Sunday, April 02, 2006
Beware the tide of angry immigrants
Posted by David Smith at 11:00 AM
Category: David Smith's other articles

In America hundreds of thousands took to the streets to protest over immigration, and the threat of a clampdown on “illegals”. In France, people protested violently against laws designed to make it easier to fire (and hire) young workers.

Here, local authority workers went on strike over pensions in what was said to be the biggest walkout since the 1926 General Strike, though the 1978-9 “winter of discontent” might have something to say about that.

Are these events related? Yes. Immigration is a characteristic of dynamic economies. Illegal immigration into America has provided a safety-valve for the job market and helped provide the impetus for economic growth. It would be better if it were legal but the economic effects are much the same whether it is lawful or not. Any serious clampdown on immigration would harm the US economy.

It would also, according to a report from the Institute of Public Policy Research on Friday, harm Britain’s economy. Trying to deport the 500,000 or so illegals in the UK would be costly and deprive the Exchequer of much-needed revenues and the job market of vital staff, it said.

Capital Economics estimates that true net migration last year was more than half a million, and says it has kept a lid on wage inflation.

In France, however, many of the protestors are products of earlier waves of immigration. They are the victims of slow growth and an inflexible labour market. France’s overall unemployment rate, 9.6%, is bad enough, but the rate among the under-25s, 22.2%, is a scandal. Britain’s unemployment rate among 18-24 year-olds is 9.8%.

Young people in France are resisting a reform that could help them. After years of shilly-shallying the government under Dominique de Villepin is trying to liberalise the country’s rigid labour market. The protestors only see the downside of this - that their jobs will be less secure - rather than the upside; there may be more such jobs.

Now let me come back to Britain, like America, a significant recipient of migrant workers, legal and illegal, in the past few years. Although immigration dates back centuries, the return of net migration for economic reasons is a relatively recent phenomenon. During 1975-93, when unemployment was generally high, there was an overall net outflow, 70,000 in total, from Britain.

Since then net migration has been strongly positive. Over the period 1994 to 2004 net migration totalled more than 1.4m, or an average of 129,000 a year. The numbers increased after May 2004, when 10 new member countries joined the European Union and Britain welcomed tens of thousands of permanent stayers from eastern Europe. Even before that, however, it was on a rising trend.

High levels of net migration are now assumed to be the norm. Official population projections, highlighted by the Treasury in its budget documents 11 days ago, assume that net migration into Britain will average 145,000 a year into the indefinite future. To put that into perspective it means adding a town roughly the size of Basingstoke to the UK each year. Say no more.

To add more perspective, official projections from the Office for National Statistics (ONS), using its central or principal projection, are for a 7.2m rise in the UK population between 2004 and 2031, from just under 60m to just over 67m.

That population change breaks down in an interesting way. A sixth, 1.2m, is due to natural increases in the population already resident here. The lion’s share, 4.1m, is explained directly by net migration. But there is also a further 1.9m increases , described by the ONS as the additional natural change arising from net migration - population growth arising as a result of migrants having children here. Of the 7.2m population rise in the next quarter-century, in other words, 6m is directly or indirectly due to immigration.

This has many implications. John Prescott’s latest estimates for the growth in household numbers - and therefore housing demand - are based on these migration-swelled population increases. Provision for future public services; new hospitals, schools, roads, and so on, is based on the idea the population will grow by 12%, that most will be in England and that, in turn, it will be heavily concentrated in the south-east.

Why is Britain now the recipient of so many net migrants, and expected to continue to be so in the future? The figures suggest strongly this is an economic phenomeon. 1994, which marked the turn in the flow of net migration, was when the labour market started to show sustained strength, particularly compared to Europe’s moribund job markets.

The official statisticians suggest it is a bit more complicated than that; migration flows being explained by a range of factors, including student numbers, dependents joining family members, political troubles in other countries, and so on.

