Chapter Nine
Globalisation, Nation States and the Economics of Migration1
Introduction
Humanity is on the move on an unprecedented scale and the nation state is inexorably losing power. These are two of the commonplace assumptions that inform the debate in Britain about globalisation and mass immigration. And neither are true.
Human beings have not given up the largely settled life we have lived since hunter gathering gave way to the agricultural revolution 10,000 years ago. There is unprecedented movement within countries from the rural to the urban but we have not suddenly become country hoppers. The number of people living in countries other than the one they were born in is tiny. Even within the European Union in 2000, prior to the opening up towards Central and Eastern Europe, less than 0.1 per cent of the EU’s population moved to live in another EU country each year. Rootedness remains a strong human impulse.
And nor is the nation state dying out. As the Soviet Empire collapsed at the end of the Cold War, there was another burst of nation creation, just as there had been in the first part of the twentieth century with the disappearance of the Ottoman and Habsburg empires and later the French and British empires.
It is true that the world is more economically interdependent than 50 years ago, and more national sovereignty is vested in international institutions such as NATO, the World Trade Organisation and the UN. Moreover, the technology of travel and media reinforces the metaphor of a ‘borderless world’. But it is a metaphor. More of us than ever before are rich enough to frequently travel long distances, and sometimes work abroad for a few years, but most of us in the developed world come back to places we call home in solid nation states – we cross national borders into countries with national armies, national economies, a national language (in a few cases more than one).
Indeed, to a remarkable extent ours is still the age of the liberal democratic nation state and of liberal (or in some cases illiberal) democratic nationalism. Not all states are nation states but much conflict in the world – from Palestine to Tibet and Chechnya – involves stateless nations seeking nation states of their own. And more of the world’s problems arise from too little nation state than too much: why was rapid economic development possible in the East Asian Tigers but not in Africa? A strong sense of national solidarity in the former giving elites and masses a common interest is recognised to have played a significant role.
Why is this remarkable? Only because the ideology of globalisation has told us that it isn’t so. Open one of the serious newspapers any day of the week and you will read paragraphs like the one below from Philip Stephens in the Financial Times:
Governments have ceded power to mobile financial capital, to cross-border supply chains and to rapid shifts in comparative advantage. Control of information now belongs to 24-hour satellite television and the cacophony that is the web […]. Citizens expect national politicians to protect them against the insecurities – economic, social and physical – that come with global integration. Yet governments have lost much of the capacity to meet the demands.2
This is not completely wrong, it is just that by focusing on those many forces – trade, finance, transport and communications technology, immigrant diasporas – which flow constantly across national borders it ends up painting a distorted picture. Most of those things are, in any case, still regulated by national laws or international agreements drawn up by national governments. It also leaves out of the picture the areas – like welfare – where the nation state is more not less enmeshed in people’s lives than 50 years ago. And in some versions of the ideology it is not just describing, it is advocating – it is saying that by transcending the nation state these forces are promoting the cause of peace, economic growth and human well-being.
The enduring importance of the nation state
But nation states still underpin the institutions that manage the greater interdependence of the modern world and only they can mobilise their publics for global collective action. Global institutions are not irrelevant but most of them are still forums where the great powers try to find common interest. Those that are more globally representative like the UN or WTO do not express a global ‘demos’ in any meaningful sense and seldom try to impose their will on dissenting states.
Meaningful international agreements are still notoriously difficult to reach but as global governance grows in importance so too will the nation state. As the centre of power close to where people live and have their attachments it is only the nation state that can confer legitimacy and accountability on global bodies and thus prevent the emergence of tyrannical global leviathans like those imagined by George Orwell.
One group of rich nation states has, of course, gone a bit further and created in the EU an institution that is partly designed to transcend national interests and identities. But most of the EU’s work is just a conventional pooling of national sovereignty to achieve together what cannot be achieved by individual nation states acting alone, in global trade negotiations for example.
There is no significant ‘European’ interest or identity over and above the pooled, and sometimes conflicting, interests of its member states. There is a kind of European democracy in the increasingly powerful European Parliament but the elections to this body are mainly national affairs, and its deliberations are largely ignored. And there is a small degree of redistribution between richer countries (and regions) and poorer ones, but the sums involved remain trivial.
Although the EU mimics the nation state in some trivial ways, it is not a nation state and to the extent that it commands a loyalty it is at a far lower level than a national loyalty. Very few people would die for the EU and very few would make big economic sacrifices for another EU state. We have seen this clearly in the case of Germany, one of the least nationalistic and pro-EU of the big European states, which was happy to spend about $1 trillion on unification with East Germany but is very reluctant to spend far smaller sums helping to support the weaker eurozone economies and what they call a European ‘transfer union’.
