I’m getting a little tired of writing about the New Zealand Initiative’s immigration report, and readers may be getting a little tired of reading about it.   But when the best-funded pro-immigration advocacy group in New Zealand –  Treasury and MBIE aside –  produces a major report on the subject, then as a sceptic of New Zealand’s modern immigration programmes I feel a certain obligation to keep on to the end.  But I’m now down to the last five pages of the report.

Chapter 5 is headed “The Case for Open Arms”, which sounded a lot as if it was going to be making the case for open borders –  that libertarian idyll, not adopted anywhere, in which anyone who wants to can come, in any numbers.   Because the Initiative seems torn between the practical  (simply defending current policy –  which, liberal as it is, is not remotely “open borders”), and the idealistic  (let them come, let them come, in whatever numbers they choose, a policy that they know will never be adopted), the rhetoric and arguments often also aren’t that consistent in tone.

They start by making a fair point

To the original tribes that inhabited New Zealand, European settlers would have seemed more foreign than today’s migrants are to modern New Zealanders.

Different religion, different technologies, different governing institutions, and immensely richer and more productive.    As the Maori did, apparently, so should we, for in the next sentence we are asked

Can New Zealand keep on accepting people who want to make this country their home?

Which seems to have rather lost sight of the hugely expensive wars, and mass (subsidised) migration, that were required to secure the European position in New Zealand.  It was a power grab.   I’m not sure it is a precedent I’d be wanting to invoke.   And, as I keep pointing out, it isn’t as if there are cultures that are (a) immensely more economically productive than the existing New Zealand culture/institutions, and (b) people from those (largely non-existent) countries/cultures clamouring to come to New Zealand.  Recall that paper I mentioned last week suggesting that if there are economic gains from increased diversity, they mostly arise when people come to your country from richer countries.

I’d be inclined to simply dismiss much of this as content-free rhetoric, but so much of the case for large scale non-citizen immigration policy seems to be made at that level.  It certainly doesn’t seem to engage with the actual specifics of New Zealand’s economic underperformance, despite our fairly good institutions and talented skilled people.

The next piece of rhetoric is that “we are all immigrants anyway” line, as if it offers any insights on the current policy choices.

No matter how you slice it, few New Zealanders can trace their lineage to many generations before counting someone foreign-born. We are part of the New World. And we are a nation of migrants.

I presume the aggregate numbers are right, but my ancestors came in the 1850s and 1860s.  It might be a different relationship with “New Zealand” than some Maori may have, but it is also very different than that of people who have come in the last five or ten years.  This is “our place”, and it is a matter for the voters of New Zealand to decide whether, and to what extent, we continue to take lots more immigrants.  And there is nothing historically inevitable about it.  Thus  the observation that “we are part of the New World” is true enough, but meaningless for these purposes.  Australia and Canada also have pretty liberal immigration policies – although even Canada is bit less open than we are.  But the United States takes only about as third as many legal migrants (per capita) as we do.   And the countries of colonial settlement in Latin America are not now known for their extensive immigration inflows.  Perhaps the less said about South Africa – once often grouped with New Zealand, Australia, and Canada –  the better.    Newfoundland, once independent, was one of the first British colonies of settlement: these days, something less than 2 per cent of the population is foreign-born.  It is a choice.

The rhetoric then gets stranger still –  indeed, they invoke the Golden Rule (“do unto others as you would have them do unto you”).

It doesn’t often get brought up in debate but the golden rule applies well to immigration.  Treating immigrants the same way we would like New Zealand emigrants to be treated overseas is fair and sensible. Many New Zealanders benefit from travelling overseas to live and work. Some end up staying but many return, and there is value to New Zealand from both.

Which is a really strange argument to run when New Zealand has among the more open approaches to immigration of any country in the world.  We all know how difficult it can be for New Zealanders to get migration access to, say, the United Kingdom.   The number of permanent resident foreigners in China –  now a middle income country –  is staggeringly small.  And even relative to Australia –  where we have loosely reciprocal arrangements involving the ability of citizens of each country to live and work in the other –  we treat Auatralians moving here far more generously than they treat the (many more) New Zealanders moving there.    And OECD data cited by people like the Productivity Commission tell us that we have more short-term foreign workers living here than any other OECD country.

More generally, it has never occurrred to me that I should have pretty free immigration access to any country I choose.  There are plenty of fine countries out there, but I’ve never assumed I should have a right to live in them.  So how is this argument remotely relevant to discussions of immigration policy in New Zealand?   We could choose to be even more liberal than we are, or we can wind back immigration access quite a bit, and we would still be no less open than most other advanced countries –  and much more open than most middle income and poorer countries.

