Immigration: Free Market Failure?

Immigration is one of the most controversial issues in British politics, consistently ranked as the most important issue after the economy by voters. Politicians compete to sound tough, but there is a really a large degree of consensus since policy is severely constrained by EU membership, guaranteeing the free movement of workers between member states.  Since recent research showed that Britain is one of the most tolerant countries in the world, where does hostility to immigration come from?

Immigration, when managed properly, can benefit everyone. Migrants can perform jobs that Brits do not want to do; the fruit-picking industry, for example, would collapse without temporary Eastern European workers. Since it was founded, skilled migrants – from India to Ireland – have kept the NHS afloat and continue to do so today. Even Enoch Powell – best known for his provocative, anti-immigrant ‘Rivers of Blood’ speech in 1968 – saw the necessity of his successful campaign for thousands of doctors from India, Pakistan and Bangladesh to overcome a full-blown staffing crisis.

As well as doctors, a system welcoming the world’s best academics, artists and businesspeople promotes new ideas and innovation. At universities, thousands of foreign students are effectively a free ‘export’ market; without support from the taxpayer, students buy from British firms and support British jobs whilst subsidising British students.

Migrants overwhelmingly work hard, pay tax and contribute to society. Many of the most common gripes about migrants are misplaced. ‘Health tourism’, for example, is a vanishingly tiny problem to the extent that hiring the staff to tackle it would probably cost more than it would save- unpaid fees by foreign nationals cost the taxpayer £12million, just 0.01% of the overall NHS budget.

Tory bluster about ‘benefit tourism’ is similarly unfounded. A tough habitual residence test which takes around six months is required to claim any benefits (migrants cannot claim benefits ‘from day one’), after which migrants are around half as likely to claim benefits as British nationals. There are cases of abuse which should be tackled, but the problem is grossly exaggerated and is certainly not a fair reflection of the overwhelming majority of migrants.

However, perhaps the most compelling benefit of immigration is its potential as a long-term solution to Britain’s aging population. As life expectancy continues to rise, medicine continues to advance and we expect an ever increasing higher standard of living in old age, we may one day regret turning away young migrants whose families would form the tax base we sorely need to pay our pensions

Finally, immigration cannot just be reduced to an economic cost-benefit analysis. British culture is vague, ill-defined and contested but is still real and important, perhaps an eclectic mix of fish and chips, queuing, tea, self-deprecating humour, Shakespeare and talking about the weather. British cultural identity has always been fluid and is enhanced by the contribution of migrants.

Yet if the benefits of the immigration are so overwhelming, why does it cause so much controversy? Balanced immigration can bring all the above benefits, but the mass immigration seen in recent years also brings serious risks. New Labour emphatically failed to convey the significant benefits of immigration but, even more damagingly, it was in denial about the potential disadvantages of uncontrolled immigration. The failure to take advantage of transitional controls for immigration from new EU states in 2004 (Poland, Hungary and Czech Republic) led to 250,000 new migrants each year, 20 times the predicted number, is just one example of complete denial about the harm immigration can cause.

Immigration is not uniform but is concentrated in specific areas of towns and cities, often the poorest areas. Pressure on the NHS, social housing and other public services is real when the uneven distribution of immigration is not regulated and controlled. Immigration is not the cause of these problems – a chronic undersupply of affordable housing in recent decades, for example, is far more significant – but a huge influx of new migrants can exacerbate the problem, at least in the short-term.

There is huge debate over the link between immigration, unemployment and wages, with no clear answers.  Generally, research finds that the impact is regressively unequal. For skilled middle and high-income native workers, immigration actually has a small positive effect on native wages. This is perhaps because immigrants boost overall demand in the economy, or because skilled native workers complement skilled migrants, increasing productivity.

Yet for unskilled low-income workers, immigration has a negative effect on wages. Basic supply and demand predicts that a sudden shock to supply through an influx of new workers will drive down wages or increase unemployment. Native Brits are often competing with bright, educated migrants who are grossly overqualified yet still apply for unskilled jobs.

Misleadingly, this can lead to headlines suggesting immigration has a neutral or even positive overall effect on wages; this is true, but masks the harm to low-income workers.  Big business benefits the most from the free flow of cheap labour between countries, whilst the poorest British workers shoulder the harms of immigration. This is fundamentally unfair in an already bleak job market for unskilled and semi-skilled workers, as stable blue-collar manufacturing jobs are obliterated during the relentless and unforgiving process of deindustrialisation.

Unfortunately, New Labour left behind this section of the population, the old working-class backbone of the party; it was dazzled by the shiny and electorally successful rhetoric of modernisation and globalisation which it used to gloss a laissez-faire, light-touch approach to immigration regulation. The harms of immigration are a failure of the free market; it is baffling to see immigration scramble conventional political divisions as committed Thatcherite Tories suspend their faith in the ability of unregulated markets and free trade to reach optimal outcomes and instead call for the heavy hand of state intervention to control the movement of people.

Ed Miliband’s recent denunciation of New Labour’s uncritical attitude to mass immigration, accepting that Labour “got it wrong”, may signal a shift to a more balanced and less dogmatic approach to immigration; hopefully Jon Cruddas, an idiosyncratic left-wing critic of mass immigration, will turn this into concrete policy reform as he leads Labour’s policy review into the next election.

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