Consider the following fact pattern regularly encountered by Iraqi immigration officers: a poor South Asian farmer submits an application for a temporary guest worker visa that would allow him to take a housekeeping position on an American military base. The Iraqi immigration officer is concerned about two potential difficulties with the application. First, the prospective migrant may overstay his visa. Second, the applicant may impose welfare costs on the state.

Iraq regularly requires that a bond be posted as a condition of entry for guest workers. Notably, the bond will be forfeited if the guest worker fails to meet any one of three conditions: (1) providing accurate information about historical behavior, that is, his past record of law abidance; (2) abiding by the visa terms, including a requirement that he not impose welfare costs on the Iraqi government; and (3) exiting Iraq in the prescribed time period.[1]

Now let us move to the United States and consider an American immigration officer facing a similar fact pattern. The applicant for a temporary guest worker visa begs for favorable consideration, seeking to distinguish herself from the majority of similarly situated applicants who have been non-compliant in the past. Although rarely articulated in this manner, US immigration law generally addresses this challenge by utilizing a two-fold strategy that is familiar from Anglo-American contract law.

First, in an effort to deal with the challenges of obtaining reliable information concerning the applicant’s historical behavior, US immigration officials conduct “due diligence.” A web of laws allow the government to ascertain the historical behavior of prospective guest workers by mandating, for example, in certain instances that the applicant must provide police reports. Second, in an effort to buttress the accuracy of the applicant’s assertions regarding historical behavior, it also asks the applicant to provide assurances and that the information provided is accurate. In the event that the information shared by the migrant in the due diligence process later turns out to be false, the penalty is usually visa revocation.

This is a quintessential case of information asymmetry, in which one party to the transaction knows more about a relevant fact than the other party. The applicant is highly likely to know more than the immigration officer about facts which are critical to determining whether he should receive a visa. The economics literature provides an obvious solution to problems of information asymmetry, and it is the Iraqi answer: prospective migrants should have to post bonds.

Bonding regimes are widely utilized in the Gulf states and it appears that the US military would be unable to fill many positions on their military bases without bonded guest workers.[2] Although visa overstay rates generally appear to be low in the Gulf States, bonding regimes have been controversial due to the perceived undue burden placed on the poor migrants who are seeking to migrate for these comparatively lucrative jobs.[3] Implicit in the controversy surrounding US government participation in Middle Eastern bonding regimes is another provocative question. Given the high levels of visa overstay in the US, would a similar approach to temporary guest workers be appropriate here? The question seems particularly pertinent in light of a recent New York Times report that several terrorism suspects originally entered the United States legally and subsequently overstayed their visas.[4] Although the overwhelming majority of “visa overstays” pose no threat, nearly half of the estimated 12 million undocumented aliens in the US are visa-overstays.[5]

Former guest workers, in particular, constitute a significant proportion of the undocumented population in the US. Indeed, high levels of visa overstay among temporary workers constituted a major impediment to comprehensive immigration reform, undermining proposals in 2006 and 2007 to expand guest worker programs even in the face of support from then-President Bush[6] and presidential candidates Senator McCain and then-Senator Obama.[7]

To address visa overstay rates, the government must be able to screen ex ante for aliens who will abide by their visa restrictions and deport ex post those who do not. It is, of course, one of the purposes of US immigration law to do precisely what Gulf States purport to accomplish with their bonding regimes, namely, to ensure that guests remain guests. The government’s primary challenge, though, is the aforementioned one of information asymmetry: most visa applicants promise to abide by their visa terms, but how does a government assess their sincerity?[8] The information needed to assess trustworthiness is hyper-local; it is difficult to access or evaluate ex ante predictors of reliability on a non-local level. Moreover, once aliens overstay, the enforcement challenges multiply. Out-of-status aliens are easily absorbed into dense ethnic networks, rendering apprehension virtually impossible without incurring high costs.[9]

