Chapter 2 The Immigrant Economy

How postwar migration came about—The unprecedented scale of recent immigration—The capitalist argument: Rescuing moribund industries—Jobs nobody wants—The socialist argument: Rescuing the welfare state

From 1945 on, Europe was preoccupied with rebuilding what the war had destroyed—streets and railways, houses and offices, rituals and roles. The continent’s labor force would have been inadequate to a task of that magnitude in any case, but the shortage of manpower was exacerbated by the loss of millions of working-age people in the war. The memory of World War II (in which the vanquished enemy was racist) and the gradual hardening of the Cold War (in which the West vied with the Communist bloc to flatter the masses of the non-European world) combined to mute the misgivings that would have arisen at any other point in European history about welcoming large numbers of people from other races and cultures.

How postwar migration came about

Countries that were decolonizing (France, Britain, the Netherlands) met their labor shortages partly by repatriating Europeans who were no longer welcome or content in their imperial outposts, and partly by recruiting former colonial “natives.” In Britain, the first Jamaicans arrived in 1948 on the Empire Windrush, a passenger ship that now plays the role of the Mayflower in the foundational mythology of multicultural Britain. The newcomers worked in iron foundries, railroads, post offices, and hospitals, and as plumbers and electricians.

Their numbers exceeded anyone’s expectations. The 1948 Nationalities Act had given citizenship to the subjects of Britain’s former colonies as a means of reassuring Canadians, Australians, and other traditional migrants to Britain that doors remained open to them, even as the Empire evolved into the Commonwealth. As for the king’s tropical subjects, it was assumed that if they hadn’t come before, why should they come now?

The Nationalities Act made immigration easy to launch and hard to stop, or even to slow, until citizenship laws were reformed in the 1960s. There were about 350 Africans, Asians, and West Indians in Bradford, Yorkshire, in 1953. But Indians and Pakistanis soon began arriving en masse, mostly as wool combers, transport workers, and restaurateurs. Within five years, the South Asian population of Bradford had increased ten times, and 15 percent of bus conductors in the city of Bradford were Indian or Pakistani. By the late 1950s, Britain had 55,000 Indians and Pakistanis and 125,000 West Indians, and immigration was accelerating. Using the most recent national census, Britain has 2,083,759 people of South Asian descent (Indians, Pakistanis, and Bengalis) and 1,148,738 “Black British,” as the UK census calls them, half of whom are from the Caribbean.

Countries without empires signed “guest worker” agreements with poorer nations. Sweden was a pioneer in such deals. Thanks to its neutrality in World War II, it emerged from the carnage with the only advanced European industrial base that had been neither destroyed by bombs nor looted by occupiers. Sweden was likely to be a main beneficiary of European reconstruction, as indeed it was—with 4 percent growth from the war until the oil crisis of the 1970s, including 7 percent for most of the 1960s. All Sweden lacked was sufficient people to man its factories. Finns, many of them Swedish-speaking, filled much of that need. But they were inadequate to fill all of it.

Hence guest worker programs, which were meant as a simple, short-term expedient. An industrial country would sign a bilateral agreement with a less developed country short on jobs or hard currency. Corporate recruiters, government officials, and doctors would be sent to choose teams of suitable young workers for short stints, usually of two years, at which point the laborer would return home. Sweden signed temporary labor agreements with foreign countries, starting with Italy and Hungary in 1947. But the labor resources of any given country were never quite adequate, and the guest worker program wound up spreading to more distant lands, until it reached Yugoslavia and Turkey two decades later. Thanks to guest worker agreements and an unusually large intake of political refugees, almost a sixth of the entire present-day population was either born outside of Sweden or had both parents born abroad.

West Germany’s guest worker (Gastarbeiter) program turned into a European colossus. It began late, in 1955, as an orderly means of bringing in a modest amount of Italian farm labor. But Germany was in the midst of its postwar “economic miracle” and industry wanted labor, too. With lightning speed the program spread to new sectors of the economy, and Germany began to recruit all over southern Europe and North Africa—in Spain, Greece, Turkey, Morocco, Portugal, Tunisia, and Yugoslavia. The need for short-term labor grew even more acute after East Germany’s Communists sealed their border with the West in 1961. Until then, the stagnant and exploited Communist east had provided the capitalist west with a reserve of millions of workers. There were 329,000 Gastarbeiter in 1960, a million by 1964, and 2.6 million in 1973. (East Germany, curiously, ran a Gastarbeiter program of its own, importing Vietnamese to work in Berlin’s Narva lightbulb factory, among other places.)

