aren't the engine for growth. They are only the fuel, albeit a high-octane one. The difference is crucial.

What is true, contrary to the bellyaching by anti- immigration restrictionists, is that they are a net boon—not a burden—for local economies. A recent Standard & Poor's study found that U.S. cities with a "significant" immigrant population improved their credit rating because even low-wage foreigners pay taxes that help defray the cost of services.

There is also evidence that immigration and growth are strongly correlated. A study by David Dyssegaard Kallick of the New York-based Fiscal Policy Institute examined the experience of the 25 largest metropolitan areas, starting in 1990. He found that wherever there was economic growth, there was immigration, and wherever there was immigration, there was economic growth.

From 1990 to 2000, New York's economic-growth rate was directly related to an increase in immigrants' share of the local labor force, Kallick found. They were crucial to the city's recovery in the 1970s when the declining population was causing its tax base to erode and the crime rate to soar—similar to what Rust Belt cities such as Detroit and Cleveland have been experiencing.

But the stories of an immigrant-led renewal—the Korean store owners in blighted New York neighborhoods and wig manufacturers who created the vibrant Koreatown in Los Angeles starting in the 1970s—overestimate the economic collapse of the cities that the newcomers are credited with restoring, says Sanda Kaufman, a professor of planning, policy and public administration at Cleveland State University. She conducted a study in 2003, at the behest of Cleveland's mayor, that examined using immigration for urban renewal. Kaufman found that much of the research in the U.S. linking immigration with growth came either from large cities with thriving economies, or ones that were never completely down and out.

Even New York in the 1970s wasn't quite as desolate a place as Detroit is today. Its population losses were not as severe. The financial industry had not retrenched as badly as Detroit's auto industry has. And its government wasn't as badly broken. New York got a federal loan to avoid bankruptcy, to be sure—but not until President Gerald Ford was convinced it was serious about dealing with its structural fiscal imbalances, not to mention crime and crumbling schools. That is when the city became a magnet for immigrants who speeded up its turnaround.

The newcomers are very good at finding and seizing openings in an economy that the native-born residents don't see or don't want. This is one reason cities should remove the barriers keeping immigrants away. But first these opportunities have to exist.

When they do, a city's population loss is reversed rather quickly as immigrants move in to capture the openings left by departing residents. A 2003 Brookings Institution study found that five of six metropolitan areas, including New York, with the biggest exodus of residents in the 1990s also had the largest influx of foreigners. By contrast, Rust Belt cities such as Detroit have experienced only outflows since the 1960s.

Why? New Yorkers were mostly leaving for greener pastures elsewhere, while Detroit's residents are mostly fleeing to escape a lack of opportunities.

Kaufman argues that a relevant experience for Detroit and Baltimore isn't in New York, but in Israel's development-town experiment in the 1950s and 1960s. The Israeli government tried to settle newcomers from North Africa, Yemen and Romania in Galilee and the southern part of the country to ease crowding in the cities and coastal regions. It offered big incentives to the new residents in hopes that they would stay and flourish. But the efforts mostly didn't pan out, and the immigrants left to join their communities elsewhere.

It turns out, immigrants aren't pioneers whose survival depends on conquering an inhospitable frontier. Yes, they can put up with far greater hardship than the native-born, but they aren't clueless ingenues who are easily seduced. They have word- of-mouth networks that alert them to places that offer them the best economic and social fit, making it difficult to plunk them anywhere and expect results.

So what should Detroit, Baltimore, and other struggling cities do to become more attractive to immigrants? Offer them a decent quality of life at an affordable price. This means improving schools, tackling crime, creating an entrepreneur- friendly climate and keeping taxes reasonable.

In short, fix the economic engine first.

This column originally appeared in Bloomberg View.