The modern law-bound, liberal nation state is the least threatening of political institutions. Anyone can join (if invited) and an allegiance to the liberal nation state is compatible with internationalism, with the rapid advancement of developing countries and with support for bodies like NATO and the EU. It is also compatible with a high degree of localism and devolution to regional authorities.
Indeed, after a long and often bloody pre-history the modern nation state is the only institution that can currently offer what liberals, of both right and left, want: democratic legitimacy for the exercise of power and upholding the rule of law; cross-class and generational solidarity and even, in Europe’s post-religious age, a sense of collective identification that is bigger than families and neighbourhoods but more tangible than the whole world. It is possible in the future that more global or regional institutions might be able to deliver democracy and welfare; the EU is one prototype but its current difficulties underline what a slow and stuttering process this is likely to be.
So this is ultimately a pragmatic argument. The nation state is not about mystical attachments, it is not a good in itself, it is rather the institutional arrangement that can consistently deliver the democratic, welfare and perhaps psychological outcomes that most people, when given a choice, seem to want.
Yet while the mainstream political and media debate is often stridently chauvinistic in tone, in left-wing and liberal circles in the academy, business, the law, the media and politics the debate is too often the mirror image of this – positively hostile to even moderate national feeling and the idea that one might favour the interests of one’s fellow citizens before others.
The progressive assumption often seems to be that it is fine to have an attachment to friends and family and perhaps a neighbourhood or a city – ‘I’m proud to be a Londoner’ – and, of course, humanity as a whole. But the nation state – especially a once-dominant one like Britain – is considered something old-fashioned and illiberal, an irrational group attachment that smart people transcend or ignore.
The globalisation narrative and the ‘universalist shift’
One reason why modern liberals are tempted by the globalisation narrative, even those who are critics of global capitalism, is because many of the sixties generation cut their political teeth battling against the prejudices and conformism of their respective nations in the decades after the Second World War. It was a time when nationalism was tarnished by war and fascism and often resisted the idea of human equality.
The nation state has changed radically since then, especially in rich countries, both through internal liberalisation and externally through the promotion of a more equal world via aid and trade policies – albeit sometimes more in rhetoric than in reality. Yet many people on the left remain transfixed by its historic sins. If people are squeamish about the associations of the word nation they should just call it society.
There is a bigger and rather under-explored story here about Western values. In the mid-twentieth century, elites in the liberal democratic West began to embrace what Geoff Dench has called the ‘universalist shift’ – the belief in the moral equality of all people. This meant that differences of sex, ethnicity and, above all, race, were no longer deemed obstacles to someone’s full membership in a society. Although the idea did not extend to economic inequality it was profoundly anti-hierarchical and egalitarian, and demanded that power and rewards in society be justified by performance rather than inherited characteristics (whiteness or maleness).
It now seems so banal to believe in the moral equality of all people that we have forgotten what a novel and revolutionary notion it is, and how many people around the world (even in the liberal democracies) still have traces of more racial worldviews. And in the lifetimes of many older people still alive today very different official views prevailed. As recently as the 1940s and 1950s respectable strands of British political opinion were arguing that many colonised people were not yet mature enough to govern themselves, they were like children or teenagers not yet able to join the adult community of self-governing states.
Yet because all people are in principle equal it does not mean that they are all equal to us – it does not follow from a belief in the moral equality of all people that we owe the same obligations or commitments to them all; we feel special obligations to family members but not because they are morally superior to other people. Both liberal and conservative voices in favour of globalisation and the ‘universalist shift’ seem to confuse the specialness of a national identity with superiority and even racism.
So ubiquitous rhetoric about globalisation and the apparent inevitability of mass migration combined with this morally appealing ideology of liberal universalism has reinforced a carelessness about national citizenship among intellectual, and business, elites in many rich countries. Britain is especially vulnerable to this carelessness, partly because of its own multinational and imperial history which has left behind a sense of ambivalence about the nation state.
The ‘immigrationist’ ideology
These attitudes have created a sympathetic audience for the ‘immigrationist’ ideology, which supports as open as possible a door to newcomers, partly on cultural grounds – Britain is dull and grey and needs leavening from outside – and partly on global economic justice grounds. Thanks to immigrationism many people on the left abandon their normal suspicion of Big Business and embrace free market assumptions – echoed in the pro-mass-immigration Economist and the Wall Street Journal – about competitive labour markets and the assumption that America, a country built on mass immigration with few collectivist checks, is the global model that the historic nations of Europe are destined to follow.