Turks made up the biggest part of the migration to Germany. The Gastarbeiter program was a hard-currency bonanza for Turkey, and it has only recently been understood how aggressively the Turkish government petitioned for inclusion in it. Those who came first were largely single men, living in hostels (Wohnheime) and working in the mines and steel plants of the Rhine and Ruhr. They were diligent, upstanding, and a bargain, and were supposed to be rotated in and out, going back to their native countries once their two-year stints were up.

Three-quarters of the 18.5 million who came to Germany between 1960 and 1973 did just that. But the gap between what natives understood the Gastarbeiter invitation to mean and what the workers themselves understood it to mean widened steadily. Few guest workers could earn as much back home as they could in Europe. Recruiting, vetting, and medically examining replacements was expensive. So corporations pressured the government to make Gastarbeiter contracts renewable, to let workers’ families join them in Germany, and to permit those who had formed families to stay.

Virtually no one in Germany would have considered this an acceptable outcome at the time the Gastarbeiter program was launched. But any mass movement of labor—even a planned one, such as Germany’s—develops momentum. The most important factor in migration is migration. It takes courage to be the first to strike out on your own and submit to the laws, customs, and whims of a society that doesn’t care about you. But once your compatriots have set up a beachhead, migration becomes simple and routine. Networks reduce fear. They cure homesickness as reliably as penicillin cures strep. By the mid-1960s, moving to Germany did not even entail abandoning Turkish food for German, or (in the big cities) Muslim observance for Christianity or secularism.

Germany grew less mysterious and more convenient, further reducing the incentives for foreign workers to return home when their terms were up. And in the 1960s, the Turkish economy was lurching from crisis to crisis. Guest workers returned home en masse when they were laid off during the recession of 1966–67, but not during the more global recession of 1973–74, which drove up unemployment in their home countries. That second downturn brought the end of the Gastarbeiter program. By 2006, Germany had a “foreign population” of 7,289,149.

As Europe filled up with non-European migrants, a more savvy understanding of the European labor market spread to the migrants’ home countries and, to some extent, to the entire Third World. That opened the way for freelancing. Denmark had no government Gastarbeiter program and no empire to speak of, but it did have an open labor market until 1973. Yugoslavs, Turks, Moroccans, and even people who had already migrated to other countries in Europe (such as Pakistanis working in Britain) became aware that there were lucrative jobs in Denmark and began to fill up the poorer neighborhoods in Copenhagen. Italy had no comprehensive national immigration laws until 1986. As foreign workers became less welcome in the “older” immigration countries, new immigrants began arriving, invited or not, in neighboring lands.

The unprecedented scale of recent immigration

Europeans are reluctant to admit how unprecedented all of this was. Intellectuals can be found in every Western European country who will claim that theirs has always been a “country of immigrants.” One hears it even in Sweden, with a handful of Hanseatic trading outposts and reindeer-meat entrepôts in Lapland adduced as evidence. But mass immigration is something different from trade, and it is something different from individual migration. This has long been understood in the United States. On the eve of the enormous Irish influx of the 1840s that would forever alter—and, from the perspective of the natives of that time, destroy—the culture of Boston, Massachusetts, there were already immigrants speaking twenty-seven languages in the city. “These foreigners, however,” wrote the historian Oscar Handlin, “were just strays; and the reasons for their coming derived from personal contingencies rather than from great social causes for mass emigration.” This is an essential distinction. Pocahontas, the Fuegian Indians brought to Britain on the HMS Beagle, Alexander Pushkin’s black grandfather, or three Chinese families running a laundry in a Roman backstreet do not a “country of immigrants” make. Today it is indeed true that every country in Western Europe is a “country of immigrants.” But that was true of none of them (with the partial exception of France) a generation ago.