By advocating the Iraqi approach in the US context, this article proposes a radical re-thinking of how to hold temporary migrants accountable to their visa terms. Yet while the proposal initially may seem radical, it is actually well-founded in historical experience. Bonding mechanisms, sometimes referred to by economists as “hostage taking,”[10] have a long heritage in many aspects of the common law.[11] For example, in contract law, parties have long posted performance bonds. For centuries, defendants have posted bonds as a condition of their freedom prior to trial. Yet despite the obvious applicability of bonding to the US and its inclusion in narrow sections of immigration law, it is curious that there has been very little discussion of broader bonding proposals. This essay is an effort to begin that discussion.

While such proposals for broad visa bonding in the US have rarely been discussed, when they have, they have been met with skepticism largely on distributive justice grounds. A Dickensian free-for-all preceded modern US immigration law. Fully half of white migrants in the early days of the Republic were bonded by their prospective employers as a condition of their passage to the New World with the implicit cooperation of the government, which enforced the bonds.[12] Upon arrival, migrants labored to pay off bonds in slave-like conditions.[13] Indeed, in the Gulf states, human rights advocates regularly charge that migrants have been reduced to modern day indentured servants.[14]

Yet these concerns seem strangely out of place in the modern world, particularly in the US, where bonds are enforceable in the clear light of day under the rule of law, with appropriate human rights protections. Moreover, while critics decry bonding systems, they face an undeniable irony: the average guest worker sees the value of his labor jump nearly five times simply by virtue of setting foot in the United States.[15] By lowering overstay rates, bonding systems may improve US labor market access and opportunity sets for precisely the poor guest workers whose welfare motivates justice concerns in the first place.

A punitive bond arrangement may increase the cost of a breach, while allowing sufficient sensitivity to the particulars of specific visa applicants in a manner that is not practicable with formal due diligence rules. Notably, the proposal has not only ex ante (screening), but also ex post (deterrence) effects. Because those who overstay their guest worker visas usually disappear into the underground economy, current assurances regarding leaving the country upon the visa’s expiration have minimal tangible effect. The current default rule is that a non-compliant alien is punished only if he is found. Under a bonding proposal, the default rule is that the alien will be punished, or at least receive partial punishment, unless she complies.

Thus, the goal should be to pursue fair and transparent bonding proposals, while simultaneously seeking to mitigate distributive justice concerns. One obvious solution would be to provide incentives for prospective employers to finance bonds in a transparent regulated framework. However, we have learned from the Gulf states that there will be worthy persons who cannot find employers that will post bonds on their behalves.[16]Thus, a priority should be to improve opportunities for applicants to finance bonds independently of their ability to find employers who are willing to finance their bonds. [17]

Of course, poor migrants already have financiers. Economic ethnography shows that many of the poor meet financial emergencies through loan contracts with local black-market or quasi-legal money lenders.[18] The difficulty is that these money lenders operate in the informal sector, where they charge usurious rates and enforce contracts with implicit threats of violence. Their threats are credible: indeed, Nepalese farmers sometimes pledge their daughters to moneylenders as indentured laborers under threat of violence.[19] It is entirely conceivable that Nepalese farmers might do the same thing to finance their visa-bonds. Our distributive justice commitments counsel providing enhanced access to visas through enhanced access to financing, but this financing must be obtained in a law-bound context. One way to do this is to provide incentives for law-abiding bankers to finance visa-bonds.

What would it take to incentivize bankers to finance visa bonds for the poor? The impediments to improved credit access for the “bottom of the pyramid” are considerable.[20] Poor migrants are similarly situated since they are rarely able to provide the collateral[21] that is generally a condition of borrowing. It is conventionally thought that collateral typically reduces the likelihood that a borrower will default in circumstances where he can easily divert cash flows. Given that cash diversion is a particular risk in the conditions of informality at the bottom of the pyramid, banks have generally required collateral following the maxim “no collateral: no loan.”[22] For the migrant poor, this has generally resulted in “no loan.”