A key part of the immigrationist story is that mass immigration is an unstoppable aspect of modern life. It is said that 200 million people, and rising, are living permanently outside the country of their birth. This seems an impressively large figure but is in fact just 3 per cent of the world’s population. In several European countries, including Britain, there is a greater sense of population flow because the number of immigrants in rich countries has indeed more than doubled in the past 30 years. Most forced migrants continue to live in adjacent countries in the global south but about three-quarters of all international migrants now live in 12 countries, of which half are rich (20 per cent live in the US alone).
There are reasons to believe that this trend will not continue indefinitely. The number of global refugees rose sharply in the late 1980s and early 1990s – partly prompted by the conflicts following the break-up of the Soviet Union – reaching a peak of more than 18 million in 1993, but has since fallen back. Peering into the future, global human flows will depend to a large extent on what happens to global economic growth and population increases as well as worldwide climate change. As big developing countries like China and India become richer and as the world gradually becomes more equal – at least between, if not within, states – the incentive to leave may become less pressing even as the ability to do so rises.
And population in most parts of the world is now stable or falling: Europe, China, Russia, South America, Iran. In a few places it is still rising sharply: Pakistan, parts of the greater Middle East and above all Africa. The population of Africa is now just over 1 billion; no one knows whether it will stabilise at 2 billion or 3 billion. If it is the latter there will clearly be greater pressure to migrate.
Not all developed countries have embraced mass immigration in the manner that Britain has since 1997: two very successful countries – Japan and Finland – have kept the door quite tightly closed. Neither the Japanese nor Finnish model is necessarily desirable, especially for a ‘hub’ economy like Britain’s, but it shows if the political will is there the flows can be controlled. Those in the British debate who argue that huge immigration flows are a fact of life have short memories: as recently as the early 1990s net immigration was close to zero. Mass immigration is not a force of nature.
What’s wrong with the case made for large-scale immigration to rich countries? There are two broad strands to the case. The first, more radical one takes as its perspective humanity as a whole and argues that it is a human right to emigrate and immigrate in an ‘open-border’ world. The second, more conventional case looks out from a rich country like Britain and says that mass immigration benefits both the immigrants and the citizens of the receiving country. It accepts that an open door is politically unrealistic but wants as much openness as reasonably possible.
The idea behind the perspective of humanity as a whole and open frontiers is, as the Dutch writer Paul Scheffer has pointed out, that native populations do not have any special rights as compared to newcomers. Why, in other words, should a country belong to its inhabitants? The liberal argument is that having a particular birthplace cannot have any moral significance and therefore should not bring with it unearned rewards. But this surely represents a thin and unhistorical understanding of people and societies, regarding society as a more or less arbitrary collection of individuals without any particular ties or allegiances to each other. This is what one might call the ‘cruise liner’ theory of the nation, in which people come together for a voyage but have no ongoing identity. Liberalism likes the idea of community in theory but does not see that a meaningful one must be able to exclude as well as include.
There is a genuine dilemma here, especially for the left, between the obligations of governments to prioritise the well-being of their own citizens and a more universal ethic that values the well-being of all humanity. As David Miliband has written: ‘The left is torn between a commitment to individual human rights for all people, whatever their nationality, and a recognition that communities depend on deep roots’.3 But it is also a dilemma that is relatively easily resolved. It can be resolved partly by considerations of human nature and organisation, at least at this stage of evolution, but also by considering the likely economic and social outcomes of an open-border world.
All human associations and communities need boundaries of some kind; they can be easier or harder to join but require some means of demarcating between insiders and outsiders. The modern nation state has become far more internally inclusive in recent generations – the idea of the equal status of all citizens is underpinned by historically unprecedented social provision, free to all insiders – but towards the outside world it has become, if anything, more exclusionary. There is nothing perverse or mean-spirited about this. As the value of national citizenship in rich countries has risen, and the cost of physically reaching those countries has fallen, so the bureaucracy of exclusion has had to grow. If that bureaucracy were to be abolished or even relaxed it would lead to more random and pernicious exclusions at a lower level. Michael Walzer talks about ‘a thousand petty fortresses’. It is already possible to see signs of this in the growing levels of both ethnic and social class segregation in many of Britain’s major towns and cities.
How many people would come to live in a rich country like Britain if border controls were abolished? No one knows for sure. But in many poor parts of the world, in Africa in particular, there has been rapid urbanisation in the absence of industrialisation or high economic growth. That has created a large surplus of urban labour well connected enough to know about the possibilities of life in the West and with a miserable enough life to want to get there. Who could say confidently that 5 million or 10 million people would not turn up in the space of a couple of years, especially to a country with the global connections that Britain already has?
