This is based on a comment I made here.
Econblogger Robin Hanson notes that firms and cities have open borders and argues that:
So if nations act differently from firms and cities, that should be because either:
1) there are big important effects that are quite different at the national level, than at firm and city levels, or
2) nations are failing to adopt policies that competition would induce, if they faced more competition.
My bet is on the latter.
This comparison is more complicated than it at first appears, but still (it turns out) revealing, if you consider how state behaviour has changed over time.
Firms (at least as employment entities) have highly controlled borders–they have to hire you, you can be fired. They also have expansionary tendencies and can operate across jurisdictions. That is not really open borders as such. Indeed, the harder it is to fire people, the more cautious they tend to be about who they hire (i.e. “let in”). You can buy your way in to a firm as a shareholder, but then you become a risk guarantor. It is a particular form of commercial exchange to which you commit capital.
Cities are ambiguous between jurisdictional entities, which are generally not allowed to control movement of people across their borders, or as some (territorially contiguous) level of density of population, in which case it is not clear exactly what one means by “borders” and who would “control” them.
City governments do tend to control land use, often in considerable detail, and that has sometimes been used to block the residence of certain groups (pdf). Politicians such as James Michael Curley and Coleman Young have used city policies to drive away folk in order to make their own ethnicity dominant, what economists Edward Glaeser and Andrei Shleifer called the Curley Effect (pdf). The returns to controlling land use are much higher than any returns to controlling population movement as such, so there seems no reason for cities to demand the right to their own border control from states that are not likely to grant it.
States are the only one of the three (firms, cities and states) with hard territorial borders. That is, borders that are policed, that separate entire legal systems, that have no overlapping political authority. (Obviously, some arrangements, such as the European Union, pool a certain amount of sovereignty, but they are exceptional to the normal pattern.)
Leaving aside labour bondage systems (serfdom, slavery, Communism) which, by their nature, have to control exit-movement, states have historically not sought to control inward movement. Indeed, attracting more people meant more tax payers.
What states have had strong controls over is who gets to control the state. Historically, that has been bitterly defended. It is conspicuous that border controls over inward movement start happening when states start acquiring broad electorates. In particular, working class voters have tended to be strong supporters of various forms of border control. Indeed, generally they still are.
So, the question is not “why do states control borders?” in the sense of movement across borders, because historically many have not, but “why do working class voters support border control?”. That is not a hard question to answer. Especially when the vote is their only significant political leverage and they are the group (unlike migrants and holders of land and capital) who do not gain significantly from migration, indeed, can be net losers from migration, and who are much more reliant than more educated voters on local networks for support and risk management that can easily be disrupted by migration.
So, once we have worked through the what do you mean by borders? question, yes it is about competition pressures and how much capacity working class voters have to push back. But it is the comparison with state behaviour over the long run that is the most revealing, not the comparison with firms and cities.
[Cross-posted from Skepticlawyer.]