How might we mitigate the aforementioned challenges for prospective guest workers? The crux of the problem is to incentivize third parties to finance visa-bonds. The key is to mitigate the inability of legitimate bankers to enforce loan-for-bond contracts in the conditions of legal uncertainty by making loan compliance a condition of visa-renewal. By re-conceptualizing guest worker visas as licenses which the United States will only renew if aliens provide evidence that they have properly serviced their loans, labor mobility can become bankable. In so doing, these visas would become a type of “new property;” similar to other government licenses that are used as collateral in secured transactions.[23] Visas will then serve as quasi collateral-like devices. Crucially, if appropriately designed, these visas will constitute the ideal type of collateral-like device, in that they will be highly valuable to the borrower, but less valuable to the lender. Thus, they will reduce incentives for both the borrower and the lender to act opportunistically.

The bottom line is that many developing countries’ legal systems have no credibility with their own formal banking sectors. Bankers in the developing countries from which guest workers typically originate do not lend to the poor, partly because of legal uncertainty — they do not trust that the legal rules surrounding loan contracts or repossession of collateral will be enforced. Given an uncertain background legal/institutional background framework, banks make “deals,” that is specific accommodations for individual borrowers, rather than relying on “rules.”[24] In contrast, the American government is considered a credible threat-maker. Banks will not have cut deals because they will be secure in the knowledge that the US government will enforce the rules and revoke a visa in the event of a visa bond loan default. This proposal may lead to interstitial change in the developing world as banks learn to trust that poor borrowers will service their loans within the right institutional framework.

Finally, this proposal has another advantage, namely the outsourcing of both the screening and enforcement function, to a highly motivated population of bankers who are better situated than the government to screen out potential defaulters, and find aliens in the event of default. As long as bond financiers are able to recoup a significant proportion of the bond if their non-compliant clients exit the US, they will be motivated to provide financial incentives for aliens to self-deport. Deportation may even be accomplished without the intervention of public enforcers, while simultaneously meeting compliance goals and by extension, national security goals.

 

 

[1]. Typically, the amounts that South Asian guest workers pay in relation to their earning power in their countries of origin is astronomical. Sri Lanka: PPP is 4,460, World Bank, Gross National Income Per Capita, Atlas Method and PPP, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf. The average bond appears to exceed the amount needed to deter non-compliance; it may include excess (and perhaps illicit) rents for labor brokers and government officials.

[2]. See, for example, Nizar Latif, “Iraqis Angry at Loss of Jobs to Asians,” The National (November. 7, 2009), http://www.thenational.ae/apps/pbcs.dll/article?AID=/20091108/FOREIGN/7…. Even though the US government typically does not post the bond, it usually retains a labor broker who posts the bond or ensures that such bond is posted by the South Asian guest worker. Given that the guest worker is typically unbanked with no access to credit; he generally borrows this money from the labor broker who arranges his visa and his job. He signs a contract under which his salary is paid to the labor broker until the load is repaid. It appears that implicit interest rate is very high.

[3]. See Human Rights Watch, Maid to Order: Ending Abuses Against Migrant Domestic Workers in Singapore (December 6, 2005), Summary. See also Human Rights Watch, "Exported and Exposed: Abuses Against Sri Lankan Domestic Workers in Saudi Arabia, Kuwait, Lebanon, and the United Arab Emirates" (November 13 2007), iv. A similar approach is used in Singapore. Rupali Ghosh, “Guest Workers or Indentured Labor? Life in Singapore’s Little India,” New American Media, May 26, 2006, http://news.newamericamedia.org/news/view_article.html?article_id=aea1b…; UAE, Iraq, India, Migration News, Vol. 14. No. 1 (January 2008), http://migration.ucdavis.edu/mn/more.php?id=3382_0_3_0.

