Successive governments have maintained high levels of immigration to stoke the economy. The argument against this is growing, bringing together odd bedfellows. By Mike Seccombe.
Inside the ‘just add people’ dogma
It was the experience of working in Japan that caused the scales to fall from David Pilling’s eyes.
Over 20 previous years as a reporter in various parts of the world, Pilling did the orthodox thing for a Financial Times journalist and viewed “everything through the prism of economic growth”.
Writing in his new book, The Growth Delusion, he says: “I taught myself how to compare every number to GDP and to mention it in almost every article …”
Then in the mid 2000s he was posted to Japan, a country he considered to be a “basket case”. That all-important measure – gross domestic product – had been stagnant for two decades. So had the country’s population. And the conventional economic wisdom to which Pilling then subscribed “could not imagine how a country can possibly progress if it is not forever adding people to its workforce”.
This, of course, is the same conventional wisdom that informs Australia’s immigration policy. Indeed, no other country is so dedicated to a simple formula for jobs and growth: just add people.
So what Pilling has to say is instructive at this time of renewed debate about immigration.
The country of his posting was regularly reported as being “stuck in perpetual stagnation and without the wits to haul itself out of misery”.
But Japan’s supposed misery, as measured by nominal GDP, really wasn’t miserable at all, he found. Unemployment was extremely low, prices were stable or falling, the standard of living was rising, communities were intact “certainly in comparison with America, Britain and France”. Crime was low, drug abuse almost non-existent, and life expectancy about the highest in the world. The food was excellent and consumer goods and services were world class.
That’s not to say he didn’t recognise Japan’s problems, only that his Japanese experience drove home to Pilling the folly of equating economic growth – as currently measured – with progress.
Japan made him realise the fundamental problem with GDP as an indicator of how a society is doing: it is a measure of quantity, not quality. It tots up the negative along with the positive, measuring activities where money changes hands, be they worthwhile or not. If crime goes up and more has to be spent on locks, jails and police, GDP goes up; if cars burn more fuel because they are stuck in traffic, GDP goes up.
A few years ago, the British statistics office decided to estimate the “value” of activities they had previously not included in their accounts, including sex work and the illicit drug trade. Hey, presto: Britain’s economy instantly appeared bigger by about 5 per cent, or £65 billion, although no one was actually any richer as a result and the problems of drug trafficking, for example, were no less pressing.
As Pilling says, there is something wrong with a system in which unpaid activity is uncounted, where if someone steals your car and sells it, that counts toward growth, but if you look after an aged relative or bring up three well-adjusted children, that does not.
Yet GDP, he writes, is presented to us as a moral measure and a “proxy for wellbeing”. And in pursuit of endless growth “we are told we may have to work longer hours, slash public services, accept greater inequality, give up our privacy and let ‘wealth-creating’ bankers have free rein”.
“Only in economics is endless expansion seen as a virtue,” Pilling writes. “In biology it is called cancer.”
As for why Japan, among all the countries across five continents in which Pilling worked, should have inspired an epiphany and a book? Well, Japan is unique.
For about 40 years, the Japanese have been having fewer babies than is necessary to maintain the population, but that is not the unique bit. More than half the people of the world now live in countries where the fertility rate has fallen below the replacement level.
What makes Japan different is that it has not sought to cover the shortfall through immigration. There’s no denying the reason: Japan is xenophobic. It is not welcoming to foreigners, no matter their circumstances.
In 2016, for example, it accepted just 28 refugees, and another 97 people for unspecified “humanitarian reasons”. It does give very generously to the UNHCR – almost $US165 million that year – but only so refugees can be cared for somewhere else.
As a result Japan’s population has begun to fall. From a peak of just over 128 million in 2010, it is already down by about 1.5 million.
It is feasible for countries to manage population decline so long as their birthrate is just a little below the replacement rate of about 2.1 children per woman, on average, says Peter McDonald, professor of demography at the University of Melbourne.
Once you drop below the 2 to 1.7 range, though, “you cause too much damage to your age structure”.
Japan’s reproduction rate is less than 1.5. In the longer term, if the country maintains its demographic trajectory, it is likely to be in trouble. We can’t be sure, of course, because it has never happened before.
For now, Japan defies economists’ talk of a demographic death spiral. Over the past decade, its GDP has grown by an average of about 0.5 per cent. In 2017, it grew by about 1.6 per cent.
That looks poor, compared with Australia’s long-term average of more than 3 per cent economic growth, and even against last year’s 2.4. But things look very different when you examine how that growth is shared.