In many ways, however, it would be better if these flows were entirely economically-driven. What was the significance of last week’s strike by local authority workers? It was a group of workers holding out against a change that they regard as unfair, but which looks to be both legally and economically necessary.

What is happening in Britain’s job market now? Apart from the fact it has clearly softened in recent months, it is also being taxed and re-regulated by this government in a way that will damage employment.

The Organisation for Economic Co-operation and Development says Britain is the only leading economy to have raised employment taxes in recent years. The Forum of Private Business today reports a 30% increase over the past year in small firms reporting problems with employment regulations.

All the signs are that the job market will be less dynamic in the future. If that means immigrants are no longer drawn to Britain, seeking opportunities elsewhere, all well and good. Official population projections will have to be revised lower.

But if they continue to come, there could be problems. Instead of being fuel for a dynamic labour market, they could be surplus to requirements in a sluggish and inflexible one, and the social tensions unleashed could be considerable. The unrest we are seeing in France could be replicated, again, here.

PS Mervyn King warned last week higher gas prices would push consumer price inflation above 2% in the coming months, comments interpreted as putting paid to hopes of interest-rate cuts. That is not necessarily so. The squeeze on spending from higher gas prices, as with dearer oil, may be slowing the economy. But the Bank of England’s monetary policy committee is in “no change” mode, a position probably reinforced by the fact that US rates are now higher than here.

The “shadow” monetary policy committee, however, is in the middle of a vigorous debate. Last month the SMPC, which meets under the auspices of the Institute of Economic Affairs, voted 5-4 to cut rates, this time the vote is 5-4 again but in favour of holding at 4.5%.

The four “cutters”, cite several reasons, with Roger Bootle pointing to the prospect of “a significant undershoot of the inflation target” and Andrew Lilico arguing that a cut could lead to a pick-up in investment. Peter Spencer highlights the weakness of consumer spending and real income growth, and Peter Warburton the softening outlook for consumer spending and investment, together with the risk to exports of US consumer downturn.

None of the five who voted to hold - Tim Congdon, Ruth Lea, David B. Smith, Kent Matthews and Anne Sibert - are itching to push rates higher. Congdon warns, however, a cut could push sterling, softer in recent days, down more sharply.

So an impasse, albeit it a close one. Which way will it go? There are uncertainties out there: sterling, energy prices and consumer spending. The markets no longer expect further rate cuts and are pencilling in hikes for next year. On both, I think they’re premature.

From The Sunday Times, April 2 2006

Comments

Fear is not a successful strategy. It is a strategy that is always dominated. Please use reason when reasoning.

Posted by: victor-bravo at April 2, 2006 03:10 PM

A good description of immigration as a consequence of economics.

It however leaves out consideration of other factors which drive immigration such as public policy to serve other demands such as social, cultural and political objectives. e.g. family, refugees, demographics, linguistics. If these are added to economic demands and in the end are less tractible , then the conclusion about risks is even greater.

The experience of many traditional immigration countries is that when conditions require reductions the intractable public policy groups stay on in ever growing queues which cannot be waived away, and which eat up future capacity .

Posted by: Ishmael at April 4, 2006 12:08 PM

Here's an idea: get rid of all trade barriers. End protectionism and in particular the Common Agricultural Policy. By blocking imports of farm products (and textiles and clothing) our masters in the EU (ie France), consistently and with great success over the past few decades have:

-Kept more people in farming than otherwise, leading to shortages of labour in manufacturing and services; and

-Blighted the prospects of economic development in poor countries.

The result has been demand for, and supply of, reluctant immigration – the worst sort – into the EU and Britain, by people with no other chance of providing decently for themselves and their families. Allowing these people to trade freely with us means they could stay behind and contribute to development in their own homelands. It would staunch reluctant migration to Europe and boost demand for our goods and services overseas. Getting rid of the CAP is an essential first step on the road to EU rationality.

Posted by: Ronnie Horesh at April 16, 2006 11:59 AM
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