[4]. See James C. McKinley and Julia Preston, “U.S. Can’t Trace Visitors on Expired Visas,” The NewYork Times, October 11, 2009, p. A1; see also Ted Robbins, “Nearly Half of Illegal Immigrants Overstay Visa,” All Things Considered, July 14, 2006, http://www.npr.org/templates/story/story.php?storyId=5485917.

[5]. The size of the undocumented population is taken from the work of Douglas Massey, a leading authority. See Douglas S. Massey, “Borderline Madness: America’s Counterproductive Immigration Policy,” in Carol Swain, ed., Debating Immigration (Cambridge: Cambridge University Press, 2008), p. 129. Estimates generally indicate that there are between ten and fourteen million undocumented persons. See David A. Martin, Migration Policy Institute, “Twilight Statuses: A Closer Examination of the Unauthorized Population” (2005); Jeffrey S. Passel, Pew Hispanic Center, “Unauthorized Migrants: Numbers and Characteristics,” No. 3 (2005), http://pewhispanic.org/files/reports/46.pdf.

[6] See Press Release, The White House, President Signs Homeland Security Appropriation Act for 2006, October 18, 2005, http://merln.ndu.edu/archivepdf/hls/ WH/20051018-2.pdf. As President George W. Bush stated, “You see, we got people sneaking into our country to work. They want to provide for their families. Family values do not stop at the Rio Grande River ... But because there is no legal way for them to do so, through a temporary worker program, they’re putting pressure on our border. It makes sense to have a rational plan that says, you can come and work on a temporary basis if an employer can’t find an American to do the job.”

[7]. Obama supported a guest worker program, but noted that he would like migrants to be less dependent on employers. See Shan Carter et al., On the Issues: Immigration, NY Times Election Guide, August 11, 2009, http://elections.nytimes.com/2008/president/issues/immigration.html. In a speech given by Senator John McCain in New Hampshire on April 7, 2007 he stated, “We need to have a guest worker program ... Our proposal is basically you can get a tamper-proof visa after your job has been proven that it cannot be filled by an American citizen.”

[8]. See, for example, Adam B. Cox and Eric A. Posner, “The Second-Order Structure of Immigration Law,” Stanford Law Review, Vol. 59, No. 4 (2007), p. 809 (pointing out the difficulties of information asymmetry).

[9]. See, for example, Douglas S. Massey, “The Social and Economic Origins of Immigration,” The Annals of the American Academy of Political and Social Science, Vol. 510, No. 1 (1990), pp. 60-72.

[10]. Oliver E. Williamson, “Credible Commitments: Using Hostages to Support Exchange,” The American Economic Review, Vo. 73, No. 4 (1983), p. 519. In this particular context, the pejorative term “hostage” refers to a government’s ability to hold hostage something of value to the alien until he exits the country.

[11]. For a good high-level introduction to the role of bonds in the legal scholarship, David Charny, “Nonlegal Sanctions in Commercial Relationships,” Harvard Law Review, Vol. 104, No. 2 (December 1990).

[12]. See Eric Foner, Give Me Liberty (New York: W.W. Norton, 2004), Introduction.

[13]. It bears emphasizing that although indentured laborers often worked under difficult conditions, indentured servitude was distinct, of course, from slavery. A famous text elucidating the distinction between the two institutions is Foner, Give Me Liberty.

[14]. Human Rights Watch, Swept Under the Rug: Abuses Against Domestic Workers Around the World, (July 27, 2006). The distributive justice questions have particular resonance given that guest workers are disproportionately likely to be poor and racial minorities. Critics have raised the prospect of a separate underclass. For skeptical discussions of guest worker programs in the legal scholarship, see Hiroshi Motomura, Americans in Waiting: The Lost Story of Citizenship and Immigration in the United Sates (Oxford: Oxford University Press, 2006), pp. 15–37. For more targeted critiques of guest worker programs, see Jennifer Gordon, “Transnational Labor Citizenship,” Southern California Law Review, Vol. 80 (2007), p. 503; Cristina M. Rodríguez, “Guest Workers and Integration: Toward a Theory of What Immigrants and Americans Owe One Another,” University of Chicago Legal Forum (2007), pp. 219-88.

