AMERICA should use her private sector to stop terrorist immigration by having insurance companies investigate student-visa applicants. Over 500,000 foreigners attend U.S. schools, yet bureaucratic inefficiencies prevent the government from weeding out potential student-terrorists. Indeed, six months after September 11, the Immigration and Naturalization Service gave two of the hijackers student visas permitting them to attend flight school.
Rather then relying on a reformed INS to protect us from terrorists, America should instead employ the magic of the marketplace to keep al Qaeda operatives off her shores. To utilize the market, schools will need to be held civilly liable for terrorist acts committed by their students. Schools would have to buy insurance to protect against this new liability, and the insurance companies would then investigate the potential student-immigrants.
Under this plan, schools would admit only foreign students they could insure, turning insurance companies into gatekeepers. The insurer would profit only by efficiently determining which would-be students posed terrorist risks. The insurance companies would undoubtedly conduct some checks on all applicants and would interview the most suspicious.
Information management holds the key to halting "legal" terrorist immigration. While America's private sector is the best in the world at analyzing information, before September 11 the FBI didn't even have a properly functioning internal e-mail system. Consequently, to effectively stop terrorist-immigrants, the U.S. government should consider relying on the more agile and innovative private sector.
While political correctness prevents many government agencies from using all available information, under this plan insurance companies would need to profile applicants intelligently to maximize their profits. They would undoubtedly charge more to insure a typical 21-year-old Yemeni male than an average 50-year-old Zimbabwean female. An insurance company that used only ethnic profiling, however, would rapidly lose market share to its competition. For example, if one insurance company refused to insure Saudis, another would profit by insuring Saudis who posed no terrorist risk.
The average price charged to insure citizens of different countries would provide a useful signal to policymakers. If, say, insurance companies started drastically raising prices charged for French citizens, the U.S. government should investigate why and perhaps subject French airline passengers to extra searches.
To keep the price of insurance within reasonable bounds, a liability limit of around $1 billion per school would have to be imposed. Still, the threat of losing a billion dollars would greatly motivate insurance companies to investigate potential student-immigrants.
This private sector approach to immigration could be expanded beyond student-visa applicants. We could privatize immigration background checks by requiring all immigrants to obtain insurance against their being a terrorist. The government would then merely have to certify that participating insurance companies had sufficient assets to cover any terrorist claims.
The United States won the Cold War largely because of capitalism's superiority over socialism. Given proper incentives, the marketplace outperforms government bureaucracies. Because of capitalism's greater efficiency, conservatives have long attempted to replace bureaucrats with markets. For example, many conservatives prefer that funding levels for individual public schools be determined by voucher-wielding parents rather than by state education departments. Conservatives have also, sometimes successfully, advocated having pollution levels determined by market-based pollution trading programs rather than environmental agencies.
This modest immigration proposal could extend the reach of the market further into the government's domain by creating incentives for the private sector to find the few terrorists hiding among the masses of worthy would-be immigrants.
James D. Miller is an assistant professor of economics at Smith College.