Time to talk immigration

Depending on how the next few weeks evolve, 2014 may well become the election where immigration becomes a major, if not the major issue in deciding the outcome. National has taken a firm position that high levels of inward migration are beneficial to the economy and society in general; that migrants have little to no effect on property prices; and that to even raise the issue smacks of xenophobia.

Labour has after decades of encouraging high immigration, decided that in hindsight too much immigration puts upward pressure on property prices and infrastructure requirements and that perhaps a counter cyclical approach is needed, adjusting new immigrant numbers according to economic variables and the fluctuating numbers of New Zealand citizens and residents leaving and returning. It has not gone as far though as calling for a population debate, defining the ideal number of people this nation is both economically and ecologically capable of sustaining while still keeping the attributes of “kiwi” life many of us would still like to preserve.

Like the housing affordability debate, the Greens seem remarkably quiet about immigration and have, like the other parties, no clear line in the sand regarding the human carrying capacity of the country, though their website does quote the 5.7m figure from the Ministry of Environment. As I noted in the previous housing post, they remain the only Green party in the world with no explicit commitment to Steady State economics. Their lack of a clear position on a sustainable population, what it might be and how immigration policy fits into this, is a potential conflict with some of their other “liberal” positions, particularly regarding the Treaty of Waitangi and Maori. More than the other parties they seem most wary of being labeled xenophobes, yet an open immigration policy logically conflicts with their environmental goals.

The national debate somewhat mirrors the Auckland one. There seems to be a hand’s off blasé acceptance by both the Auckland City Council and successive governments to continued population growth, particularly in Auckland. You could even argue it goes beyond this, to an empire building megalomaniac desire on the part of politicians to create a legacy of a super city comparable with Sydney or Melbourne.  Yet there has not been any attempt to ask existing residents what they think of either the changes in numbers or its ethnic makeup. Have for example immigrants of vastly different cultural backgrounds, like Chinese and Indian, been allowed entry in greater numbers than existing residents feel comfortable with? Have overall numbers put too much of a strain on infrastructure and degraded the quality of life of everyone in less tangible ways than strictly economic measures eg commuting times, overcrowding of public amenities/beaches/parks etc

Auckland in particular is reshaping itself as a city of immigrants – nearly 40% born overseas; and of significant Asian influence – over 23% of the population, a doubling since 2001. While this has made Auckland a more “international” and “diverse” city, it has bought many changes that none of its older residents were asked if they wanted. It may well mirror similar transformations overseas in other “international” cities but it does not excuse the lack of consultation or the inclination by anyone supporting immigration as an supposed engine of economic growth to use the race card to stymie debate. There has been little to no research on how immigration, particularly of culturally different groups, has altered local and national attitudes towards the environment, welfare, Maori and the Treaty of Waitangi and a whole host of other issues. There is now increased awareness by political parties that the immigrant vote is a potentially election changing force but with unclear, if any, motivations.

  • Are Asian nationalities for instance more conservative, less concerned about welfare, the environment , human rights and democracy? Or having come from repressive political environments with more pollution and no welfare safety net, are they as liberal or more so than existing residents on these issues?
  • Is there a set of “kiwi” attributes that we wish to preserve, that foreign immigrants have to buy into to get residency here? Do immigrants want to assimilate or are they happy to coexist but mainly interact with each other?
  • Is the great melting pot a reality or a myth? Is it even possible or desirable given the experience of overseas cities? Does too much diverse immigration dilute our uniqueness and just make Auckland one of the pack, forever destined to be Sydney’s little sidekick?
  • What is the political logic and motivation behind all the major parties supporting immigration and population growth? Is it purely economic or are there other agendas? Is heavy immigration quid pro quo for integration into the global economy? Is National in particular wary of the consequences of saying no?

So if there is little research to show the social and cultural “benefits” beyond what Statistics NZ states as “multilingual abilities” and the “growth of ethnic festivals, retail and food enterprises”, there must be compelling economic evidence right?

Well no. Most of it involves some pretty hefty assumptions mostly based around agglomeration and economies of scale and the perception that any GDP growth is good. While it is undeniable that too much population loss affects a city or town detrimentally; loss of basic services like banking, schools, police etc and not enough critical mass for most retailing; it is difficult to make the case for the opposite, that adding more and more people will be beneficial to the local and national economy. Certainly gross GDP will increase with more people but per capita GDP and income increases are far from certain.

