Ius pecuniae again, with the Guardian reporting that 'the sale of passports' (in other words citizenship-by-investment, aka CBI) brought in over US$100m to the Vanuatu government last year, with Investment Migration Insider clasiming the sales accounted for 42% of all Vanuatu government revenue in 2020. Since January 2020 over 2,000 people have purchased Vanuatu citizenship. That nation has 300,000 people.
'The pros and cons of ius pecuniae: investor citizenship in comparative perspective' (EUI Working Paper RSCAS 2012/14) by Jelena Dzankic comments
This paper looks at the economic inclusivity of citizenship regulation and draw parallels between different countries offering naturalisation to investors. The underpinning question of the paper is whether investor citizenship has a merely economic dimension in terms of attracting foreign capital, and whether and when there is also a normative argument for making naturalisation easier for investors. By answering this question, the paper highlights the tension in understanding the logic behind investor citizenship programs. That is, in deciding to naturalise investors, states can either maximize economic utility and grant citizenship to investors by waiving all other naturalisation requirements, or uphold genuine ties with the polity as the core of citizenship by retaining them.
Citizenship denotes the relationship between the individual and the state, including the rights and duties stemming from an individual’s membership in the polity. Citizenship, as such, is a relationship of reciprocity (Held 1991: 20), which has both a political and a normative dimension. The political dimension of citizenship is intimately related to participation, through which individual members of the community exercise their will. The political aspect of citizenship has implications for the nature of the relationship between the individual and the state, as it also entails the individual’s loyalty to the state and his or her identification with the polity. In cases of individuals born into a polity, this loyalty is assumed and exercised through the duties of citizenship (e.g. law abidance, taxation, military duty). Yet, citizenship is exclusionary for those aspiring to become citizens of a polity. This means that gaining membership to a polity entails fulfilling a set of conditions, which are aimed at proving an individual’s commitment to the state he or she aspires to be admitted into. These conditions stem from the normative facet of citizenship and are encapsulated in nationality laws.
Naturalisation, or the admission of individuals into the polity, is a prerogative of the state. According to Spiro (2007: 34), naturalisation, albeit used only in exceptional circumstances, has existed in Ancient Rome, whereby citizenship could ‘be conferred on an individual for great acts in the service to the community’. Nowadays, naturalisation conditions are far more regulated, and seek to ensure the establishment of genuine ties between the individual and the polity. They often entail the individual’s physical link with the state (residence), his or her knowledge of the socio-cultural norms of the polity (language and culture tests), moral standing (proof of non-conviction), and financial sustainability (proof of income).
Yet, citizenship by investment can be obtained with or without residence. The investment may grant the individual the right to reside in another state and acquire citizenship subject to residence and other criteria, or it may result in the outright conferral of citizenship. The former is a common practice, adopted by a number of countries worldwide including the United Kingdom, the United States, Canada, Belgium, Australia, and Singapore. These countries offer premier residence1 to investors, with the assumption that the investment will yield significant economic benefits to their country, while also creating strong links between the individual seeking to be naturalised and the state through mandatory residence. In many cases the residence requirement is the same as for ordinary naturalisation, but some countries may act on a case-to-case basis and reduce the residence requirement for investors (e.g., Austria, Belgium). By contrast, in some countries, the investment may confer citizenship upon an individual regardless of other naturalisation criteria. Although many countries have given the state authorities the discretion to naturalise individuals on grounds of cultural, economic, or other achievements, only two countries have developed detailed investor citizenship programs: Commonwealth of Dominica and St. Kitts and Nevis. In Europe, Austria and Montenegro also implement investor citizenship programs, but these are loosely regulated and thus more reliant on discretionary power of the state authorities. In none of these countries are prospective applicants bound by residence. Such a conferral of citizenship is based on the assumption that the investment in itself is a sufficient proof of an individual’s commitment to the new polity. Given the degree of discretion that governments have in deciding upon naturalisation on these grounds, citizenship by investment programs have raised numerous contentious questions, including those related to tax evasion, extradition, and corruption.
In the context of the competitive market pressures that exist in the era of global economic interconnectedness, citizenship has become a good with which both states and investors seek to optimise their performance. According to Ong (2005: 627), ‘nation-states seeking wealth-bearing and entrepreneurial immigrants do not hesitate to adjust immigration laws to favour elite migrant subjects, especially professionals and investors’. However, there is a manifest normative tension underpinning the decision of some states to grant citizenship to investors and the objections of others to such a practice. Hence a full understanding of the different ways of regulating and practicing of investor citizenship requires an insight into the economic club good theory of citizenship (Buchanan 1965) that provides an argument for the defence of investment-based naturalisation, as well as in the sphere boundary theory (Walzer 1983) which provides a rationale for rejecting it.