Australia’s per capita growth last year was just 0.8 per cent, by the recent calculation of business journalist Alan Kohler.
“That is, two thirds of last year’s economic growth came from population and most of that from immigration,” he wrote.
“So Australia’s actual national economic strategy, as opposed to the pretend one, is to simply add numbers – not to encourage jobs and growth through tax cuts – and it has been since 2005, when John Howard doubled average immigration from 100,000 per year to 200,000.”
In conjunction with the natural increase in the population, immigration now adds about a million more people to Australia every three years.
By tacit agreement, both major political parties, as well as the econocrats who advise them, persist with the “just add people” strategy. It’s convenient because it allows them to maintain the fiction that Australia is some kind of miracle economy that due to their superior economic management hasn’t had a recession for more than a quarter of a century.
It’s convenient, too, for Australia’s corporate sector, because it’s a lazy way to make money. Indeed, the Business Council of Australia would like to import even more people each year.
“The BCA/boardroom orthodoxy simply says ‘the more the merrier’,” says former New South Wales premier Bob Carr, a long-time sceptic about the benefits of high immigration.
“Australian growth is dependent on the highest rate of immigration, proportionately, of any developed country. It is excessively dependent on … building apartments and struggling to build infrastructure,” he says.
“That’s not a smart society. That’s not innovation. Maybe it’s time to shift the debate to the appropriateness of this economic model. I pose the question: would it be such a tragedy if we took about six years before we added another million to our population, instead of three, as we do now?
“It might free up capital to invest in other areas, like innovation.”
Carr has been expressing his concerns about the environmental and development consequences of “untrammelled” population growth for years, but lately he’s been pleasantly surprised at the odd coalition of people who’ve joined him.
Still, he can’t help question the motivations of some of those now calling for a rethink of immigration, such as John Howard and Tony Abbott.
“Howard and Abbott were part of an orthodoxy that drove immigration to higher levels,” he says.
And that’s absolutely true. During the term of the Howard government, the migrant intake doubled. And the permanent migration program, which Abbott now wants reduced to 110,000 a year, has been set at 190,000 migrants a year for the past six years. Abbott was prime minister for two of those years.
Carr suspects mischief, but whatever Abbott’s motivation, he’s boots and all with the immigration critics now.
Back in February, in an address to the Sydney Institute, Abbott advanced several arguments for cutting the intake: that too-high immigration depressed wages and increased the demand for housing, inflating prices. The rate of population growth, he said, was so high that the infrastructure of Australia’s major cities was “clogged”.
Where, he wanted to know, was the planning? Why was it that “no one on the front bench of government or opposition had been prepared to raise the one big contributing factor that is wholly and solely within the federal government’s control – until Peter Dutton finally said last week that immigration could be cut ‘if it’s in our national interest’ ”?
“Just 16 years ago,” Abbott said, “in the first Intergenerational Report, it was expected that our population would not reach 25.3 million till 2042. But due to current immigration levels, we’re going to achieve that figure next year – or 23 years early.”
Abbott could not resist bringing issues of race into it, blaming the immigration rate for “ethnic gangs that are testing the resolve of police”. This is where the arguments fester: there is an economic rationale here, powerful on the numbers, but it is undone by ugly appeals to racism and xenophobia.
Treasurer Scott Morrison promptly slapped Abbott down, saying the proposed cut would cost the budget $4 billion to $5 billion over four years and deprive the country of necessary skilled migrants. Morrison’s claims were in turn systematically taken apart in The Australian, of all places, by economics writer Judith Sloan, who alleged “an immigration conspiracy going on involving Canberra bureaucrats and politicians, among others, who are only too happy to overstate the benefits of immigration while downplaying the costs”.
Sloan’s evidence-based debunking was quite compelling, and also rude and patronising. She took Morrison’s argument as proof that “he doesn’t know the first thing about economics”. That is perhaps the more interesting aspect of the debate: the way it has cut across normal ideological boundaries.
Ian Lowe, emeritus professor of science, technology and society at Griffith University, and a former head of the Australian Conservation Foundation, is not one you would usually hear singing from the same song sheet as Abbott, but he is in wholehearted agreement on the need to work towards a long-term population goal, rather than a short-term immigration target.
“We should have a policy of stabilising our population at a level that can be sustainably supported,” he says.
“You can debate the level, because [sustainability] depends on things like levels of consumption – whether we continue to have the largest houses in the world, whether we continue to drive large, inefficient cars.