[15]. See Michael Clemens et al., “The Place Premium: Wage Differences for Identical Workers Across the U.S. Border,” Center for Global development Working Paper 55 (December 2008), http://www.cgdev.org/content/publications/detail/16352, which found that “the net present value of lifetime access to micro-credit is the equivalent of the wage differential of a Bangladeshi man for one month of work in the US.”

[16]. See National Labor Migration Policy for Sri Lanka, International Labour Organization, http://www.ilo.org/public/english/protection/migrant/download/mpolicy_s…. This finding justifies the emphasis on institutional innovations that allow guest workers to finance their own bonds independent of finding willing employers.

[17]. This distributive justice intuition — namely enhancing access to visas — is supported by the work of a number of leading political theorists. See, for example, Joseph H. Carens, Culture, Citizenship, and Community: A Contextual Exploration of Justice as Evenhandedness (Oxford: Oxford University Press, 2000); Randall Randall Hansen and Patrick Weil, eds., Dual Nationality, Social Rights and Federal Citizenship in the U.S. and Europe: The Reinvention of Citizenship (Oxford: Berghahn Books, 2002); Warren F. Schwartz, ed., Justice in Immigration (New York: Cambridge University Press, 1995), pp. 136, 140; James Woodward, “Commentary: Liberalism and Migration,” in Brian Barry & Robert E. Goodin, eds., Free Movement: Ethical Issues in The Transnational Migration of People and of Money (University Park, PA: The Pennsylvania State University Press, 1992), pp. 59, 82.

[18]. See generally, Daryl Collins, et al., Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton: Princeton University Press, 2009). 

[19]. Ashoka, the global association of social entrepreneurs, has widely publicized the plight of Nepalese girls who are pledged to money lenders as indentured servants. See http://www.changemakers.com/en-us/node/7822.

[20]. The term “bottom of the pyramid” was first used by President Franklin D. Roosevelt in one of his famous fireside chats during the Great Depression. In the parlance of development economists, the bottom of the pyramid is the poorest and largest socioeconomic group in the world. The term has gained particular currency among those who utilize market-based mechanisms to alleviate entrenched poverty. See generally C.K. Prahalad, The Fortune at the Bottom of the Pyramid (Upper Saddle River, NJ: Pearson Education, Inc., 2006) (popularizing the term and advocating market-based solutions to poverty); Stuart Hart, Capitalism at the Crossroads (Upper Saddle River, NJ: Pearson Education, Inc.2005) (same); but see Aneel Karnani, “The Fortune at the Bottom of the Pyramid: A Mirage,” California Management Review, Vol. 49, No. 4 (2007), pp. 90, 111 (pointing out the deficiencies of the term).

[21]. I utilize the term “collateral” here in its traditional sense, namely as property that is pledged as security against a debt. Black’s Law Dictionary (8th ed., 2004), p. 278. “Security” is “collateral given or pledged to guarantee the fulfillment of an obligation; especially, the assurance that a creditor will be repaid ... any money or credit extended to a debtor.” Black’s Law Dictionary, p. 1384.

[22]. Black’s Law Dictionary, p. 1384.

[23]. Taxi-cab medallions, for example, are among the licenses that are routinely used in secured transactions. See e.g., Katrina Wyman, “Is Bentham Right?: The Case of New York City Taxicab Medallions” (on file with author)

[24]. I am indebted to Lant Pritchett for introducing me to this terminology. See Mary Hallward-Dreimer et al., Deals versus Rules: Uncertainty in Policy Implementation in Africa (National Bureau for Economic Research, February 27, 2009, unpublished manuscript).