The Initiative then devotes half a page to what we might call non-GDP benefits from “diversity”.  I’ve made the point before that we don’t need lots of immigration to enjoy Danish butter, French wine, Iranian dates, British books, American i-phones or movies, or Bangladesh or Vietnam-made clothes.  We just don’t.  There are some products that are probably sold here only because immigrant communities are here, but if the rest of us had a taste for those products, New Zealanders could import and distribute them too.   I’m not going to quibble with the taste for ethnic food New Zealanders have developed –  especially as even the Initiative concedes that chefs (one of the more common skilled migrants categories) aren’t exactly “critical economic enablers” (MBIE’s description of our immigration programme).  And perhaps the number of foreign-born players in the All Blacks is a gain to New Zealand, at least for some.  Of their other sports stories, I don’t begrudge Lydia Ko her success, but in what way is it a gain to (native) New Zealanders?  And at least one of the other star cases they cite –  Scott Dixon – was born overseas to New Zealand parents who returned to New Zealand when Dixon was very young.  Two of my kids were also born abroad and came back very young –  but whatever they might one day achieve, I won’t be ascribing that to our immigration programme.

But about this point, they change tack again, with a sub-section headed “A Radical Idea”.

And what is their “radical idea”?

Often forgotten in the immigration debate is a consideration of the migrant as a human being. To borrow a phrase from the feminist movement, the strongest case for a liberal immigration regime is the radical notion that migrants are people.

I’m not sure who ever doubted it.  The Initiative don’t tell us. Rather there is the implied superior tone “only we care about the people”.

No one ever doubted (or at least not that I’m aware of) that immigration usually benefits the immigrant.  After all, they make a voluntary choice to move, and presumably do so because they think doing so will benefit themselves and their descendants.  The hundreds of thousands of New Zealanders who have moved to Australia made that sort of assessment.  (Of course, it doesn’t always work out as planned  –  100 years ago or more Latin America used to offer much higher living standards than Spain or Italy, and migrants flocked to South America.  They might, with hindsight, have been better to have stayed.   For that matter, GDP per capita in New Zealand is now less than that in the UK.)

And I’m also quite comfortable with the proposition that immigration is more effective than foreign aid as a way of raising living standards of people in poor countries.  Since, foreign aid is almost totally useless in that regard, it isn’t much of a comparison.  Immigration can help people in poor countries in two main ways.  The first is transplanting people into richer countries in which their skills can earn more than they would at home.  And the second is remittances –  migrants sending money back to families at home.    The Initiative seems quite keen on remittance flows (a big issue in some small countries).  I’m not.  They help individual families in the short-run, but they also tend to overvalue real exchange rates in recipient countries, and make it harder for those countries to develop themselves, including developing internationally competitive industries.

The Initiative quote one libertarian economist as saying

“Immigration is the greatest anti-poverty programme ever devised”.

I think that is a distinctly questionable claim.   In the short-term, and for relatively small numbers of people, it is probably the quickest such way.

In fact, that greatest anti-poverty programme ever devised is (a) for governments to stop doing stupid and evil stuff (one could think of the self-destruction of Chinese living standards for much of the 20th century), or the current Yemen war, and (b) developing market-friendly institutions and cultures that enable prosperity to take hold for the many, not just the lucky few.  It isn’t easy, it isn’t quick.  But it works.  If the pro-immigration advocates want to argue that these countries/cultures can’t do it for themselves, it is like some sort of 19th century case for enlightened imperialism/colonalism.  I lived and worked in two such countries for a while.  There is little real doubt that British control and administration did raise living standards, and improve prospects for future economic development, in Zambia.    It wasn’t a perfect regime by any means, but the story was often told that in the early 1960s GDP per capita in Zambia was around (or ahead) of that in South Korea or Taiwan.  But most Zambians chose independence, and never showed any signs of regretting that choice, even through 20 pretty disastrous years from the 1970s to the 1990s.    Very little about the prosperity of a society as a whole is down to luck, most of it is down to choices (conscious and unconscious) about how to organise society, what to value, what is taboo and so on.

Decades ago, while he was at the Reserve Bank, Don Brash used to get frustrated at various church leaders’ comments on economics, many of which seemed to reduce to (sometimes quite explicitly) “the rich are rich because the poor are poor”.  We ended up setting up a dialogue with a group from some of the churches to at least better understand where each other were coming from.   I’m not sure it ever achieved much, but it came to mind recently in thinking about immigration.  From pro-immigration people we often hear the suggestion that the relative wealth of our society and the relative poverty of, say, India is down to good luck.  It was a line run in The Economist just the other day

Americans and Europeans are not more deserving of high incomes than Ethiopians or Haitians.