This distinction is lost on many recent historians. One book calls Britain the product of a “long and steady movement of people to these shores before the modern era.” But this is false, and evidence that has emerged in the last decade makes it demonstrably so. Genetic studies of the population of the British Isles show that it has been remarkably stable for millennia. Aside from the invasions of Angles, Saxons, and Jutes that started in the fourth century AD—and which brought, at the very most, 250,000 new settlers to Britain over a period of several centuries—British “stock” has changed little. Only about 10,000 people arrived with the Norman Conquest. Tens of thousands more Huguenots came after the revocation of the Edict of Nantes in 1685. But, all told, three-quarters of the ancestors of contemporary Britons and Irish were already present in the British Isles 7,500 years ago. DNA from people who arrived after that makes up only 12 percent of the Irish gene pool. Describing the countries of Britain as nations of immigrants is absurd, unless you are describing processes that began not just before modernity but before civilization. That is what the Guardian did, presumably tongue in cheek, when it ran an article on recent paleontological discoveries below the headline “Britain’s 700,000 years of immigrants: Ice ages defeated seven attempts at colonisation.”

Migrations of one kind or another and tensions between in-groups and out-groups have always marked Europe, of course, as they have everyplace else. If you walk north across the piazza della Repubblica in Turin, you see, mutatis mutandis, what the Romans saw. To the east, two well-preserved Roman towers remain, and so do the walls built to separate citizens from barbarians. Today, in the space of about sixty seconds on foot, you pass from chic shops and wine bars through a lively multiethnic market into one of Europe’s more menacing North African slums. Turin has always had religious and ethnic minorities. But until the past decade it never had masses of them. It was from the city’s once-thriving Jewish community that the great chronicler of Auschwitz, Primo Levi, came. The city was also a stronghold of the ascetic proto-Protestant Waldensians, who flourished there for centuries until 1655, when they were, as Milton wrote:

Slayn by the bloody Piemontese that roll’d
Mother with Infant down the Rocks.

Turin saw heavy immigration in the 1930s to its Fiat factory in Lingotto. But these “immigrants” came from elsewhere in the Piemonte, from the nearby Veneto and from Sardinia, which was ruled, as was Turin, by the house of Savoy. And there weren’t 100,000 of them.

Europe’s path to mass immigration owes something to the intellectual habits of the statesmen and magnates who ran Europe’s economy in World War II—on both the Allied and Axis sides. In scale, today’s massive in-migration of “temporary” labor has only one precedent, and it is a recent one. At the height of the war, Nazi Germany impressed 10 million forced laborers from all over Europe to man its industries. Foreigners held a third of all jobs in Germany during the war, and more than half the jobs in the armaments industry. It should go without saying that no moral comparison is meant between the Nazis’ press gangs and postwar European labor schemes. But they had one important economic point in common: The peacetime jobs for which the postwar guest workers were summoned wound up no more permanent than wartime ones that the Nazis forced the conquered peoples to do.

The manpower shortages that immigrants were brought in to solve were acute crises, not chronic problems. Many of the industries they propped up were on their last legs. Linen mills in the north of France were manned by Algerians only once it became clear, in the early 1960s, that those jobs would soon be eliminated. The same was true of textile mills in the British north.

That planners had exaggerated the need for long-term industrial labor did not become fully apparent until decades later. Between the 1970s and the early twenty-first century, European factories saw the same gains in productivity—and, as a consequence, the same massive layoffs—as the U.S. Rust Belt over that period. In Duisburg, the port city where the Rhine and Ruhr meet, 64,000 people, including tens of thousands of Turks over the years, used to work in just three steel plants, and tens of thousands more worked in the area’s archipelago of mines. But today Germany’s very last coal mines are closing, and there are only 20,000 industrial jobs left in all of Duisburg, which is by some measures the most Turkish city in Germany. Europe solved temporary economic problems through permanent demographic change.

