Europe's Choice: Become America or Japan

In the last few months, a dark tribalism has swept Europe. In January, after Italy's worst race riots since World War II, the government sent armed carabinieri to clear out camps of jobless African migrants in the country's south. In Britain, Tory leader David Cameron recently pledged to slash immigration by 75 percent if elected. In France, which is heading into key regional elections this spring, President Nicolas Sarkozy has launched a noisy debate about "French identity" that has featured talk of banning the burqa and other kinds of minority bashing. Even Switzerland, long one of Europe's most refugee-friendly states, has turned ugly, passing a referendum amending its Constitution to ban minaret construction.

In country after country, immigrants, often from Muslim countries, are being targeted. More than at any point in recent decades, fear is becoming the dominant force in European politics, warns the French commentator Dominique Moisi. The immediate cause for this fear has been the economic crisis, which has stoked worries about outsiders stealing Europe's jobs and overburdening its welfare system. But the animosity reflects a deeper shift. Immigration to Europe has exploded in recent years, so much so that the EU has overtaken the U.S. as the world's premier destination for people seeking a better life abroad. Since 1990, 26 million migrants have landed in Europe, compared with 20 million in America. There they have helped fuel economic booms, reinvigorated the continent's declining birthrate, and transformed cities from Madrid to Stockholm. The European Commission estimates that, since 2004, migration by Eastern Europeans alone to Western Europe has added a net €50 billion, or 0.8 percent, to the bloc's GDP each year.

Yet not everyone is convinced of these benefits, and the migrants are provoking deep fears that Europe's racial and religious identity is being lost. Driven by such anxieties, governments are starting to turn against the newcomers. Many states, including Britain and Italy, have put new limits on immigration, while others, such as Spain and the Czech Republic, are paying migrants to go home. As a result of such measures and the downturn, labor migration to Europe plummeted last year.

As these trends intensify, Europe will face a stark choice. It can appease the angry masses and slam the doors. Or it can defy public opinion and open the gates to more and better-skilled immigrants. Doing so will be difficult politically. But it is also a necessary part of ensuring the continent's economic recovery and long-term vitality. While inviting more foreigners in might seem an odd choice today, Europe simply can't afford not to. Should it force itself to become a more open, mobile society—modeled on traditional immigrant countries such as Canada, Australia, and the U.S.—it will thrive. If it locks its doors and halts integration, on the other hand, it will wind up like Japan: shriveling, xenophobic, and resigned to decline.

Europe's need for immigrants owes in part to demographics. The continent's population is aging so fast, it needs young newcomers to fill the gaps. This year deaths will outnumber births in 10 of the EU's 27 member states, including two of its biggest, Germany and Italy. By 2015 this phenomenon will have spread to the EU as a whole, and by 2035 the death gap will have grown to 1 million a year. According to the European Commission, the Union will have 52 million fewer people of working age by 2050, making it harder to compete with younger, more vibrant countries like China or the United States, or to support Europe's own senior citizens.

Even now, businesses across the continent face chronic shortages of skilled workers such as engineers, technicians, craftspeople, and medical staff. Despite the downturn, there are now some 4 million unfilled jobs in Europe. "Every one of our clients has positions they can't fill because of [labor] shortages," says Barbara Beck, European head of Manpower.

With time, these problems will only grow. Economists predict that global GDP will double in the next 20 years, and as many as 1 billion new skilled jobs will be created. But to capture its share of this growth and support its aging population, Europe will need far more skilled workers than it currently produces. Getting them will mean attracting more of the global talent pool. According to the European Commission, Europe will need 20 million skilled immigrants over the next 20 years just to maintain its position. Should it fail to get them, Europe will not only become smaller and poorer; it will also see its own best and brightest decamp for better opportunities in the growing economies of China, India, and Brazil.

Rather than address these issues head-on, however, the crisis-induced backlash against immigration has stalled reform on much of the continent. Before the meltdown, Germany, for example, had begun to inch toward a more open, U.S.-style immigration system where applicants would be judged on education, skills, and labor-market needs. But now, with joblessness at 7.5 percent and rising, most German politicians refuse even to discuss the subject. Europewide, plans for a coordinated asylum system have been put on hold.