But no one “deserves” a high income.  Rather societies develop in ways which enable many of their citizens/residents to generate high incomes.   European societies have achieved that to a remarkable extent over the last few hundred years, joined so far by a relatively small number of countries from other cultures.  It is a precious achievement, that needs to be nurtured and safeguarded (and no doubt evangelised too).   There is no suggestion that it is somehow genetic –  other cultures held the technological (and material living standards) lead in earlier millenia.  Does nature play a role?  Well, no doubt.  It seems unlikely that Saudi Arabia, Kuwait and Oman would have their current living standards without the good fortune of abundant oil.  Navigable rivers, animals that can be domesticated, and so on all helped in the past.  But Haiti’s problems aren’t rooted in natural resources, but in Haitian society.  The comparisons are particularly obvious in those pairs of countries that started not long ago with very similar backgrounds: China (no better than middle income) and Taiwan, or North and South Korea.  Again, a common line is that individuals are “lucky” to be born in New Zealand rather than (say) China.  But luck doesn’t come into it.  People are born into a culture and society, and fostered and nurtured in the values, institutions of that society.  That is how successful societies maintain themselves.  Sadly, it is how unsuccessful societies (at least judged in material terms) replicate themselves.   There is little random, or “lucky”, about it.

As they come to the conclusion of the chapter, the Initiative observes

If one accepts the notion that birth circumstance should not impose limitations on where people are  allowed to live, then the burden of proof should fall on those arguing against immigration to show a detrimental effect.

That is a very big “if”.  Very few people ever have.  Very few do today.  Humans are born within societies –  small, but vital, ones like families, but also neighbourhoods, religious communities, cities, nations and so on.  Often people can leave, but in view few cases is there any automatic right to join.   Some of the boundaries are quintessentially natural and others somewhat arbitrary.  My kids aren’t your kids and vice versa.  Each face advantages and disadvantages in their particular birth and upbringing.  But except in rare circumstances your kids can’t become mine, or mine yours.  In older or more primitive communities much the same limitations applied to tribal or village groupings.  No one thought that outsiders had an automatic right to make themselves part of that established grouping.  Boundaries of countries are perhaps somewhat arbitrary, but even if at times they are drawn in somewhat arbitrary places –  which isn’t the case for New Zealand –  groups of people within those borders tend to develop (or have had for centuries) a sense of a common identity, shared interests, and a willingness to undertake mutual support and protection.  We might choose to invite people in, but it is a choice.  We recognise that, for the most part, being born in New Zealand gives you the right to be here and move about here, and being born somewhere else does not give you that right.

In that world –  the real world –  where people do think that birth circumstances can, and should, influence where one can choose to live, when governments are thinking of running large scale immigration programmes, the burden of proof should really be on our governments (and those who advocate) such programmes to show that natives will be better off if the outsiders come in.  “Better off” doesn’t just have to mean in “economic” terms. It might be something as simple as responding to the compassion of natives, in the face of a natural or political disaster elsewhere.     But for an economics-focused programme, as the New Zealand immigration programme has been for decades, the case made is that natives are made better off by large-scale non-citizen immigration.   Sadly, in their report, the Initiative made little effort to show that, asa  group, we are indeed made better off or even that, if there are such gains, they are maximised at around the sort of current scale and composition of inflows.  If they really believe the story –  as distinct from just the ideology of something like “open borders” – applies to New Zealand here and now surely that is a missed opportunity?

The New Zealand Initiative’s chapter four, on economic issues, includes most of their treatment of the labour market.   This isn’t going to be a long post, and in a number of key areas we agree.

In particular, they are quite right to push back against the suggestion that immigration “takes jobs” from natives: there is no fixed pool of jobs, and if anything in the short-run immigration has tended to boost demand more than supply, so that in the shorter-term, it acts as a boost to (net) demand, and something that lowers the unemployment rate a bit.  That is why, typically, the Reserve Bank is raising interest rates –  or lowering them less than otherwise – when immigration surprises on the upside.  In the medium-term, there is likely to be little or no impact on the unemployment rate, one way or the other.    Labour market and welfare system regulatory rules play a key role in influencing the normal, sustainable, rate of unemployment.

