The UK Office for Budget Responsibility (OBR) has made a pronouncement that we need to have mass migration into the UK as a way to reduce future government debt to GDP ratios. They claim that the “dependency ratio” between people of working age and retirees will become “unsustainable” as the baby boomer generation retires unless millions of migrants of working age join the UK workforce. This pronouncement has been hailed for supposedly dashing aside xenophobic objections to mass immigration with impeccable economic logic.

Immigration is an extremely thorny issue. I think we have a responsibility to really examine those issues rather than blustering with glib “economic arguments”. The OBR “economic argument” for migration seems to me to be entirely fatuous. It is not as if there is any shortage of unemployed or underemployed people in the UK who would willingly do the work required to care well for our aging population. Increases in mechanisation mean that our real needs can be met with less man-power. That potentially leaves plenty of people free to provide nursing care etc. The whole OBR argument is about finance and not about real resources such as human labour, buildings or equipment.

The OBR argument is entirely based on the presumption that taxes are levied on employment. Thus, so their argument goes, when a demographic bulge leaves fewer people of working age, tax revenue falls and government indebtedness tips over into unsustainability where interest repayments cause a snowballing debt crisis. There are two bogus assumptions at the heart of this argument:

-Firstly taxes need not necessarily be levied on employment. Imagine if the government relied instead on inheritance tax – then tax revenue would INCREASE as the baby boomers reached their twilight years. I’ve argued that the most sustainable form of taxation would be an asset tax. Revenue from such an asset tax would not be swung about by demographic shifts in the “dependency ratio”.

-Secondly deficit spending to fund elder care during a “demographic bulge” certainly need not precipitate a debt crisis. Currently, as fast as deficit spending adds to the UK’s stock of government debt, that debt is purchased by the Bank of England under the various QE programs. Consequently the increased interest payments by the UK treasury simply get passed back to the UK treasury from the Bank of England. There is no prospect of a snowballing of interest payment obligations. There are issues about the political consequences of endless deficit spending but it is simply not true that spanning a demographic bulge with deficits would precipitate a government debt crisis.

We need to be very wary of the extent to which “economic arguments” about demographics are not really about providing sufficient supply of needed goods and services but instead about asset prices. An increasing population gives asset prices a Ponzi effect impetus. For those currently in the “owning class”, the increasing scarcity that comes from an increasing population inflates their financial power. By contrast a shrinking population would mean that land, natural resources and capital equipment became less scarce. That would benefit those wanting to buy into ownership and those saving for future pensions but diminish the relative financial power of the current owners. I think it is very misguided to aim for asset price inflation as a target for economic policy but sadly that seems to be what is behind standard economic advice.

That gets us back to the thorny real issues around migration. It is vital to draw a distinction between on the one hand the entirely beneficial phenomenon of people working abroad as a way to exchange expertise and on the other hand mass net migration driven by macroeconomic forces. Furthermore my skepticism about the merits of mass migration is not due to any issue with multiculturalism. I view the multicultural character of the UK as a positive attribute to be celebrated. I’m struck by how the serious sectarian conflict that we do have within the UK is in Northern Ireland and is between people who share a local ancestry going back centuries. And let’s be clear that conflict is about tribalism not religion. Also in the last century the UK suffered the crippling effects of social class divisions. That is a sectarian division concocted out of thin air without a whiff of ethnic pretext. Sectarian conflict is an ever present peril that every society and individual has a responsibility to continuously dispel irrespective of how seemingly homogeneous or diverse their community is.

The libertarian ideal is that everyone should be free to live and work wherever they fancy and government has no place imposing restrictions on migration. Many migrants do experience culture shock in their adoptive country. This is starkly illustrated by the fact that a personal or family history of migration is an important risk factor for schizophrenia. Libertarians argue that any difficulties with living in a foreign culture are a private matter to be weighed up by each individual in deciding whether or not to migrate. Obviously some individuals have family or personal reasons for moving to a new country. To me however the reality of mass economic migration seems very murky. Clearly imposing restrictions on whether people LEAVE a country is a hallmark of desperate “prison states” such as the former East Germany. It also seems shocking to hear of restrictions on where individuals are allowed to live within their own countries. I would be appalled to have our government dictating which part of the UK I was allowed to live in.  However I worry that it would be calamitous to eliminate immigration restrictions.

The plight of indentured labourers working in Dubai starkly illustrates the potential cruel reality of economic migration. Desperate, illiterate, people in countries such as Pakistan, India and Bangladesh get bamboozled into taking on un-repayable debts to pay for passage to Dubai where they work and live in appalling conditions. Their situation amounts to effective slavery – about as far from a Libertarian ideal as is conceivable. Clearly this is an extreme example but it underlines a wider phenomenon of migrant workers being in a less assertive position to ensure that they receive a fair level of pay.