“But it is self-evident that population cannot expand forever. We need a long-term goal because of the inertia of growth. If we had zero net migration today … the population would take about 20 years to stabilise.
“The ABS has done three projections of future population based on different assumptions about birthrate and migration rate. The ‘A’ projection has us at 60 million at the end of the century, but we are currently tracking above the A projection.”
Australia is the driest continent, with a very limited carrying capacity, Lowe says. “At 60 million people, we could not even feed ourselves.”
The more immediate problem, though, is that Australia’s infrastructure just can’t keep up, and will fall further behind over time, Lowe says.
And the government’s own bureaucrats – at least the ones not party to Sloan’s alleged conspiracy – lend strength to the argument.
The Bureau of Infrastructure, Transport and Regional Economics estimates the “avoidable” social costs of traffic congestion in the eight Australian capitals cities. They reckoned it to total $16.5 billion in the 2015 financial year, up from $12.8 billion in the 2010 financial year. By 2030, they forecast, the cost of congestion would rise to between $27.7 billion and $37.3 billion. That is roughly the cost of the National Disability Insurance Scheme, fully implemented.
In Japan, bullet trains arrive on schedule measured to the fraction of a second; here we can’t get a light rail system built on time.
As with transport, so with housing. A report last month from centrist think tank the Grattan Institute warned that Australia’s major cities were struggling to keep up with demand.
And no wonder, really. In addition to the 190,000 permanent migrants brought into the country each year, there are, according to Treasury and the Department of Home Affairs, nearly 1.6 million temporary migrants in Australia: students, working holidaymakers, temporary skilled migrants, and New Zealanders living in Australia.
Unlike the permanent migrant program, the temporary stream is largely uncapped, and has grown like Topsy over recent years.
The Grattan report scrupulously avoided nominating the “right” number of migrants, but it cautioned that unless the states could provide housing for them all, it would be necessary to cut the intake.
A big part of the immigration dilemma is that it is the feds who decide numbers, and reap the tax dividends, while states mostly have to provide the necessary infrastructure and local governments are responsible for much of the urban planning.
Nearly 90 per cent of those temporary visa holders also have work rights. The government insists this enormous influx of labour does not drive down wages. Tony Abbott and ACTU secretary Sally McManus – another extraordinary alliance – insist they do.
There is a growing body of academic research that suggests Abbott and McManus are right. But like almost every aspect of immigration, it’s complex and contentious.
Some evidence suggests permanent migrants raise wages, while temporary ones lower them. As the department tells us, “almost half of the individuals granted permanent residency are already in Australia on a temporary visa”.
There are, according to the department, more than 5500 possible pathways through which temporary visa categories can convert to permanent residence. So working out whether migration is a net benefit or cost is exceedingly difficult.
There is one argument advanced by the high-immigration lobby, however, which can confidently be dismissed as rubbish. That is the claim that immigration protects us against the ageing of the population.
Treasury and Home Affairs made the argument again in their most recent report, “Shaping a nation: Population growth and immigration over time”. That is that high immigration serves as a way of “ameliorating the ageing of Australia’s population”.
It doesn’t. At best is defers it, and the reason is obvious: migrants also age. Therefore, the quest for eternal national youth means bringing in ever more young migrants to augment the ranks of those who have got old. It is the very definition of a Ponzi scheme.
A few other things are clear, because they can be precisely measured.
From 1996 to 2016, migrants accounted for 63 per cent of all population growth in Sydney, and 50 per cent in Melbourne and Perth, the latter due to the mining boom. Migrants were responsible for more than 40 per cent of the growth in every other capital, save Hobart, were they caused one third of it. In some suburbs, where migrants cluster, they accounted for 100 per cent of growth.
According to the 2016 census, for the first time in Australia’s history, a greater proportion here of people born overseas are now from Asia rather than Europe.
That proportion will likely continue to grow, if for no other reason than that all of Europe now has fertility rates below replacement level – some even lower than Japan. As they shrink into the future they will have fewer people to send. The countries that still have high birthrates are almost all in Africa, South Asia and the Middle East.
But pursuing endless GDP growth through endless population growth is not a viable option. Very soon, we will have to set a limit on growth.
And in doing it, as David Pilling concludes at the end of his book, we will have to consider other measures of progress. “Some things – safe streets, good jobs, open spaces, a sense of security and well-being – are a good in themselves,” he says.
This article was first published in the print edition of The Saturday Paper on May 5, 2018 as "Inside the ‘just add people’ dogma".
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