This claim may appear to conflict with my earlier assumption about human rootedness. But the point is that many of the urban poor in developing countries are already recently uprooted and the promise of security and relative wealth in a diaspora community in the West can override the relatively shallow attachments of life in the slums of Lagos or Nairobi.
Is there a case for high levels of immigration?
What about the more conventional case for high levels of immigration: that it benefits receiving countries as well as the immigrants? No sensible person is opposed to immigration tout court. It is a matter of how much and how it is managed, and how it affects the national political community. For the nation state to have any meaning it must in the democratic era ‘belong’ to existing citizens: on important matters citizens must have special rights over non-citizens. That means immigration must be managed with the interests of existing citizens in mind. The question is: what are those interests? And what kind, and what level, of immigration should it translate into?
Looked at year on year the numbers arriving in Britain seem tiny. But according to the Office of National Statistics (ONS), persistent immigration at around the current rate sees the UK population rising from 62.3 million in 2010 to 81.5 million in 2060 – an increase of 19.2 million. In the absence of migration, the ONS projects that the population would only rise to 64 million by 2060.
In several European countries the immigrant and ethnic minority population is rising to 20 or 25 per cent in the next few years. Many large towns in Europe are already around 40 per cent minority – Birmingham, Malmö, Marseilles. In Britain, the capital city is already ‘majority minority’ along with three others: Slough, Leicester and Luton.
The arrival of the rich and the skilled and the inventive has long brought blessings to this land. Unskilled immigration brings its benefits too. There is no doubting the dynamism of many young migrants, and their willingness to do dirty or under-rewarded jobs (like caring for the elderly) that few natives want. But these benefits would have to be large and demonstrable to justify the cultural and social disruption caused by the rapid, large-scale immigration we have experienced in recent years. And they are not. Almost all the economic analyses of mass immigration in recent years have found that the effect on employment, wages, fiscal balance and per capita growth is small, either positively or negatively.
Moreover, existing British citizens not only have very different experiences of immigration, depending on where they live, they also have very different economic interests arising from it. Employers, big and small, and better-off people tend to benefit from imported labour that is usually relatively cheaper and higher quality than the domestic equivalent. And many millions of us as consumers have enjoyed lower prices for cleaners or for redecorating our houses in recent years.
Immigrants themselves benefit, of course. They would not endure the pain and disruption of uprooting unless there were very clear gains in security or comfort. But national social contracts still matter and low-skilled locals (often recent migrants themselves) face greater competition both in the labour market and in public services. And as they are more likely to live in areas of high immigrant settlement too, they might face a sense of displacement and competition in three different areas of life: neighbourhood, work and state services.
Moreover, professional people tend to have a sense of themselves derived from their careers, while most people in ordinary jobs draw their identity more from place and community (60 per cent of British people live within 20 miles of where they lived when they were 14). So where immigration happens most, in the poorer parts of town, is also where it has a greater psychological impact.
The pressure on public services is partly offset by the extra taxes paid by immigrants, but when the inflows are on the scale of recent years that cannot prevent acute short-term problems arising, especially in favourite ‘landing’ destinations such as Slough, Newham or Hounslow, but also in places farther afield such as Boston in Lincolnshire or Goole in Humberside that suddenly acquired large East European populations after 2004.
The pressure on housing is another factor. In the first wave of post-colonial immigration, immigrants were generally excluded from public housing by ‘sons and daughters’ policies that effectively excluded all outsiders (from other boroughs as well as countries). In the 1970s and 1980s this became the site of tense conflicts in London and other big cities as legislation shifted the balance to favour individual needs rather than community preservation, which propelled many new arrivals to the front of the housing queue.
Now there is a more general problem of the low supply of all types of housing, which is not caused by immigration but is certainly exacerbated by it. Recently household growth in England has been running at about 200,000 a year of which about 40 per cent is the result of migration – but since 2000 actual house-building has been lagging that rise in households by 40,000 a year.
The economic benefits of immigration: myth and reality
The idea that power and prosperity is driven by immigration-fuelled population growth is the wrong way round. Successful economies and open, liberal societies pull in immigrants – immigrants do not create that success, though they may help to sustain it. And here I want to drill down deeper into the economic arguments made in defence of large-scale immigration. There are three main claims. First, young immigrants help prevent our societies from ageing and generally pay in more than they take out. Second, immigrants are complementary to natives, so bring many labour market benefits for employers and do not take jobs or depress wages. Third, immigrants are a source of growth and innovation.