Much economic migration appears somewhat deranged. Migration is inevitably towards where the money is rather than where there really is a genuine greater need for work. Recruitment of migrants to meet “labour shortages” often appears to actually be a symptom of a deeper conflict over what share gets taken by workers as wages rather than accruing to employers as profits. Perhaps it would be much better if that key issue was instead dealt with head on by facilitating employee ownership such as with the John Lewis partnership.

In the 1950s mass migration to the UK was encouraged supposedly to meet a labour shortage. At the same time labour unions endeavoured to safeguard jobs and wage levels by insisting on ineffective working practices and over-manning. Unions tried to ensure that labour was scarce and valued; migration was a way to undermine that artificially exacerbated scarcity. Ironically migration was away from countries that had a vastly greater real need for work that the UK did. The West Indies, Bangladesh and Pakistan had a real need for infrastructure development, water and power supplies etc. etc. Arguments that the West Indies had an excess population as a legacy of the declining sugar industry don’t make sense to me. People anywhere have the potential to themselves be the engine of economic vitality and job creation if only allowed the necessary economic environment. Singapore after all supposedly has had a multi-decade labour shortage and yet Singapore is also a tropical island with no source of employment prospects other than those created by its own population.

The more recent mass migration from Poland to Western Europe seems to me no less deranged. Poland seemed in great need of skilled, motivated, Polish people to re-build their nation after decades of communist era floundering. Instead the 2004-2008 housing bubble in Western Europe provided such a lucrative draw, that engineers and school teachers left Poland to take unskilled labouring jobs, constructing ghost estates in Ireland and never to be used shopping centres in the UK. Perhaps if it hadn’t have been for an endless supply of migrant labour, labour shortages might have brought sanity to the housing bubble. The proceeds of the bubble might also have been distributed in a less inequitable fashion if labour shortages had pushed up construction workers’ wages.

The reality is that if all people were free to migrate around the world willy-nilly then, all too often, we would end up having to do so in an entirely wasteful and pointless fashion. Momentum chasing “hot money” flows from country to country in a largely stochastic fashion at the whim of automated trading algorithms driving the gyrations of the financial markets. Families would end up having to up-root and follow the money, further fuelling such bubbles and busts.

When considering the UK situation it is helpful to make a comparison with the extreme cases of Singapore and Japan. Both those countries have a more dramatic demographic issue than the UK does. Japan seems to be successfully ensuring that the dramatically aging Japanese population is very well looked after with no recourse to mass immigration into Japan. As elsewhere, there is no genuine constraint of labour shortage in Japan. Singapore on the other hand is fully embracing the mass immigration option. That is despite Singapore being on a tiny, densely populated, island.

Singapore has the peculiar characteristic that over a third of the people living there are not actually Singaporean citizens. Such guest workers have to leave as and when the job market dictates and in many cases their families are not permitted to live with them in Singapore. The Singapore government has set its sights on both increasing permanent immigration to increase the number of full Singaporean citizens and also increasing the ratio of guest workers to Singaporean citizens. They have set the ideal that Singaporean citizens should be predominantly managers whilst less senior jobs should be taken by guest workers. This is simply a starker and more forthright example of the mind-set also exhibited by our last “New Labour” government here in the UK. Then we were told that mass net immigration into the UK ensured career opportunities for existing UK citizens as managers of all of the new immigrants.  Personally I think this reflects a misguided view that undervalues front line workers. To my mind it is better to cherish and properly reward all required work.

See previous post:

Isn’t a financialized economy the goose that lays our golden eggs? -Rather than saying that people should migrate to where money is flowing, shouldn’t we instead stop fostering capital flight from the poor world (where the money is genuinely needed) to asset bubbles in the rich world?

Related stuff elsewhere on the web:

A rely to”Direct Economic Democracy” – Paul Crider, Open Borders (added 09Aug2013)

Fiscal Sustainability Report July 2013 – Office for Budget Responsibility

A Sustainable Population for a Dynamic Singapore

Charlie Rose: Jeremy Grantham on Our Debt Solution -Bloomberg video

Migration Matters Trust

Open Borders (added 31July2013)

Japanese nurses blocking skilled help from overseas -Japan Times

Nursing Leadership in a Rapidly Aging Society: Implications of “The Future of Nursing” Report in Japan -Nursing Research and Practice

Sunder Katwala on immigration from the West Indies -BBC

Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? -Michael A. Clemens (added 31July2013)

If People Could Immigrate Anywhere, Would Poverty Be Eliminated? -Atlantic (added 01July2013)

North of the Border – Krugman NYT (added 02Aug2013)