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Attracting global citizens

Photo: www.shutterstock.com

Photo: www.shutterstock.com

A new class of global citizens has emerged. They have several homes, do business and invest internationally, and for them multiple citizenship is the norm. Countries all over the world now compete for these global citizens.

Meanwhile the political attitude to multiple citizenship has changed. It is now valued by states for its potential capacity for international influence. Beyond migration, this trend is driven by geopolitical, economic and technological factors.

Residence and citizenship have become economic goods with which both states and investors improve their competitiveness. A clear evidence for this is the high demand for citizenship-by-investment and residence programmes, or what is commonly referred to as investment migration programmes. Interested individuals are prepared to make significant investments in return for residence or citizenship status.

As far back as in ancient Athens and later in ancient Rome, it was possible to give citizenship to deserving people. In Rome people were made Roman citizens “for great acts in the service to the community”. The Roman Empire then conducted what was probably the first actual citizenship-by-investment programme.

A famous account of this can be found in the Bible, where during the arrest of St Paul the Roman commander referred to his acquisition of Roman citizenship by investment: “The commander came and said to him, ‘Tell me, are you a Roman?’ And he said, ‘Yes’. The commander answered, ‘I acquired this citizenship with a large sum of money’. And Paul said, ‘But I was actually born a citizen.’”

With the development of feudal systems in the Middle Ages, peasants and foreigners with limited property and financial resources had restricted rights. However, medieval towns took on new arrivals as citizens, if this was of benefit to the city or if enough money flowed into its treasury. Citizenship in England was conferred on rich merchants from Europe, to entice them there or to integrate them, as an important part of the English economic development and later on for the global expansion of the British Empire.

Naturalisation was in fact an important instrument for Great Britain in its competition with other states, in its progress towards dominance and its rise as a global trading power. Since the naturalisation costs were high, only a wealthy minority could afford this. The British State and the foreign merchants formed a community of interest, through the mutual promotion of the individual as well as the common good. From the perspective of the British State immigration and naturalisation of foreign economic elites served the immediate promotion of innovation, economic progress and expansion.

French citizenship was also granted to any foreign supporters of the French Revolution.

With normal foreign direct investment, decisions are based on competitive rates of return. With investment migration programmes, applicants are generally willing to invest at less favourable rates of return or may acquire assets for more than their intrinsic value. This is because they include the residence or passport asset in their investment decision.

In Europe, of course, EU member states, by granting citizenship also confer EU citizenship. To what extent the EU affects the national sovereignty of the EU member states in the area of citizenship law is one of the most interesting questions in the modern understanding of citizenship.

Since the launch of Malta’s new citizenship programme, the government has received some 800 applications

The discussions between the EU Commission and Malta around its citizenship programme represents a first direct incursion of EU institutions in an exclusive competence of EU member states. But the legal situation remains clear, and in fact one of the most sacred cows in the division of competences between the member states and the EU is the entitlement to control citizenship and immigration laws. So this is an interesting opportunity for European states to benefit from well-run investment migration programmes.

In about two years, since the launch of Malta’s new citizenship programme, the government has received some 800 applications. This number relative to the large number of naturalisations throughout the EU represents the inclusion of a few, in many ways ideal, new EU citizens. But those 800 applications will also result in well over €1 billion in foreign direct investment for Malta. And this is not counting any indirect effects and further investments. In an €8.5 billion economy this represents a significant inflow of capital for the country.

From a practical impact perspective, it is important to compare the number of naturalisations which occur under typical investment migration programmes with the number of other grants of residence or citizenship status. Let’s take a look at citizenship as an example. In 2010, the last year for which such figures are available, EU member states granted citizenship to over 810,000 people.

If we also consider the few other countries in Europe which currently have citizenship-by-investment provisions such as Austria, Cyprus, Croatia or Slovenia, and if we round up the total to an estimated say 600 applications per year, this is in stark contrast to the over 800,000 persons naturalised in Europe per year.

In fact, on the basis of these figures, less than 0.01 per cent of naturalisations in Europe are attributable to citizenship-by-investment. These 0.01 per cent however represent ideal EU citizens as they all meet, or rather exceed, the requirements that the EU sets internally for EU citizens to avail themselves of the freedom of movement.

Citizenship-by-investment in Europe creates extremely few additional citizens, who however are all highly qualified. The same is true in other parts of the world.

From an economic perspective, it is efficient to keep citizenship exclusive, and any admission policy should primarily be beneficial for existing citizens. Citizenship-by-investment ideally fulfils this stipulation. Only few new citizens who are net contributors to society are admitted, thus creating a net benefit for the country.

The number of citizens admitted under such programmes is entirely negligible and thus does not pose a real issue, legal or otherwise, regardless of the position one takes from a political point of view. If we adopt a market-oriented, non-political view of modern citizenship, the arguments in favour of citizenship-by-investment are numerous and powerful.

A key appeal of markets is that they don’t pass judgment on the preferences they satisfy. They don’t ask whether some ways of valuing goods are higher, or worthier, than others. While markets allocate goods based on the prices paid for those goods, queues allocate goods based on the ability and willingness to wait.

Markets and queues are of course not the only ways of allocating goods, some are allocated by merit, others by need, lottery or chance. However, leaving aside birth right citizenship, citizenship acquired by ordinary naturalisation after years of residence closely corresponds to the queue-allocation of ability and willingness to wait, whereas citizenship-by-investment can be compared to market allocation by ability and willingness to pay a price.

The largest economic benefits for a country are generated by programmes which require direct, non-refundable economic contributions – such as in Malta. While there is no guarantee that the money will be wisely spent, this model faces fewer problems related to the investments, is straightforward, and non-refundable contributions cannot be withdrawn.

Significant positive macroeconomic impact can also be achieved by incentivising private investments, notably in the real-estate sector.

All of this is part of a global trend of transformation of citizenship. This includes that countries compete for global citizens bringing capital and talent, offering residence and citizenship in return. The future of access to residence and citizenship rights, the allocation of these rights, and in particular the concept of citizenship in the 21st century, will be very different indeed.

Christian H. Kälin is group chairman, Henley & Partners.

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