The Green Party has been rethinking its approach to immigration.

Not that long ago, the Green Party seemed to be pretty stridently in favour of New Zealand’s large scale, fairly liberal, immigration policy.  It was never entirely clear to me why.  They were the party that emphasized the potential environmental damage from more intensive dairy farming, and were usually reluctant to support new infrastructure projects, partly on environmental grounds.  And yet ever more people pretty inevitably means a need for more exports (in a country that has shown little ability to develop large scale exports much beyond the fixed natural resource base) and more infrastructure.  And globally, radical Green supporters are sometimes heard to call for population policies, potentially penalizing people having the number of children they might prefer, all in the “interests of the planet”.  So I was never sure quite why the New Zealand Green Party was so keen on large scale inward migration, when the combination of (shrinking) natural increase and the typical outflow of New Zealanders would have delivered us a fairly flat population if only we’d had a more modest, and internationally conventional, target level of non-citizen immigration.  The only arguments one ever heard were along the lines of “diversity is good”, but then New Zealand is already one of the most ethnically diverse countries in the world, and without a great deal of economic success to show for that very rapid diversification over the last few decades.  Perhaps they just wanted to share the bounty of New Zealand with as many people from other countries as they could?  Perhaps they really didn’t like New Zealand, and New Zealand culture as it was, and had an agenda for breaking that down?

But now the Green Party has had a rethink.   Trying to understand the change, and its implications, I listened to James Shaw on The Nation, and read a couple of substantive articles (here and here) with quotes from Shaw.

If I read the policy correctly, it is to set a target for New Zealand’s population growth of 1 per cent per annum, and to adjust immigration policy settings (each year, or even more frequently?) in light of changes in the rate of natural increase and in the net outflow of New Zealand citizens.  On the Greens’ own calculations that would have meant a targeted net inflow of around 17000 to 20000 this year.    That is not an order of magnitude different from the medium-term target rate of residence approvals I have argued for, of around 10000 to 15000 per annum.

Perhaps it is good short-term politics, but as policy it doesn’t look as though it has been particularly well thought through.

Rates of natural increase don’t change that much from year to year, and although there can be big movements in that series over time there is quite a lot of persistence in the changes (eg the post-war increase in the birth rate last for almost two decades).  But the net flows (usually outflows) of New Zealanders are very volatile, and very difficult to forecast.  Here is the chart of actual net flows of New Zealand citizens.

Fluctuations of 30000 per annum in just a couple of years aren’t uncommon, and if one had access to (say) all the Reserve Bank and Treasury forecasts the near-impossibility of accurately forecasting those fluctuations would be quite apparent.

Perhaps the response would be “oh, we wouldn’t rely on forecasts, but on actual data”.  But then there would be a serious risk of actually exacerbating overall cycles in net migration.  If the net outflow of New Zealanders had been large in the last six months, perhaps the target for immigration approvals for non-New Zealanders would be increased.  But people (especially able and skilled people) don’t just shift to the other side of the world on a whim, or with no notice.  There are some quite material lags in the system, and by the time the increased number of non-New Zealanders starting actually arriving, it is quite plausible that the net outflow of New Zealanders might have shrunk again.  I don’t agree with MBIE about much, but on this point I agree with them totally: it simply isn’t possible to target successfully the overall net PLT flow (or, hence, population growth) on an annual basis.

Defenders of Shaw might argue that these points don’t matter much and what really matters is the average population increase over time.  But that wasn’t his argument: he explicitly cited concerns  around the extreme peaks in the net PLT series, over the sort we have seen in the last couple of years.

The whole idea here is to try and smooth out the peaks and troughs,” Shaw said

And if one is going to have an official population growth target –  as the Greens appear to be proposing –  why would one set it at 1 per cent per annum?   This chart shows population growth rates for high income countries (UN definitions and data) and New Zealand since 1950.

It has been 50 years since the high income group of countries (including immigrant receiving countries such as the United States, Canada, Australia, and New Zealand) had a population growth rate as high as 1 per cent.  At present, that growth rate is less than 0.5 per cent per annum.   And whether or not one welcomes the population growth New Zealand has experienced over the decades, there is no sign –  no evidence –  that it has produced any economic benefits for us at all.  If people choose to have lots of children that is one thing, but why would Shaw want our government to actively target above-normal (for high income countries) population growth?

But more generally, what is the case for a population growth target?  I can think of a few cases where perhaps one might make the argument: Israel, surrounded by hostile neighbours, probably wants as large as Jewish population as possible for external defence reasons.  They used to mount similar arguments in France a hundred years ago, as they contemplated how few young Frenchman there were relative to the number of young Germans.  But those sorts of arguments are just not relevant for New Zealand (or most other advanced countries).

Apart from anything else, it sets up all sorts of odd incentives and undesirable behavioural responses (although not necessarily much dafter than how New Zealand has actually run policy over the decades).  When economic circumstances change, people tend to leave underperforming regions.  That is rational and sensible for them and –  on the whole –  it even helps those who don’t leave. Patea and Taihape were once quite a lot larger than they are today.  Circumstances and opportunities changed and people over time moved away.  It would simply be daft policy for, say, local authorities in those areas to subsidise people to move in from elsewhere, even though the economic opportunities had moved away.

