Dear Paul,
I’ve found myself agreeing with pretty much everything you have said on the economic state of Britain and the EU, from the folly of austerity to the fundamental flaws in the Eurozone. However with regard to the most important factor behind Brexit, you have remained as silent as other commentators. I’m really beginning to fear that this silence on the part of progressive economists and politicians is pushing us into the hands of the extreme right.
Ordinary people are repeatedly told by mainstream economists and politicians that immigrants are net contributors to the economy. And yet this flies in the face of their own experience : of lower wages, higher housing costs and pressure on transport, schools, hospitals etc. What is going on?
Stupid Leave supporter “immigration is making workers worse off by increasing the labour supply”
Clever Remain supporter “immigrants increase demand as well so we’re all as well off as before”
In reality we have to take into account the other factors of production — capital and land. Yes, if the supply of all were increased by the same amount, and the demand for goods and services goes up by the same amount, then obviously everyone is as well off as before. But if both demand and the supply of labour increase without the supply of capital and land increasing by the same amount, then this simply isn’t true.
For public capital like roads, schools and hospitals we get shortages and overcrowding. For housing we get prices going through the roof. For private capital like offices and factories we get the suppliers of capital getting a higher return and the suppliers of labour getting a lower return — ie increased inequality. This is basic school-level economics, and all these things have indeed happened. Ordinary people can see this happening, and yet the the entire establishment flatly denies it, and accuses them of being ignorant xenophobes. This has to stop!
It is truly disgraceful that people have been lied to in this way about the real costs of immigration. No wonder this revolt has happened. And it’s no good just blaming the (genuine) stupidity of the current Government and its policy of austerity — even the most progressive government would struggle to cope with immigration on this scale.
We can actually get a fairly basic estimate of how much the UK capital base needs needs to increase per immigrant. Total UK capital base is estimated to be around 5 times GDP (according to Piketty) or about £10 trillion, which is around £150,000 per capita. So to keep things in balance an investment of £150,000 needs to be made up front for each new immigrant. That is an awful lot of money, and when you look at the proposed costs of HS2 or a new runway at Heathrow, I suspect it is a massive underestimate. And we’re not even considering the impact of land being shared between more and more people, something which cannot be simply increased.
I can understand the reluctance to raise this issue, for fear of causing anti-immigrant feelings, but it’s now got to the stage where ordinary people know it is true even though their “betters” continually deny it, and that is a horribly dangerous situation to get ourselves into.
Of course I can also understand how the richest in society, the capitalists and big landowners, would not want to raise the issue, as they are the only ones who actually benefit, with lower wages and increased return on capital and land.
But we all now need to recognise that migration, for so long a fundamental aspect of the EU, is really an extremely inefficient mechanism for resolving economic imbalances. If you take the full costs into account, it is far cheaper to move jobs to where people are rather than moving people to where the jobs are.
If we can accept this, then we can easily do something about it. It doesn’t mean that there has to be legislation to restrict freedom of movement. But it does mean that it is both fair and economically valid to discourage excessive migration by ensuring that the true costs are taken into account. A fairer system might be to tax immigrants at a higher rate (which might well be an extra 20% on income tax) for a few years to compensate the pre-existing population for the genuine cost of infrastructure development required.
We can wrest this situation back out of the hands of the extreme right if we acknowledge the problem and find a solution which is fair to all. But it we continue with this denial then heaven help us.
Steve