Here, parallels between Europe’s immigration and America’s break down. The great wave of Latin American immigration began in the 1970s. The bulk of America’s 35 million foreign born—including both high-skilled and menial workers—came in the last quarter-century, after the United States was well launched on its transition to a postindustrial economy. Postwar European labor immigration, by contrast, met the needs of the old economy rather than the new. If there are comparisons to be made with the United States, it is not to immigration but to the migratory component of the American race problem. As Nicholas Lemann and other historians have noted, it was the mechanization of Southern agriculture in the early and mid-twentieth century that sparked a great migration of southern blacks into northern cities. By a cruel historical accident, they arrived at just the point when hiring in heavy industry was leveling off, and that accident is at least partly to blame for the burgeoning of a northern black underclass.

Something similar happened in Europe. The Turks, who throughout the 1960s and 1970s had a higher labor force participation than native Germans, are now, if not exactly an underclass, at least an economic problem, with unemployment reaching 40 percent in some cities (including Berlin), three times the national rate of welfare dependency, and an average retirement age of fifty. A difference between the European and American situations is that the Gastarbeiter were foreigners, with none of the claims on European society that southern blacks, as citizens, could make on the American north.

Labor immigration is always a mix of pluses and minuses. But in Europe, after a very few years, the context out of which the pluses arose no longer existed. “Temporary” workers had been welcomed as a short-term asset. Once it became apparent they were not going home, the rationale for the Gastarbeiter program shifted. Now mass immigration was presented as a route to economic advantages in some unspecified longer term. While Europe’s citizens may once have accepted this quasi-official account it is evident they no longer do: 47 percent of Britons say the economic impact of immigration on their country has been negative, versus only 19 percent who say it has been positive. When social peace depends on people’s ability to believe something they simply don’t, doublethink becomes prevalent. A curious headline ran over a Financial Times article in 2006: “The uneasy cosmopolitan: How migrants are enriching an ever more anxious host.”

The capitalist argument: Rescuing moribund industries

There are two basic ways to defend immigration on economic grounds: a capitalist way and a socialist way. There was long a consensus among political leaders that immigration strengthens the economy unproblematically, without doing much harm to productivity and without doing any harm to native wages. This view runs counter to classical economic theory and is being challenged with increasing rigor by economists. But it is still the argument most commonly encountered in newspapers, magazines, and popular books. A typical assessment is that of Philippe Legrain, who writes in Immigrants: Your Country Needs Them:

Sober-minded economists reckon that the potential gains from freer global migration are huge, and greatly exceed the benefits from freer world trade.…The World Bank reckons that if rich countries allowed their workforce to swell by a mere 3 per cent by letting in an extra 14 million workers from developing countries between 2001 and 2025, the world would be $356 billion a year better off, with the new migrants themselves gaining $162 billion a year, people who remain in poor countries $143 billion, and natives in rich countries $139 billion.

The argument that “a mere” 14 million more immigrants would add $139 billion to advanced economies smacks of either naiveté or mystification. It reminds one of the movie Austin Powers, in which Doctor Evil emerges from isolation to ominously demand “one mil-lion dollars!” for not blowing up the world. The aggregate gross domestic product of the advanced economies for the year 2008 is estimated by the International Monetary Fund at close to $40 trillion. In context, $139 billion is simply not that much money: It is 0.0035, or roughly one three-hundredth, of the advanced countries’ output. It is about a sixth of the U.S. government’s 2009 stimulus plan.

And that is reckoning without the “known unknowns”—the easily foreseeable externalities—that immigration produces. The income of a “diversity consultant,” for instance, shows up in national statistics as part of that gain in economic output. But couldn’t it just as well be deducted as a cost of managing diversity? The Oxford demographer David Coleman has urged that, when we tally up the economic impact of immigration, we also consider:

the total costs of the integration process, and of the associated immigration and race relations businesses, the costs of meeting the special education, health, and housing needs of immigrants, the net effects upon the education of ordinary children in immigrant areas, the permanent need to “regenerate” urban areas of immigrant settlement instead of demolishing them, issues of crime and public order, [and] the multiplier effect on future immigration.

Coleman is right that economic measures of immigration often ignore important costs. One could go even further and say that it is astonishing that champions of mass immigration place so much weight on fractions of a percentage point of GDP in the first place.