Under the Greens policy, if there is a significant upsurge in the number of New Zealanders leaving –  as, say, happened in the second half of the 1970s –  policy will, semi-automatically set out to replace them. The New Zealanders will have gone because, presumably, knowing New Zealand conditions well, they conclude that the opportunities abroad are better for them and their kids.  And in response the Greens want us to dig even further towards the bottom of the international barrel and find even more non-citizens to come and live here.  How likely is it that that would be a sensible policy?  Not very.  First, actual economic conditions and prospects in New Zealand have deteriorated, suggesting that New Zealand is less able than it was to offer real good incomes to able people.  And, second, to get a whole lot more immigrants, we would presumably have to lower the (economic) quality of those we take –  and perhaps quite a bit if the foreigners themselves do enough research to realise that relative opportunities here are also deteriorating.  It is not as if, on the government’s own evidence, we’ve been that successful in getting many very able people under current policy.

Of course, one could turn the story around, and be more optimistic.  If New Zealand’s prospects improved and suddenly many fewer New Zealanders were leaving, we would have to markedly reduce the non-citizen immigration inflow.  One could argue this as a good thing, in that we could raise the average economic quality of those we approve, but if one really believes in the economic benefits of immigration, why would you want to materially cut back the flow in circumstances in which New Zealand’s relative economic prospects appeared to have improved?

The arguments can also be applied to fertility rates and, thus, rates of natural increase.  If birth rates in New Zealand fell away sharply (to the sorts of rates –  around one child per woman – seen in many parts of developed Asia and some parts of Europe), what would the economic logic be of central government setting out to raise the target migrant intake (lowering the average migrant quality) just because New Zealand families decided to have fewer children?   After all, fertility choices might be partly a response to perceived economic prospects.   What sensible role for central planners is there in face of such fertility rate changes?

Turning back to the Greens, it isn’t clear that they have yet given much thought to how their proposal would work.

He did not give specifics on exactly which parts of the migration mix would be tweaked to achieve the 1% population growth, given the Government now has a planning range for permanent residency of 85,000 to 95,000 for the next two years, but does not have targets or caps for temporary work visas or student visas. Last week it temporarily suspended parental visa applications and lowered the planning range by 5,000. It is also reviewing work testing for work visas and student visa numbers.

A variable migration target implies constant tweaking of targets for permanent residency visas, both for skilled migrants and their families, along with targets for temporary work visas and student visas. Some elements cannot be controlled, including net migration of New Zealand citizens and working holidaymaker visas, given New Zealand has bilateral agreements with many countries that allow unfettered movements of such visas.

Shaw suggested student visas as one area that could be changed.

“We think that the government is actually barking up the wrong tree by putting the pressure on the family category,” he said.

“There’s huge numbers of students that are coming into New Zealand on temporary work visas and that’s actually where a lot of the pressure is coming from, especially on housing and on transport infrastructure.”

I think there is a lot wrong with our student visa policy, and with the liberality with which work visas are granted for fairly lowly-skilled positions, but……you can’t sensibly go making major changes to the parameters of the schemes every few months just because the forecast net outflow of New Zealanders has changed again.  It would put educational institutions in an impossible position, put firms considering hiring migrant workers in a very difficult position, and make the rules of the game so uncertain for potential migrants that you would risk undermining whatever merit the immigration programme has.  Even more than happens now, good people would seek out other countries with more stable and predictable regimes, and we’d be left with the fruit of an adverse selection process –  those sufficiently desperate to get in here that they’d apply despite the variability of New Zealand policy.   And while it is fine to talk about “smoothing out peaks and troughs” many of those pressure arise in specific regions, and it is even harder to practically manage those.  After all, New Zealanders tend to leave for Australia from across the whole country, while non-citizen arrivals (be it permanent or students) tend to disproportionately flock to Auckland.   So even if policy could be run to stabilize the overall rate of population growth from year to year –  and it can’t –  it might well markedly increase the variability of population cycles in Auckland specifically.  That doesn’t seem like an outcome the Greens would be wanting.

My own view remains that we should aim for a stable level of non-citizen (net) immigration, and set the stable target around a low level (consistent with the absence of any real evidence of benefits to New Zealanders as a whole).  But even a stable fairly high level of non-citizen immigration might be less bad in some respects than what the Greens are proposing, which assumes a degree of knowledge, and forecastability, that simply doesn’t exist.

I would keep the focus on the residence programme, and in turn keep that focused on the medium term.  If we are offering long-term residence in New Zealand, it shouldn’t be about meeting today’s immediate labour market needs, but about attracting a small group of young able energetic innovative people, who might make a useful contribution over their entire working lives.  I think we should welcome foreign students –  education should be just another export industry –  but without providing them with work rights here, and with only high level qualifications giving them a leg up on the path to residency.   And, as I noted the other day, for short-term work visas, I’d probably favour a salary test.  In all but very exceptional circumstances, simply don’t issue work visas for positions paying less than, say, $100000 per annum, and above that threshold take a fairly liberal approach.  Any employer could hire someone for up to, say, three years, but on a non-renewable visa.  If there are real temporary skills shortages arising from unexpected shifts in demand, such a policy will meet those needs, while over the longer term allowing the domestic labour market to work, as relative wage rates shift and people move from one occupation to another.  The scheme would be used, but there wouldn’t be 200000 approvals per annum.

In a sense the fatal conceit in the Greens new policy is the idea that New Zealand’s population growth rate can be held stable from year to year.  While New Zealanders are fairly free to move –  or not –  to the much larger Australian economy in response to changes in relative economic opportunities –  and while New Zealand incomes are so much lower than those in Australia –  we will almost inevitably have the sorts of swings in the net outflow of citizens I showed in the first chart above.  Trying to manage the inflow of non-New Zealanders year by year to offset those fluctuations would be (a) impossible, and (b) something of a fool’s errand even to try.   Whatever immigration policy we adopt, we really need to focus on the medium-term, in all dimensions.