The economic club good theory of citizenship (Buchanan 1965; Frey and Eichberger 1999) offers an explanation as to why states would seek to co-opt individuals who invest money in the polity. Buchanan’s (1965: 4) theory has an economic rationale in that membership in ‘clubs’, as polities indeed behave, should be based on a cost-benefit analysis. That is, polities produce club goods for their members and should therefore select for membership those individuals whose contribution will optimize the production of club goods. According to Buchanan (1965:8), ‘[t]he bringing of additional members into the club also serves to reduce the cost that the single person will face’. This argument also explains the conditions for naturalisation, whereby an individual is often required to comply with certain pecuniary criteria so as to be allowed to become a citizen of a particular state. By contrast, those who are already members of the polity are not required to meet such criteria. The explanation of this asymmetry of the polity’s behaviour towards its members and those aspiring to that status is that only those people whose contribution can help to decrease the shared costs of membership should be naturalised. This also supports Reich’s (1991: 18) ‘idea that the citizens of a nation share responsibility for their economic wellbeing’. As the operation of markets within the polity entails transactions among individuals, companies, other states, etc., in order to maximise their economic security and performance, states seek to ensure that the naturalised individuals will pose no financial burden on their economies.
The same rationale is used to explain why polities would facilitate the naturalisation of investors. According to Frey, ‘the optimal size of a club is reached when the marginal utility received corresponds to the marginal cost induced by an additional member’ (2000:6). In fact, the contribution to the country’s economy by the investor is disproportionately higher than the contributions of many of those who are already citizens of a given state. Since the benefits of the investment (such as the boost to the economy, opening of new jobs, etc.) vastly exceed the cost of admitting the investing individual to the ‘club’, the addition of that member would optimize or at least enhance the club’s economic performance. Yet, the economic logic behind facilitated naturalisation for investors undermines the very nature of citizenship. According to Walzer (1983), in determining their citizenship, states act as ‘clubs’, and thus have the prerogative to include or exclude prospective members according to their interest. Carens (1987) challenged this observation of Walzer’s (1983) when he claimed that by doing so, states act as enterprises rather than as public communities, thus failing to acknowledge the boundary between the public and the private spheres: ‘in the private sphere freedom of association prevails and in the public sphere equal treatment does’ (Carens 1987: 269). This implies that in deciding on their membership criteria, states are bound to treat all individuals equally.
However, the conventional argument, also highlighted by Carens (1987; 1992) is that states have the moral obligation to treat as equals only those who are already their members. There is no obligation for states to treat those who want to naturalise equally as those who are already citizens. Yet, states do have an obligation to treat those who apply for citizenship as equals in the sense of not discriminating in morally arbitrary ways between them. Those who are non-members thus need to comply with the same set of criteria in order to become citizens. The departure from this logic, in contemporary citizenship legislation, is made through different criteria for naturalisation for certain categories of non-members, such as spouses of nationals, expatriates, recognized refugees, etc. The reason for facilitating naturalisation in these cases is premised on the assumption of their pre-existing ties with the aspired community of membership (spouses, children, expatriates), or humanitarian arguments and international legal obligations (refugees). These circumstances enable states to waive some of the criteria for admission, for instance, by reducing the residence requirement.
A similar logic operates in waiving all other criteria in cases of naturalising individuals on grounds of national interest, or exceptional contribution to the state. The logic of equal treatment is overridden by the asymmetry of gains for the community from an individual’s membership, as outlined by Buchanan (1965). In countries that allow facilitated naturalisation on grounds of exceptional contribution to the state, rewarding such achievements is recognition of merit rather than of money or class. Naturalising investors by waiving all other criteria, however, equalises financial contribution with cultural, sports, and educational achievements. The latter are considered reputational gains ’which are not available for purchase’, and thus investment violates the sphere boundary of money (Walzer 1983: 102). The fast-track admission of investors into a polity breaks the equality principle inherent in the citizenship legislation in that only wealthy individuals are able to offer a significant contribution to the state’s economy. Thus, naturalisation of this kind gives precedence to one social class over others, breaching the sphere boundary of ‘money’ (Walzer 1983) by ‘unlocking’ blocked exchanges that limit the dominance of wealth. It reduces citizenship to a commodity that is traded for money and not for genuine ties with the state, as is the case in ordinary naturalisation.
Moreover, the discretion in the granting of investor has caused political controversies in a number of countries. Corruption and secret deals, which have manifestly happened in cases of investor citizenship,2 violate the sphere boundary of money as ‘political power and influence cannot be bought and sold’ (Walzer 1983: 100). This fact, however, does not imply that naturalising the investor will affect political power by virtue of a single individual’s participation in the polity’s operation. Rather, the marginal influence of a single vote in a polity will be outweighed by the much stronger concern about corruption of those who have had the discretionary power to decide on the admission of such an individual.comments