One gets the sense that the most serious part of the argument—the noneconomic part—is being ducked. The social, spiritual, and political effects of immigration are huge and enduring, while the economic effects are puny and transitory. If, like certain Europeans, you are infuriated by polyglot markets and street signs written in Polish, Urdu, and Arabic, sacrificing 0.0035 of your economy would be a pittance to pay for starting to get your country back. If, like other Europeans, you view immigration as a lifeline of excitement, worldliness, and palatable cuisine thrown to your drab and provincial country, then immigration would be a bargain even if it imposed a significant economic cost.

Assuming, for the sake of argument, a modest economic gain from immigration, these gains take place in a political context—democracy—that makes them fragile, and possibly unsustainable. Economics demands more immigrants than politics will tolerate. Questions arise about which members of society benefit from the economic growth for which immigrants are responsible. Although today’s labor markets are more fluid and harder to measure than they were in the age of nineteenth-century mill towns, the modern economy has not abolished the laws of economics. These laws say, according to one analyst, that immigration generates economic growth because it “raises the supply of labour, increases demand as migrants spend money, [and] boosts output while probably putting a downward pressure on inflation.” Translated out of the language of academic economics, this means that immigration makes the economy more efficient because it drives down the wages of certain natives.

This is logical in theory, and evidence from both the large Polish migration into London and Hispanic migration into the United States shows it to be true in practice. It may sometimes be the verdict of voters that downward pressure on wages is good for society as a whole. In many Western countries, in fact, the years of highest mass immigration coincided with the years when voters were becoming convinced that overaggressive trade unions could inflict grievous damage on an economy and on a society. An increase in the supply of labor, through immigration, helped render trade unions’ wage demands economically unreasonable, and businesses more profitable, flexible, and competitive. It is society’s right to use immigration this way, but the consensus on which such a policy rests is bound to be tacit, fragile, and temporary.

Much of the economic benefit of immigration goes to the immigrants themselves. One of the largest businesses in Kreuzberg, the Berlin neighborhood that is the capital of Turkish Germany, is the Öger Türk-tur travel agency, owned by a Social Democratic member of the European Parliament. Specializing in trips to Turkey, it is an excellent business by all accounts, and gets pointed out to sympathetic visitors to the neighborhood as an example of Kreuzberg’s entrepreneurship and economic dynamism. But what does the native German get out of it? The need it fills is a consequence of immigration, not a cause. Similarly, it is good when Business Angel des Cités, a capital fund for businesses in the French banlieues, or suburbs, sets up companies in the community. But many seem to be companies exclusively for the community, too: Kool Halal, a halal fast-food chain in Mulhouse; Mecca Pasta; and Medina Shop, which sells Moroccan products. Starting in 2002, those who wanted to express their solidarity with the Palestinian cause by boycotting American products could buy a French-made Coke alternative called Mecca-Cola. It did a lot for anti-Israel solidarity. It didn’t do much for the French economy.

In Spain, from the 1990s until the collapse of the construction market, building cranes—those great symbols of robust economic health—were visible everywhere. Immigrants made up many of the construction crews. Were they coming to the rescue of a country that needed this housing anyway? Probably not, since, by the time immigrants began arriving en masse in the 1990s, Spain’s native population was on the verge of contracting. The total population of the country has grown by 4 million people (10 percent) since then, all of it due to immigration. Immigrants are more likely a cause than a symptom of the building boom. The houses the newcomers are building are their own.

Jobs nobody wants

Accounts of the benefits of immigration often describe the jobs immigrants take as jobs-no-European-wants. Of course, what is really meant is jobs no European wants to do at a particular wage. Recently, the immigration specialist Philip Martin of UC–Davis and two colleagues drew parallels between today’s migrations and the movement of would-be settlers to European colonies in the eighteenth century. Back then, migrants paid off the cost of their own resettlement through an indenture. They promised a given number of years of labor to the landowner who fronted their voyage. Perhaps today’s immigrants pay an updated kind of indenture in the form of rights, living as they often do with an ambiguous legal status that condemns them to only the lowest jobs. If there really are jobs that Europeans won’t do at any price, this indenture is a big part of what natives believe they are “getting” out of immigration.

Whether or not this indenture is fair depends on the context in which you view it. On one hand, the arrangement is corrosive. It creates two tiers of rights in the destination country. On the other hand, the immigrants are unlikely to complain. They are doing better than they would have done in their native countries, after all.