The first argument about ageing is a tired old cliché that has long since been refuted. It seems a common sense assumption: our society is ageing so import lots of young people and encourage them to have large families and, hey presto!, we are youthful again. But the truth is that immigrants grow old too, and usually converge quickly on native fertility rates, so for this to work it would require very high and continuing immigration. The current age structure of the UK is a result of the rapid growth of the population over the past 100 years, from about 30 million to a bit over 60 million. To keep that age structure as it is now would require another surge of population growth. But that is not a popular policy, especially in our more green-minded, congestion-conscious times.
The key formula here is the ‘potential support ratio’ (PSR) which indicates how many people there are of official working age potentially able to support each person of pension age. The ratio is due to fall in Britain around 2020 as the baby-boomer generation born in the 1950s and early 1960s retires. But the curious thing is how little difference a lot of immigration makes to this ratio. Assuming zero net immigration the PSR is 1.94 in 2074, but add an extra 20 million people to the population by that date and the ratio rises to just 2.11.
As Adair Turner pointed out in a lecture on demography at the London School of Economics (LSE) in 2003, arguments for high immigration to keep the PSR low are usually made on the basis of assumptions that leave the retirement age untouched.4 He argues that if the retirement age is raised to reflect greater longevity, then half of the change to the support/dependency ratio disappears and the problem becomes more manageable. There are other things that can be done: increasing automation and productivity can play a small role as can bringing more women into the workforce (something that is happening anyway in most rich countries) and, indeed, allowing moderate levels of immigration. Britain, which has a younger population than many comparable European countries, does not face a big ageing problem, and to the extent that it does it can adjust to it without relying on enormous levels of immigration – and it can in the end grow a little bit older gracefully.
Some scepticism is also required towards the claim that immigrants pay more in than they take out. Highly educated, skilled or talented immigrants, provided they get decent jobs and do not displace native workers, normally make a positive fiscal contribution – they pay more in taxes than they absorb in government spending. Such people come disproportionately from other developed countries. Unskilled immigrants can also make a positive contribution, provided that they and their dependants do not make large demands on the welfare state.
There are many different ways in which the numbers can be drawn up, but the mainstream conclusion (shared by the Treasury and the Migration Advisory Committee) is that the overall fiscal contribution is close to neutral. This broadly neutral outcome does, of course, hide a huge variation between groups. An Institute of Public Policy Research (IPPR) report found that only 1 per cent of Poles and Filipinos claim income support, compared with 39 per cent of Somalis.
Looking beyond the most recent immigration the picture is less positive. Because of the historic legacy of unskilled labour from New Commonwealth countries in the early post-war period, and then the arrival of other large groups with low education levels such as Bangladeshis and Somalis, about 40 per cent of minority Britain is classified as poor, compared with 20 per cent of white Britons. And nearly one-third of minority Britain lives in public housing compared with about 17 per cent of white Britain. That means minority Britain is, on average, likely to be somewhat more welfare dependent than white Britain, though with large variations within both groups.
What about the immigration effect on jobs and wages? There is a broad consensus among economists that, when properly managed and at moderate levels, immigration has no noticeable negative effect on the employment prospects or wages of native workers but greases the wheels of the labour market by filling vacancies that local workers either don’t want to do (at least at the wages on offer) because they are too boring or ‘dirty’ or can’t do because they don’t have the right skills.
But it is not ‘economically illiterate’, as free market economists often suggest, to say that immigrants can substitute for locals as well as complement them. When the recession struck, the number of UK-born workers fell by 278,000 in the year to December 2008; in the same period, employment of non-UK-born workers rose by 214,000. Or even more strikingly, between the second quarter of 1997 and the last quarter of 2011, there were almost 2.7 million extra people employed in Britain, of whom 2.1 million were born outside the country.
The issue of job displacement is a complex and controversial one. What seems to be happening is this. There is a daily churn in the labour market with about 2,000 jobs disappearing and another 2,000 being created. Of those 2,000 new jobs, most are taken by British-born workers but a disproportionate number of net new jobs on top of the reshuffling are being taken by recent immigrants. And in some sectors it seems that employers have acquired a ‘foreigner bias’ when it comes to new hires, finding them better motivated and with lower wage expectations.
In a huge research analysis of more than 45 studies between 1982 and 2007, Longhi (and others) found the immigration effect on employment was small; however, it uncovered evidence that immigration did discourage workless natives from entering or remaining in the labour market.5 And a paper by Hatton and Tani found that foreign immigration into a region leads to less migration from elsewhere in the UK, so northerners are less likely to come south to take jobs.6 The report by the Government’s Migration Advisory Committee in January 2012 concluded that there has been an ‘association’ between an extra 100 non-EU working-age migrants arriving and 23 fewer native people being employed.
