ECONOMIC AFFAIRS: by Colin TeeseNews Weekly
Immigration and Australia's economic future
, October 17, 2009
Immigration is back on the political agenda. This is hardly surprising after the announcement that 276,000 new arrivals entered Australia last year.
Among the questions being asked is whether we have an upper limit on yearly numbers. Another question is whether we cope with these numbers.
Like it or not, most of the intake will flock into Sydney and Melbourne. It takes not more than a moment's thought to imagine what Melbourne will be like in a year or two with over 100,000 new arrivals each year. Have we assessed how these numbers may be accommodated - let alone how they will be employed - in an already oversupplied labour market?
It appears that neither state nor commonwealth governments have an immigration policy, other than to let the numbers flow in and ignore the consequences.
This is a dangerously misguided approach, especially, when we have no experience to fall back on. Historically, Australia's capacity to handle a large-scale immigration program is unmatched by any other country. But these days our government seems to have the belief that it can allow the problem to sort itself out.
In some ways, we seem to be following the example of the United States. Superficially, the US appears to have policy objectives relating to immigration but chooses not to follow them.
But there is more to it than that. US immigration policy administrators are confronted with fundamental problems. Most notable is that the US has a border with Mexico which is hard to defend against illegal entry. Despite border protection measures, it is all but impossible to stem the illegal flow of migrants from Mexico into the United States.
Our administrators can hide behind no such excuse. If our immigration targets are being exceeded, it can only be because the government chooses to permit it, notwithstanding the fact that we want to take tough measures against illegal entry by so-called boat people.
It is not clear why we allow these contradictory attitudes to exist side-by-side. If more than a million are allowed to enter legally every four years, it is hard to imagine how many more would come in if our borders were completely open.
Perhaps - unlike the immigration policy which successive governments constructed and managed after World War II - these days the intention is to conceal rather than explain what is going on with immigration.
With that in mind, it is worthwhile looking back 60 years and seeing what we did then, why we did it, and why it worked so well.
After the war there was bipartisan agreement about the need for an immigration program to rapidly increase our population. There were two reasons. First was the belief that Australia's future economic growth and prosperity were importantly connected to expanding the size and scope of our manufacturing industries. There was also the belief that population numbers were vitally connected to defence and security.
These two justifications formed the basis for our immigration policy.
There was almost universal agreement that our postwar economy must have a different profile. We could not grow in the ways needed to satisfy both economic and defence considerations, while we remained mainly an agricultural producer.
In taking this approach, we accepted that we would, as before, continue to derive most of our foreign exchange earnings from the export of agricultural produce well into the future. However, our aim was to reduce our over-reliance on imported manufactured goods and seek to provide much more of our manufacturing needs from within Australia.
For this to happen we needed two things: a much larger workforce for a burgeoning manufacturing industry (a migrant inflow would be essential for that) and investment in new capital equipment and manufacturing plant.
Our capital needs for new and expanded manufacturing activity could not be met from within our own resources. It was therefore vital that we should attract investment capital from overseas sources.
Thus, foreign sources were deemed essential in providing most of the capital and much of the labour for the emerging Australian economy. In order to attract the necessary capital and labour into a stable and certain environment, specific important conditions had to be fulfilled.
First, workers had to be assured of well-paid and reliable employment opportunities within existing wage structures and practices - in the interests of both the incoming migrants and the existing labour force.
Foreign capital investment also had to be looked after. We could not expect foreign capital and technology to be invested in large-scale Australian manufacturing operations unless investors could have some assurance that the security of their investment would not be undermined by cheap imports aimed at buying market share and destroying a competitor.
In other words, if the investment outlays were to make sense, the new industries would need border protection measures - at least in the beginning. Also, the industries needed to be competitive and profitable if they were to provide well-paid sustainable employment for the workforce. Protection would be afforded as needed to what were deemed by the then tariff-setting authority to be "efficient and economic" industries.
This framework of industry policy was established as the economic cornerstone of our immigration policy. But that was not, of itself, enough.
Governments also recognised that a rapidly increasing population would put a heavy strain on all public utilities and services. It would not be possible to get by with what had been adequate for a smaller population. Schools, housing, transport, water, gas and electric power generation and hospital facilities had to be expanded in anticipation of need. Moreover, it wasn't enough to wait until existing facilities became over stretched; new capacity had to come on-stream as required to meet the growing need.
Of course, it was recognised that this would require very large public expenditure on the necessary infrastructure; this could only be financed from revenue collections - in other words, higher taxation. In many ways, the newly arriving workers moving immediately into full-time paid work themselves helped the process along by the tax they paid on income and other indirect tax collections.
But, at least in the beginning, the needs of the incoming migrants for various public services could not be self-generating. General tax revenue made up the difference.
Inevitably, immigration is not immediately beneficial to the economy. Initially, migrants consume more resources up-front in the form of serv-ices than they contribute. True, they will immediately begin making a contribution to national income - and that will be positive - but, compared with the established population, they will initially be drawing down more than they put in.
Does this mean that everyone is worse off? Initially, yes, because, at the beginning, population growth outpaces the increase in national income. Thus the size of the cake is not increasing as fast as those needing to share it.
But as migrants settle in and people's incomes rise above what they would otherwise have been, migrant labour and the new industries that they help create make everyone better off.
The way we are going about immigration today bears no resemblance to any of this. It is an attempt to achieve population increase on the cheap. But it won't work. Whatever short-term gains it delivers will quickly be negated.
As already mentioned, the locations likely to be most harmed by present policies happen to be our two most populous cities. Their facilities are already stretched to breaking point. Immigration flows at present levels cannot be accommodated.
On top of that, all this is being attempted against a backdrop of rising unemployment.
And don't forget that the basis of employment has changed. Australian workers no longer enjoy the luxury of reliable, well-paid employment. Moreover, the numbers already finding themselves earning less, in less secure jobs, and drifting in and out of temporary jobs, will be further exacerbated by the stream of migrants. The numbers requiring government benefits or cash supplements to top up their insufficient incomes is bound to increase.
We have watched this happening over the last 25 years as our manufacturing industries have been driven out of business by our unqualified commitment to free trade policies.
Paradoxically, many of those who admire free trade at the same time lament the fact that our social security expenditures (unemployment and disability payments) have been expanding. They can't seem to make the connection between the two.
The new flood of immigration will make that bad situation worse.
If society can't provide people with paid employment sufficient to allow them a living, then there is no alternative - short of condoning starvation - to funding suitable unemployment benefits.
Looked at from this perspective, the present levels of immigration flows are wildly irresponsible. We can expect most of the intake will spend a considerable amount of time not working and contributing to wealth-creation, but instead collecting unemployment benefits.
By allowing them to come here without the prospect of reliable, well-paid employment, we do a disservice, both to them and to the rest of the Australian population who must ultimately finance a bigger social security budget.
Business sometimes sees immigration as an unmixed blessing - a source of both cheap labour and a larger market. But, from a broader perspective, the economics of it makes no sense - never mind the implications it has for social unrest.
It is up to the rest of us to have business recognise the folly of the policy they currently endorse.Colin Teese is a former deputy secretary of the Department of Trade.