Standing still, however, will only lock in bad policies that have led to severe problems with the 47 million migrants who already live in Europe and will turn them into a permanent and disaffected underclass. For decades, most European countries have kept immigrants at the margins—making it exceedingly difficult for professionals and skilled workers to enter while letting in unskilled guest workers and refugees to take low-rung factory jobs that have long since moved to Asia. With many labor markets locked against newcomers, immigration also shifted to illegal channels. As a result, in the early 2000s, Europe, according to the commission, attracted 85 percent of the world's unskilled migrants but only 5 percent of the highly skilled ones—while the United States, by contrast, snagged some 55 percent of this more desirable catch. Because immigration works largely through existing networks—immigrants bring in their families and attract peers—such past mistakes will shape things for decades, says Thomas Liebig, an immigration specialist at the OECD in Paris.

All this stands in sharp contrast to countries such as Canada, Australia, and the United States, which have adopted smarter immigration policies and enjoyed an immediate payoff. At the onset of the economic crisis, Ottawa briefly considered slashing immigration quotas. In the end, however, it decided to do the opposite and grab a bigger share of highly educated migrants with such measures as fast-track residency for skilled arrivals. As a result, though they have lost some ground recently, immigrants to Canada are still twice as likely to hold doctorates or master's degrees as native Canadians.

Europe needs to follow this lead and recognize that avoiding the problem won't solve anything. This is not to say that the concerns of politicians in London, Paris, or Berlin are unfounded. Statistics show that immigrants in countries such as Germany, for example, commit more crimes (though not because they're foreigners but because they're more likely to be poor and uneducated). But erecting a wall against them won't work; it will only shift more migration into uncontrolled conduits. Unlike Japan, Europe is no defendable, homogenous island. It is surrounded by the exploding populations of Africa and the Middle East. Its huge existing immigrant populations will continue to find ways to bring in family members even if governments try to stop them.

Europe's leaders should therefore start by publicly making the case both for continued immigration and better integration, explaining to their constituents how newcomers strengthen a country and are especially critical to the continent. Skilled workers are vital to keeping European businesses and public services running. And contrary to popular fears, they usually don't increase the risk of native unemployment. They are also the first to lose their jobs in a downturn, and hence act as a buffer for the rest of the population.

A smart policy would redouble integration efforts, making sure the downturn doesn't cause Europe's minority populations to fall further behind. Sweden has been one of the few countries worldwide recently to increase spending on such programs, such as language and vocational training, and more states should follow its lead. Second, governments should shift immigration policies to make Europe more attractive to skilled migrants by opening the door in professions where shortages exist, by cutting red tape that makes it difficult to get foreign diplomas recognized, and by persuading more of the foreign students at European universities to stay. And third, governments should seek to decrease welfare dependency, possibly by limiting access by migrants.

What Europe can't afford is more business as usual. A fearful stance toward immigrants won't just affect growth and population numbers but will continue to poison other issues. For starters, a return to racial or ethnic politics will alienate Europe's sizable nonwhite and Muslim populations. A xenophobic Europe would also struggle with other important strategic decisions. Turkish EU membership, for example, has al-ready been hung up on French and German fears that integrating Turkey would mean integrating millions of its citizens. And the stabilization of Europe's eastern fringes has been hamstrung by anxiety that deeper relations would produce an influx of Ukrainians.

The point to remember is that immigration is social engineering, says Demetrios Papademetriou, head of the Migration Policy Institute in Washington, D.C. Countries that do immigration and integration well reap great benefits. Those that don't pay the consequences. Now, with its recovery from the economic crisis at stake, Europe faces a painful decision. Even well-managed immigration is no magic bullet; it won't solve all economic and demographic ills. But without it—and without redoubled efforts to turn existing immigrants into valued citizens—Europe's much-vaunted prosperity and famous social model will slip away fast.