But there is a hitch. The benefits of this indenture accrue to immigrants’ new countries only so long as immigrants are illegal and transitional. Immigrants don’t stay that way forever. As soon as they are legally and socially assimilated in the way that society professes to want, they acquire all sorts of rights and expectations. They become Europeans who, by definition, won’t do the jobs-no-European-wants. So the moment immigration is successful socially, the main economic reason society thinks it “needs” immigrants in the first place vanishes.

At that point, to ensure that those jobs-nobody-wants get done, society must recruit a new reserve army of foreign-born grunt workers, which sounds like the capitalism of Karl Marx’s worst imaginings. The only alternative would be to maintain the precariousness of immigrants’ legal status into the next generation by denying birthright citizenship, which sounds like a modern-day feudalism. Either way, the gains from immigration are all paid back in later generations—they are borrowed, not earned. The faster and more thoroughly immigrants adapt to your society, the more immigrants you need. Economies thus grow dependent on, or addicted to, immigrants, developing a momentum either toward further immigration or less assimilation.

There is no reason to assume high immigration is the continent’s only long-term alternative. For many centuries Europe’s economy did not require it. A real-life test of the proposition that high immigration is indispensable to a modern economy is taking place as this book is being written. Amendments to the Danish Aliens Act in 2002 and Dutch legislation to restrict immigration, first crafted at the turn of the decade and considerably stiffened after the murder of the filmmaker Theo van Gogh in 2004, have both led to a sharp decrease in immigration. If immigration were as economically necessary as many people say, one would expect to see Denmark and the Netherlands underperforming other countries, as investors readjusted their assessments of long-term growth to reflect the dwindling supply of immigrants. There has been no hint of any such adjustment.

To speak of European countries “needing” immigrants is wrong. It is more accurate to say that certain European countries, or at least their business leaders, long preferred an immigrant economy to a nonimmigrant one. There are rational grounds for this preference. While immigration is often described in terms of loss of control (“Britain is losing control of its borders”), it can just as often be a strategy to retain or regain control of an economy.

We can see this if we think about a basic aspect of immigration that all economists agree on: that it is a brake on productivity growth. There is less need for “labor saving” (i.e., for modern technology) when labor is cheap. Italy has lately received more than half a million immigrants a year from Africa and the Middle East, mostly to work in its farms, shops, and restaurants. The market price of certain kinds of Italian produce, so Italian farmers say, is in danger of falling below the cost of bringing it to market. Under conditions of globalization, Italy’s real comparative advantage may lie elsewhere than in agriculture, in some high-tech economic model that is remunerative but not particularly “Italian.” Italians may rebel against that.

Traditional ways of working the land may be viable only if there are immigrants there to work it. You can make similar arguments about traditional Italian restaurants, which in the present economy may be able to hold their own against soulless chains only with the help of low-paid immigrant labor. Ditto the country’s lovely public parks, which have traditionally required dozens of gardeners, a level of manpower that the country’s shrinking population cannot supply, except at a high price. Without labor from Algeria and Mali, those parks will either disappear or be “automated,” as American parks are (through sprinklers and the replacement of elegant landscaping with grass). In many walks of life, Italy has a choice between keeping the population looking the way it did fifty years ago and keeping the landscape and the social structure looking the way they did fifty years ago. Through immigration, it is choosing the latter. Some natives may feel “swamped” by the demographic change, but immigration, though not ideal, may be the most practical way of keeping Italy looking like Italy. As the novelist Giuseppe di Lampedusa once wrote, “If we want everything to stay the same, everything must change.”

Those familiar with the history of European labor immigration over the past half century might wager that Italians are going to lose a lot of their traditional economic structures anyway, immigrants or not. After all, when an industry is dying (such as linens in northern France), immigrants can delay its death for a few years, but not forever. When an industry is shedding jobs (such as steel in Germany), immigrants can delay restructuring for a few years, but not forever. The disillusionment with immigration that has set in in the older immigration countries comes from the disappearance of the tasks that immigrants were brought to do.

There remains only one European industry that citizens of every country still trust immigrants to save. This leads us naturally to the second, socialist, way of addressing the economics of immigration, because that industry is welfare.