The ‘illiteracy’ that economists refer to is the so-called ‘lump of labour’ fallacy, the false idea that the demand for labour is fixed. It is true that immigrants create extra demand for labour through the incomes they spend and the taxes they pay. Polish builders create new jobs for locals – in supermarkets, at builders’ merchants and for interior designers; at least they do so long as they are expanding the market for building work and not just displacing natives or sending much of their income home. But there is often a lag of some years between the jobs they take and the jobs they create, and the new jobs may also be in different places to the lost jobs. And because it is concentrated at the top and bottom, mass immigration often reinforces inequality and reduces social mobility for domestic workers. As the 2008 House of Lords report on the economics of immigration vividly puts it: ‘The City of London illustrates this range of occupations, where immigrants are widely found among the staff of the restaurants serving financial executives, many of who are also immigrants’.7
One-third of all graduate jobs in London are taken by people born outside Britain, which is likely to be one factor behind the apparent slow-down in social mobility in recent years. There is less room at the top for people from low- and middle-income backgrounds. Indeed, if you pursue a ‘global talent’ policy there must be a more general crowding-out effect for the resident population – bright and inventive natives, whatever their background, are going to get somewhat less good jobs if they have to compete with the very best in the world.
So, what about wages? As with employment all the studies suggest no great effect either positively or negatively on native workers. But while wages ‘overall’ may not be significantly depressed by mass immigration, there is strong evidence that the bottom layer of workers are hurt. Christian Dustmann, Tommaso Frattini and Ian Preston found that immigration has led to a small reduction in the wages of the bottom 20 per cent in Britain.8 Stephen Nickell and Jumana Saleheen found that a 10 percentage point rise in the proportion of immigrants working in semi- and unskilled sectors like care homes, bars and shops leads to a 5.2 per cent reduction in overall pay in the sector.9 And there is a strong consensus among economists that the immigration effect on the low-paid would have been much sharper but for the introduction of the minimum wage in 1999. (The majority of Eastern Europeans who arrived after 2004 have been working for around the minimum wage.)
There is also the ‘opportunity cost’ for native workers, meaning the higher wages that they would almost certainly have enjoyed, at least in some sectors, if not for the big inflows in recent years. The enthusiasm of the Treasury for mass immigration in the 1990s and 2000s was partly based on the assumption that it did indeed hold down real wages. Eastern Europeans represented a bit less than 10 per cent of the unskilled workforce in 2007, higher in certain areas. Indeed according to the ONS roughly 20 per cent of all unskilled workers are born abroad, which is enough to create significant downward pressure on local wage rates.
It is often said that immigrants are needed to do the jobs that local workers won’t do. That is sometimes the case but not generally so; in most parts of the country where there are not many immigrants local people will fill the vacancies. It is true that workers in welfare states usually have a strong sense of their worth – surely a welcome product of a civilised society – and will not do certain jobs at the wage rates or conditions on offer. Immigrants, from poorer places, will often do those jobs instead. A keen young Latvian graduate who is here for two or three years on a working holiday to improve his or her English and have some fun is almost bound to be more attractive to employ in a pub or a care home, and cheaper given lower wage expectations, than a local kid with a clutch of not very good GCSEs and a bit of attitude.
Of course workers in rich countries with welfare states can sometimes be lazy or difficult or poorly educated, and a keen, well-educated foreigner who speaks good English will usually be preferable to an individual employer. But it makes no sense from the point of the country as a whole to have millions of sullen locals sitting at home on benefit (and even during the boom years in Britain the number on out-of-work benefits never fell much below 5 million) while poorer foreigners come in and take the jobs that they should be doing.
At the more skilled end of the labour market immigrants are often helpful in plugging temporary skill shortages. But they can also discourage investment in education and training. The classic example of this was UK medicine where for many years we were over-dependent on luring doctors from Third World countries because we didn’t train enough of our own.
Martin Ruhs of the Migration Advisory Committee argues that the historic institutions and policy assumptions of British economic life – low levels of labour regulation, non-existent employer collaboration on training – make this country particularly vulnerable to over-dependence on foreign labour. The construction industry, for example, is highly fragmented and does very little training, relying instead on project-based labour, informal recruitment and casualised employment. By contrast, many European countries have proper training and apprenticeship programmes, producing workers with a wide range of transferable skills. It is often these workers who are doing jobs in Britain. Most of the skilled construction jobs on large projects – for example the Olympic sites – were filled by non-British citizens. Social care is another sector that has an in-built bias towards foreign workers, in this case not so much because of their skill but because of their readiness to work long and anti-social hours for low pay in an often physically and emotionally demanding job. Because of the constraints on the local authority budgets that pay for social care, about two-thirds of care assistants in London are immigrants, though the number is much lower in some other parts of the country.
