Tuesday, September 3, 2013

Mass immigration has made Britain a less competitive economy

When Mark Carney went to Nottingham last week to make his first speech as Governor of the Bank of England, media attention focused, naturally enough, on his reference to Jake Bugg, who we are told is a pop singer of some sort. Amazingly, Mr Carney had been to one of his gigs.

Yet Mr Carney’s more serious point was that UK productivity, which has been trailing other major advanced economies for decades, is no higher today than it was in 2005, when Mr Bugg got his first guitar. This appears to be the longest period of stagnation in UK productivity growth on record. Economists have widely described this phenomenon as a “puzzle”, a word they tend to use for any trend that breaks with past norms.

In the search for answers, I want to highlight two other aspects of the problem – the negative impact of mass immigration on productivity and the failure to address simple supply side deficiencies in planning, education, infrastructure, public sector efficiency, the tax system and a perennially weak export performance.

On the whole, business leaders tend to support an open door immigration policy, which helps address skills shortages in key industries. But, more particularly, it also puts downward pressure on wage costs. The effect is similar to having permanently high levels of unemployment, since it creates an inexhaustible supply of cheap labour.

This may or may not be good for corporate profits but it is certainly not good either for productivity or for living standards among low and middle income earners. By making labour cheap, it removes a powerful incentive to productivity gain.

To see why this is the case, look at what’s happened since the crisis began six years ago. During this period, more than 1m private sector jobs have been created, a remarkable achievement given the collapse in output. This has helped keep unemployment much lower than it would otherwise be, which is plainly to be applauded, but it has come at the expense of real incomes.

Much of the job creation has been in low-income or part-time employment. Real incomes have experienced their worst squeeze since the 1920s. Yet this is not just a recent phenomenon. The squeeze on real incomes, particularly at the lower end of the scale, pre-dates the crisis.

Foreign competition, both in the form of immigration and imported goods and services, has been a big constraint on wage growth. This, in turn, has limited the incentive for efficiency gain. Cheap labour has become a substitute for investment in plant, machinery, training and research and development.

When the last administration boasted of the umpteenth successive quarter of successive growth, it neglected to say that this was largely the result of population growth. Income per head was becoming progressively becalmed.

Britain is an open economy that certainly needs to be in the market for top international talent. Yet high levels of low-end immigration have been, at best, a zero sum game and, by holding back necessary investment in the future, possibly quite a negative economic influence.

No free market liberal would argue the case for preventing employers from hiring foreign labour but there are other forms of state intervention that might indeed be appropriate were it not for the fact that the European Union makes them unlawful – for instance, imposing levies on use of cheap foreign labour.

By making low skill employment more expensive, the levy system would provide a powerful incentive for productivity gain in construction, retail, social care and other largely domestically bound industries. These levies could then be channelled back into tax incentives for training and other forms of business investment.

In any case, if living standards are to start growing again, employers must relearn the virtues of doing more with fewer workers. Productivity gain can only properly occur if more efficient and innovative companies are allowed to put poorly performing ones out of business. Relying on population growth, and the falling unit labour costs it brings about, to stay competitive is a road to nowhere.

The second issue with productivity is that of an economy which has become unduly reliant on domestic demand. Why chase foreign markets, which require world class levels of competitiveness, when there is the easy option of credit-fuelled domestic demand to fall back on?

Time and again, the UK has ducked difficult supply side reform in favour of the palliative of demand stimulus. Such measures were plainly important in the early stages of the crisis, when they helped prevent a depression from becoming entrenched, but their continuation five years after the event is now very likely doing more harm than good.

The Juncker curse (after the Luxembourg prime minister) has it that Western politicians know what needs to be done, they just don’t know how to get re-elected after doing it.

By the same token, everyone knows that productivity-led growth is the only form of growth worth having, they just can’t seem to make the long term decisions necessary to achieve it.


People smugglers to defy  Australia's stance on asylum seekers

KEVIN Rudd's Government says it has beaten the people smugglers, but it's not what this man and many like him think.

Smuggler Amir Shojaei took this selfie after collecting $35,000 to take eight members of the Sakhravi family, from Iran, to Christmas Island by boat.  Two days later, Shojaei's phone went dead and the Sakhravis lost every cent.

Immigration Minister Tony Burke yesterday claimed Labor had "broken the back of the people-smuggling trade", but Java's smugglers are now offering massive discounts to poor asylum-seekers or, for the wealthy, express speedboat rides to join bigger boats north of Christmas Island.

And whoever wins Saturday's election will have a new problem, with a wave of Syrians expected to start filtering, and then rushing, to Indonesia, any time now.

Amir Shojaei and his like will be ready.


Australia:  Liberal Party candidate links asylum seekers to traffic jams and hospital queues

A Liberal candidate in western Sydney has said she believes asylum seekers are contributing to outer-suburban traffic jams.  "[Asylum seekers are] a hot topic here because our traffic is overcrowded," Fiona Scott, the Liberal candidate for the seat of Lindsay told the ABC's 4 Corners program.

When asked to explain her view she said: "Go sit on the M4, people see 50,000 people come in by boat - that's more than twice the population of [western Sydney suburb] Glenmore Park," she said.

Ms Scott also suggested asylum seekers were exacerbating hospital waiting queues.

Ms Scott is challenging Assistant Treasurer David Bradbury in the September election. She came to prominence last month when Tony Abbott controversially described her as having "sex appeal".


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