The socialist argument: Rescuing the welfare state

The postwar Western European welfare states provided the most generous benefits ever given to workers anywhere. Germany’s “social market economy” was the archetype. By the turn of this century, benefits for workers at certain large corporations included workweeks as short as thirty-two hours; seven-week vacations; full health coverage; free lunches; a compensation package that rose, in the case of unionized metal workers, to just under $50 an hour; and—most fatefully of all—retirement in one’s fifties at just under peak career earnings. It is obvious the system had a built-in tendency to ratchet benefits up beyond the limits of sustainability. Indulgent arrangements with trade unions encouraged frequent striking and brinksmanship. Plum jobs for those who could find them were accompanied by disincentives—including generous unemployment benefits—to work in any other kind of job.

The social market economy was a model for the world well into the 1970s. But Thatcher and Reagan exposed its internal contradictions and the rise of the information economy dealt a blow to its prestige. Europeans had bestowed much of their investment capital and political passion on erecting, and then protecting, their welfare systems. Medium-sized and large corporations, along with government, were the most efficient means of delivering benefits and security. As a result, Europe had few of the small, flexible start-up companies that drove most of the innovation in recent decades. Apart from the Scandinavian cell phone industry, it did not participate fully in the late-twentieth-century information technology boom. Europe’s entrepreneurial deficit got a lot of attention in the 1990s.

The social market economy had another problem. It froze the European labor market in place. In the first decade or two after the war, the relative poverty of the Italian Mezzogiorno was gradually being alleviated by migration to northern Italy and other European countries. But as the state grew increasingly generous, many preferred a life on social payments in Sicily, no matter how straitened the circumstances, to the loneliness and anonymity of industrial work in the snowy north. The European welfare state—although this was not the specific intent of those who designed it—wound up casting any line of work without access to the largesse of government and government-linked corporations as beneath the dignity of the meanest proletarian. Such unfavored jobs included agriculture, domestic help, cleaning, and food handling. Thanks to generous benefits, no proletarian had to take them. If the jobs were to get done at all, they had to be given to people outside of the system. That meant immigrants.

With millions of noncitizens and their children already on European soil, the continent’s welfare states began to interact with demography in a disturbing way. European government pension systems operate on a pay-as-you-go basis: they pay present benefits out of present tax receipts, rather than letting individual workers “save” for their retirements. Polemicists and welfare economists have always noted the tendency of such systems, as they come under democratic pressure, to degenerate into Ponzi schemes. That is, politicians overpromise—and cover those promises by roping in new investments (generally by borrowing against future tax receipts) to transfer more to current beneficiaries than the system can really afford.

In societies with growing populations, this is easy to do, because the welfare “support ratio”—the number of workers per retiree—grows, too. Politicians are tempted to loot, for present use, the entire surplus that comes from having a temporary bulge in workers, rather than investing it against the time when that bulge of workers becomes a bulge of dependent retirees. Europe’s politicians did not resist this temptation. Today Europe’s population is aging, its support ratio is shrinking, and, due to falling birthrates, there is no sufficiently large “next generation” of workers to restore it to balance. In the extremely short run, a baby bust such as Europe has undergone can enhance living standards, because it reduces the number of dependents per worker. But in the longer run a reckoning awaits, and the longer run has arrived.

As the European population receded (like a sea), a solution emerged (like an iceberg). The immigrant part of the European population was still relatively young, and relatively immune to Europe’s falling birthrates. They would restore the support ratio! If only European publics could put away their prejudices for long enough to permit a massive rise in immigration, the argument ran, European welfare states could be put back on a sound actuarial footing. Immigrants, who were one of the symptoms of the European system’s unacknowledged problems, suddenly found themselves cast in a new role as the deus ex machina of European luxury. They would emerge from the desiccated and starving hamlets of the Third World and ride to the rescue of the retirement checks and second homes, the wine tastings and snorkeling vacations, of the most pampered workforce in the history of the planet.

The idea is distant, to put it mildly, from the ideals on which the continental welfare states were founded. It is also unsound in cold economic terms. Although many people make the argument that immigration can save welfare, no informed person makes it. The United Nations Population Division calculates that replicating the age structure and support ratio of Europe would require 701 million immigrants, or considerably more than the continent’s entire present-day population, by midcentury.

