Has democracy failed on immigration?

In today’s issue:

• Is the immigration crisis deliberate?
• Time to share your humble pie with an immigrant
• The real reason immigration is being surged

We look like a complete bunch of plonkers to the Japanese. How hard can it be? If you don’t want more immigration, you just stop issuing the visas. Why the fuss?

But our political leaders just can’t get a grip. Right across the English-speaking world, it’s the same story. Immigration rates are spiking as fast as the governments’ polling numbers are plunging. And, in this case, correlation really is causation.

Some voters are veering into conspiracy theories to explain it. Are politicians defying their election promises deliberately?

Of course they are. But it’s even worse than that. It’s downright painfully ironic: politicians have turned to immigration for exactly the same reason that their voters have turned against it.

One single factor explains both surging immigration and the public’s growing anti-immigrant reaction.

Let me explain…

Time to share your humble pie

Imagine welcoming a new in-law into your extended family, but in two different scenarios.

In the first, your family is prospering. Nobody is unemployed and everyone’s wages are high. The children’s chances of finding and keeping a decent job depends solely on their own initiative and gumption. Everyone fights over who pays the bill at the family’s favourite restaurant.

How do you feel about welcoming a new in-law into the family in such a context?

You welcome them. The general presumption is that they are probably going to contribute more to the bill than they eat. After all, times are good.

But what if the family is not prospering?

Your cousins are deadbeats living off your taxes and then asking for money. Your nieces and nephews are studying degrees that won’t get them jobs and then demanding student debt relief.

Several people, who claim to be related to you, already need you to pick up their share of the dinner tab. And it’s a Chinese take-away, not a sushi restaurant. You are, of course, hosting the resulting culinary mess at your home. And your new in-law has had the temerity to fiddle with the thermostat while you weren’t looking.

In this scenario, families are a lot less likely to be so welcoming of any gold diggers.

The difference between these two scenarios is all about the pie we call GDP. When there isn’t enough to go around, things get nasty.

Who bakes the pie?

There are two ways to grow your share of the economic pie. One is to grow the overall pie, so that everyone’s share grows.

The other is to try and grow your share of the pie at someone else’s expense – a zero-sum game. One person’s prosperity comes at another’s loss.

Seeking to avoid the latter, governments ask themselves the obvious question: how do we make sure the pie keeps growing?

And that’s where they made a big mistake…

There are two ways to grow the UK’s economic pie. One is to produce more with the same amount of people – productivity. The other is to add more people.

Neither sells well at the polling booth. But one is at least popular with the lobbyists – large companies hoping to use a lot of cheap labour.

And so the UK has goosed its economy by flooding the country with immigrants. They spend on our universities and work in our fields. It’s great. Our GDP goes up. What’s not to like?

This worked so well for Australia in 2008 that it didn’t even experience a recession. So many immigrants flooded from places like Ireland and England that Australia’s total GDP grew.

The world watched and learned. Boosting immigration is the policy America, Canada, the UK, Ireland, Australia and New Zealand have been using to generate their Covid recoveries. After a few years without immigration, who would disagree with a bumper amount?

But I’m sure you can spot the error. Sure our GDP has bounced back. But if the underlying challenge to begin with was the size of each person’s slice of the economic pie, then adding more people doesn’t make us better off individually. The pie needs to be divided up more, making each slice smaller.

And that’s what has happened. Per capita GDP has diverged from GDP in the countries using immigration to goose the numbers. Our slices of pie have shrunk as the total pie has grown.

Some argue politicians did this is to avoid the recession moniker. Two quarters of shrinking GDP amounts to political humiliation, while several years’ worth of per capita GDP declines do not. Rapid immigration is the difference.

I suspect the real reason is our national debt. We need to keep growing the country’s total GDP in order to keep our government debt affordable. If we don’t, our political leaders follow Liz Truss and Kwasi Kwarteng out the door.

But my point today is that immigration during periods of GDP per capita decline makes people adversarial of newcomers for a specific reason.

Sure, immigrants still grow the economy. But they also require us to divide the pie amongst more people.

The key question is which effect is bigger. Is the pie growing so much due to immigration that each person’s slice is growing? Or is having to slice the pie up even more leading to smaller slices per person?

The GDP per capita statistics suggest the latter. And that’s why the panacea policy chosen by politicians to grow GDP is also behind the rise in anti-migrant sentiment.

By the way, adding high-skilled and entrepreneurial migration boosts productivity. It can grow the economy so much that each slice of the pie grows as a result. So this is about quality, not quantity.

Politicians now face an impossible choice. Respond to their political incentive to avoid a recession by allowing more mass immigration, which destroys their political support.

Or respond to their political incentive to cut immigration, which would destroy economic growth and trigger a debt crisis – the sort which removed Liz Truss in days.

It’s a catch-22, but with a fuse that’s been lit. What could possibly go wrong?

Until next time,

Nick Hubble
Editor, Fortune & Freedom