Importing cheap and motivated foreign labour in effect shelves the problem of how to get the difficult natives back into work. It has, as Fraser Nelson, the editor of The Spectator, argues, ‘broken the link between more jobs and less dole’.10
Supporters of large-scale immigration will argue that immigration is not a zero-sum game; the right kind of immigrant labour is a kind of yeast that helps to swell the economic brew both for the incomer and the native. Higher growth might justify shelving the ‘difficult native’ problem, but growth per head has not been significantly increased by mass immigration, especially once the immigrants themselves are removed from the equation. A paper by the National Institute of Economic and Social Research published in 2006 concluded that since 1998 immigrants had added 5 per cent to the working-age population but only 3.1 per cent to GDP, meaning a fall in GDP per head.11 And a 2007 National Institute paper found that the arrival of 700,000 Eastern Europeans since 2004 has raised output by merely 0.4 per cent, also meaning a small fall in GDP per head.12
So, even on wages, employment and economic growth it is a mixed picture. But what about the more generic claim about diversity and dynamism? It is a commonplace of the immigration debate to say that Britain has benefited in the past from small inflows of dynamic outsiders – perhaps most significantly the small Jewish inflow of the late nineteenth and early twentieth century and the smaller East African Asian inflow of the 1970s. Britain continues to attract creative and inventive foreigners and should, of course, go on doing so – immigrants are twice as likely to start a business as natives, both the corner shop and bigger businesses too.
The ‘immigrationists’ make much of how immigrants see things differently and are more determined to succeed. Without immigration Britain today would no doubt be a less dynamic place. But the idea that if we reduce net immigration to 80,000 a year (still meaning a gross inflow of around 350,000) we will become economically stagnant is absurd. Finland, one of the most prosperous and dynamic countries in Europe, has virtually no immigration. In any case we have a vast amount of diversity stored up already thanks to the immigration of the last 60 years. We need time to absorb it and make the best use of it.
Conclusion
The economics of immigration in a place like Britain involves complicated trade-offs. Many of us benefit as employers and consumers from certain types of immigration and, arguably, all of us benefit from the downward pressure on wage inflation. But then all of us might be said to suffer from the fact that a mass immigration policy allowed the economy to grow rapidly for 10 years without tackling the welfare ghettoes – about 1.8 million new jobs were created when Labour was in power but the number of people on out-of-work benefits of various kinds never fell below 4.5 million. The complaint that (at least from about 2002) the main beneficiaries from the boom years were bankers and immigrants has some truth.
This argument is also about divergent attitudes to national citizenship and what special protections and entitlements it should imply. Immigrationists and libertarians argue for minimal protections while social democrats and most ordinary voters – who regard labour, like capital, as a special kind of good – generally want some citizen favouritism in labour markets. The sweeping away of that historic protection in 2004 with the arrival of a large number of East Europeans was a political shock. An implicit part of the social contract had been removed by an elite that seemed to have little need for it. The common-sense communitarianism of most ordinary voters clashed with the more universalist and free market preference of the political class, and Labour paid a heavy political price for it at the 2010 election.
But how much protection is really necessary? A former Whitehall economist like Jonathan Portes, one of the most influential supporters of mass immigration in the late 1990s and early 2000s, argues that it is not an either/or question. It is possible in theory to spend billions on improving training and work incentives for the hard to employ locals, as Labour in power did, and benefit from reasonably open immigration. But the failure to make a big dent in the workless numbers in the 2000s suggests that there is a trade-off – employers, given an option, will almost always opt for the cheaper and better motivated foreigner. And he or she is better motivated partly because an unemployed East European will normally better his or her situation considerably working in a coffee shop in Croydon; an unemployed British citizen is quite likely to be worse off, or barely better off, once loss of housing and other benefits have been factored in. This is unfair competition for the domestic worker.
This is not an argument for a closed door but for relatively low and highly selective immigration, especially at the lower and middling skill levels. It is also an argument for extra protection and help for hard to employ citizens, and, of course, for further welfare reform to give people a hand back into jobs rather than trap them in dependency. There are 1 million young people who are not in employment, education or training, and 300,000 unemployed graduates. And yet in the south-east of England more than 80 per cent of staff in the hospitality sector are not British citizens. It is a similar picture among London Underground cleaning staff and more than half of those in the care sector, and on many big building sites up to 70 per cent of the skilled jobs are taken by outsiders.
Employers will have to be persuaded to change their attitudes too. It has become a cultural reflex to assume that British workers are less good than foreigners – like British cars in the 1970s. Jobs, indeed whole sectors, with low pay and status often become thought of as ‘migrant jobs’ by both employers and potential employees. But the status of a job is a surprisingly elastic and subjective thing, and with a little bit of imagination – some training or career development – it can be made to seem more attractive.