It is unrealistic to look to immigration for even modest alleviations of the welfare state’s predicament. The Harvard economist Martin Feldstein has considered the case of Spain. Over the next fifty years, Spain’s population will stay the same—around 44 million—but its ratio of workers to retirees will fall from 4.5:1 to below 2:1. Feldstein asked what the effect would be of taking in 2 million foreign workers—a 54 percent increase in the number of foreign born already there. We can assume the social effects would be huge, possibly disruptive, and expensive. But the fiscal effects of this influx, Feldstein shows, would be paltry. Those newcomers would constitute only a 10 percent increase in the workforce. And since immigrants tend to occupy the lower reaches of the economy, the increase to labor compensation—out of which the taxes that pay for the welfare state are drawn—would be well under that. Feldstein’s estimate of the rise in labor compensation—“about 8 percent or less”—sounds generous. Out of that 8 percent or less, one must subtract the (high) cost of immigrant health care and education. Once you do that, the relief immigrants bring to the welfare state is unlikely to match their eventual claims on it.

Because immigrants are not immortal. They, too, age and retire, and the system must take care of them and their larger-than-average families. European leaders have faced this problem with little more than wishful thinking. “In the long term, migrants themselves will age and contribute to the increasing dependency ratio,” stated a UK Home Office report in late 2007, “but only assuming that they remain in the UK during retirement.” Goodness! What other assumption can be made? Are we to assume that migrants will give decades of their lives and tens of thousands of pounds of their earnings to fund an expensive and comprehensive welfare state for Europeans, and then obligingly slink back to the Third World to pass their retirement in poverty, at the very moment they are due to recoup their contribution?

For immigrants to help the welfare state, they and their descendants must pay more into welfare than they take out. They don’t work or earn enough to do that. The evidence is that immigrants take more out of welfare than they pay in. In the Netherlands, for instance, 40 percent of immigrants get some form of government assistance. According to the Institute for the Future of Work, while native Germans between the ages of twenty and sixty-five pay out more in taxes than they collect in services, Turks do that only between the ages of twenty-eight and fifty-seven.

One of the amazing statistics in the history of European immigration is that the number of foreign residents in Germany rose steadily between 1971 and 2000—from 3 million to about 7.5 million—but the number of employed foreigners in the workforce did not budge. It stayed rock steady at roughly 2 million people. In 1973, 65 percent of German immigrants were in the workforce; in 1983, a decade later, only 38 percent were.

This evolution has been replicated across Europe. In 1994 in France, just 29 percent of all immigrants came for work purposes. (This does not mean the remaining 71 percent stayed unemployed, only that they were admitted for family reunification, an asylum application, or some other noneconomic reason.) Those admitted for work included 70 percent of arrivals from other European countries, and 7 percent of those from North Africa. By 1997, only 12 percent of immigrants arriving in Britain from what used to be called the “New Commonwealth” (the nonwhite parts of the former British Empire) were coming for work. Just 45 percent of non-European immigrants in Denmark are in the workforce, a figure economists nonetheless consider impressively high, even the mark of an impressive work ethic, since almost half of them earn a monthly salary within €100 of what they could get on welfare. The economist Torben Andersen, who chaired a panel on financing the Danish welfare state in 2005, wrote that “increased immigration from low income countries would make matters worse since these groups on average have a labour force participation rate much below the standard in the Danish labour market.” If immigration was made economically necessary by a labor shortage in the 1960s, why was it also necessary during a sustained period of double-digit unemployment, such as Europe underwent after the 1980s?

Europe now suffers from what Hans Magnus Enzensberger calls “demographic bulimia.” It is gripped with the belief that it simultaneously has both too many people and too few. Welfare has a lot to do with this. The European welfare system has certainly made immigration more orderly than it is in the United States. In relative terms, there are few illegal immigrants—there are several hundred thousand in Britain, but only tens of thousands in the Scandinavian countries, as against 12 million in the United States. That is because the danger of deportation is low, and there are big financial incentives for an immigrant to let the state know he is there. The question is what he is there for.