At an indeterminate point diminishing returns set in. Businesses experience reduced productivity and increased costs from congestion. Tax and rate payers have to fork out more per capita to fund new infrastructure from hospitals and schools to roads and rail. The economies of scale, like those of the Auckland City Council amalgamation, become a mirage, disguised by selective use of statistics and obfuscating bureaucrats and politicians.

When most of the population growth is from external migration rather than natural birth rate, the potential economic benefits are even more dubious. A couple of months ago Treasury released a working paper titled Migration and Macroeconomic Performance in New Zealand: Theory and Evidence. In its opening abstract it states:

New Zealand immigration policy settings are based on the assumption that the macroeconomic impacts of immigration may be significantly positive, with at worst small negative effects. However, both large positive and large negative effects are possible. Reviewing the literature, the balance of evidence suggests that while past immigration has, at times, had significant net benefits, over the past couple of decades the positive effects of immigration on per capita growth, productivity, fiscal balance and mitigating population ageing are likely to have been modest.

It goes on to say:

More work is required to assess the potential net benefits of an increase in immigration as part of a strategy to pursue scale and agglomeration effects through increased population, or whether a decrease in immigration could facilitate lower interest rates, a lower exchange rate, and more balanced growth going forward.

No one really knows whether all the massive recent immigration is economically beneficial or not. It depends on what model you use as your starting point. It is even possible to make the case that mild population decline may be beneficial on a per capita basis.

The predictions of economic and demographic theory regarding the consequences of population decline are ambiguous. One interpretation of the evidence suggests the New Zealand economy would perform better with a much smaller absolute population size. This approach would be consistent with the efficient utilisation of New Zealand’s natural resource endowments, making the best use of New Zealand’s land and climate and geographical isolation without attempting to develop unrelated stand-alone activities typically found in larger economies. However, the path to such a position is generally considered to be impractical.

The paper goes on to show why immigration is essential to maintaining property prices. A market requiring ever increasing numbers of participants and debt is I believe characteristic of a financial mania or ponzi scheme. Support of the banks and the property market that underpins them is probably the largest unstated reason for politicians and the finance sector wanting immigration and population growth to continue.

In addition to cost impacts, population decline can affect confidence, reducing investment in physical and human capital. A particular source of confidence effects is the housing market. As housing supply is slow to adjust downwards, where housing is the dominant asset, falling population can lead to falls in house prices that greatly affect household wealth and thus confidence. From the perspective of an individual business, a rising population looks like a benign environment for expansion, with prospects of more customers and more suppliers. Over-optimistic expansion plans may be made good over time by population growth.

The Treasury paper mirrors the report by the Australian Productivity Commission in 2011 which also found little evidence of per capita economic gains from either immigration or population increases.

Two benefits that are sometimes attributed to immigration, despite mixed or poor evidence to support them, are that immigration is an important driver of per capita economic growth, (and) immigration could alleviate the problem of population ageing

Both studies noted the fallacy that “importing” young migrants would offset the relative ageing of the existing population and support the tax base. The Australian study pointed out;

Any effect would be short-lived….This is because immigrants themselves age, and progressively higher levels of migration would be needed to sustain the current age structure into the future.

Despite the lack of evidence there remains a widely accepted belief that population growth through immigration brings with it economies of scale and better growth prospects. That these have not eventuated has not caused policy makers to reconsider their support for continued high immigration. It continues, unabated, almost as a matter of faith.

Of all immigration’s effects, the upward pressure it puts on property prices, particularly in Auckland, seems the most demonstrable. This is the likely reason parties of the status quo, here and overseas, wish it to remain out of the national political debate. They have determined the economy rises or falls on property prices and the confidence it engenders. Without that continually increasing demand they are fearful of a substantial downward correction in prices and what that would mean for the financial system and their electoral prospects.

Instead of questioning the rationality of this approach, National, and until very recently, Labour, have used the specter of xenophobia to keep the immigration issue off the table. It is in the nation’s long term economic and social interest to defy this agenda and pause immigration for a year or two while we have a conversation about  population size and composition and what it means for things like property prices, cultural diversity versus dilution, and the environment. If this flows over into challenges to the economic status quo, so much the better.

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2 comments

  1. […] housing programme with sales to low income buyers only and bans on foreign and investor sales. Immigration must also be substantially reduced. Instead we have National, Labour and to a certain extent the Greens wishing to perpetuate high […]

  2. Aotearoavivente · · Reply

    There’s no such thing as Auckland City Council. There is however, Auckland Council. The former was the old name for the central part of Auckland region, which has now been subsumed into a regional framework, called Auckland Council.

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