It was never envisaged in the late 1950s that free movement within the EU would encompass economies with hugely different wage rates or that 1.5 million people from Eastern Europe would end up coming to work in Britain between May 2004 and December 2008. The principle of free movement cannot now be undone, it is part of the EU religion, but it can surely co-exist with special protections and support for hard to employ national citizens, something currently ruled out by the EU principle of non-discrimination. Labour should be talking to its sister parties in the European socialist group about revising this rule. There is nothing in socialist internationalism or the European spirit that says you should not try to protect your most vulnerable and least successful citizens from certain kinds of labour market competition.
The evidence is now pretty clear. The economics of mass immigration is broadly neutral except for those at the bottom, but the social and cultural case has turned negative thanks to the sheer scale of the inflows since 1997. We are deep into a huge social experiment, and to give it a chance of working – and of avoiding the sort of opinion swing we have seen in the Netherlands – we need to heed the ‘slow down’ signs.
Indeed, Britain now requires an immigration ‘pause’ to absorb the large inflows of recent decades – perhaps comparable to America’s immigration pause from 1920 to 1970 (only 4.7 per cent of the US population was foreign born in that year). Denmark’s experience shows it is possible even in the modern world. And as the settled democratic will asserts itself it does seem that we will, albeit slowly, emerge from a period of ‘irrational exuberance’ over immigration. We must do so carefully; even if the last 15 years have brought few net economic gains for the resident population, untangling ourselves too fast from our immigration dependence could have damaging consequences.
And there will be some economic costs even if the disentanglement is well managed. If we reduce the supply of cheap labour from abroad we will have to pay a bit more for many services, from restaurant meals to nursing care for our ageing parents, in order to attract staff. The extra time, cost and bureaucracy required to get people into the country for long- or short-term stays means that we will lose some individuals and economic and cultural activities that we could have benefited from. This is a price that people seem happy to pay for a return to moderate levels of immigration.
Notes
1. This chapter is an edited version of David Goodhart, The British Dream: Successes and Failures of Post-war Immigration (London: Atlantic Books, 2013), ch. 1.
2. Philip Stephens, ‘A new age of bitter nationalism’, The Financial Times, 28 October 2011.
3. David Miliband, ‘Why is the European Left losing elections?’, lecture delivered at the LSE on 8 March 2011. Available at http://www2.lse.ac.uk/assets/richmedia/channels/publicLecturesAndEvents/transcripts/20110308_1830_whyIsTheEuropeanLeftLosingElections_tr.pdf, p. 7 (accessed on 25 August 2014).
4. Adair Turner, ‘Demographics, economics, and social choice’, lecture at the LSE on 6 November 2003. Available at http://cep.lse.ac.uk/events/06112003.asp (accessed on 25 August 2014).
5. Simonetta Longhi, Peter Nijkamp and Jacques Poot, ‘Meta-analysis of empirical evidence on the labour market impacts of immigration’, Population Studies Centre Discussion Paper no. 67 (February 2008), available online at http://www.waikato.ac.nz/__data/assets/pdf_file/0003/74172/dp-67.pdf (accessed on 23 October 2014).
6. Timothy J. Hatton and Massimiliano Tani, ‘Immigration and inter-regional mobility in the UK, 1982–2000’, The Economic Journal 115 (2005), pp. 342–58.
7. House of Lords Select Committee on Economic Affairs, ‘The economic impact of immigration’, 1 April 2008. Available at http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeconaf/82/82.pdf (accessed on 25 August 2014).
8. Christian Dustmann, Tommaso Frattini, and Ian P. Preston, ‘The effect of immigration along the distribution of wages’, CReAM Discussion Paper No. 03/08, Centre for Research and Analysis of Migration, Department of Economics, University College London, 2008.
9. Stephen Nickell and Jumana Salaheen, ‘The impact of immigration on occupational wages: evidence from Britain’, Working Paper No. 08–6, Federal Reserve Bank of Boston, Boston, 2008.
10. Fraser Nelson, ‘British jobs for whom?’, The Spectator, 28 August 2011, available online at http://blogs.spectator.co.uk/coffeehouse/2011/08/british-jobs-for-whom/ (accessed on 23 October 2014).
11. Rebecca Riley and Martin Weale, ‘Commentary: immigration and its effects’, National Institute Economic Review 198 (October 2006), pp. 4–9.
12. Ray Barrell, ‘EU enlargement and migration: assessing the macroeconomic impacts’, NIESR Discussion Paper no. 292 (March 2007).