And the Initiative doesn’t seem to have signed on to the silly nonsense that we need lots of immigrants to ease “skill shortages” – a line touted by Business New Zealand and their affiliates, and by their predecessor organisations for many decades.   I’ve dealt with this issue in various posts (including here and here).  You have to wonder how other countries manage –  including the many richer and more productive countries than New Zealand that haven’t had anywhere near as much immigration over the years.  Here is some of how I responded to that argument in one of those earlier posts

Business sector advocates often try to have us believe that key sectors just couldn’t survive without reliance on large scale immigration.  Set aside the inherent implausibility of the argument –  how do firms in the rest of the world manage –  and think about some specifics.  Sure, it is probably hard to get New Zealanders with alternative options to work in rest homes at present.  So, absent the immigration channel, wage rates in that sector would have to rise.  Were they to do so, I can see no reason why in time plenty of New Zealanders would not gravitate to the sector.  It was New Zealanders who staffed the old people’s home my grandparents and great aunts were in 30 years ago.  Same goes for the dairy sector, or the tourism sector.

…..

Of course, none of this is obvious to an individual employer.  They probably can’t raise their wages to attract New Zealand workers instead, even if they wanted to.  To do so would undermine that particular firm’s competitive position.  But again, this is the difference between an individual firm’s perspective, and a whole of economy perspective –  and the latter should be what shapes national policy.  Cut back the immigration target, along the lines I’ve suggested, and we’d see materially fewer resources needing to be spent on simply building to keep up with the infrastructure needs of a rising population.   We’d see materially low real interest rates, and with them a materially lower exchange rate.  The lower exchange rate would enable New Zealand dairy farmers, and tourism operators, to pay the higher wages that might be needed to recruit New Zealanders into their industries, and probably still be more competitive than they are now.  And plenty of New Zealanders now working in sectors totally reliant on an ever-growing population would, in any case, be looking for opportunities in other sectors.

The Initiative mostly stays away from this line of argument, and they are right to do so.  Markets take care of incipient “shortages”, whether of labour, tomatoes or whatever –  prices adjust and, if necessary, over time production and/or structures and patterns adjust.  The Initiative are generally supportive of letting markets work.

A lot of the empirical literature focuses on wages, and in particular on wages for those relatively more lowly-skilled natives who are, to some extent or other, in competition with relatively lowly-skilled migrants.  As even the Initiative notes, a big influx of migrants looking for work in one particular sector will probably lower wages in that sector in New Zealand.  They use “fruit pickers” as an example in their report.  But one could probably use aged-care workers as another concrete example.

The Initiative’s reaction to this, reasonably self-evident, proposition is to be (perhaps unconsciously) in two minds.  On the one hand, they like to cite what is probably the consensus of the international literature, that if there are adverse effects of immigration on lower-skilled natives they are, in aggregate, relatively small.  Perhaps that is true, although it probably isn’t much comfort to someone at the bottom end for whom every dollar in the weekly pay packet really counts.  And recall that survey of US academic economists I mentioned the other day.  Quite a few respondents were uncertain, but there wasn’t much dissent from the proposition that in the US context (one of the strongest and most productive economies around).

Question B: Unless they were compensated by others, many low-skilled American workers would be substantially worse off if a larger number of low-skilled foreign workers were legally allowed to enter the US each year.

But on the other hand, the Initiative seems to want to celebrate how helpful even low-skilled immigration can be, even though almost the only way –  even in theory – it can be helpful is by lowering domestic wages, at least for those who are near-substitutes for the migrants.

Here is what they say

Arguing for immigration restrictions to protect the incomes of New Zealand fruit pickers is as misguided as arguing for tariffs on fruit to serve the same purpose.

We cannot manipulate wages by distorting the market in the long run. Virtually anything can be imported today if there’s the will. Cheap foreign labour already competes with New Zealand labour even if workers don’t land on our shores. If wages in New Zealand for similar output rise much higher than foreign wages, we can only expect more outsourcing and exit of New Zealand firms.

Ultimately, wages are determined by the value of a worker’s production at the margin and the willingness of the worker to forgo leisure for consumption. Bringing in productive migrants more willing to work than New Zealanders may lower wages for some in the short run, but it also means New Zealand can produce more goods and services cheaper.

For a start, it is simply incorrect that “virtually anything can be imported today” –  try it for a hair cut, a cafe meal or coffee, aged care for your mother, or the bus trip home tonight.  The boundaries between tradables and non-tradables are fuzzy, but it doesn’t make the distinction economically irrelevant.

But what really staggered me was the starkness of the way they put it –  we should be competing internationally on the basis of lots of migrants lowering wage costs.     They really can’t have it both ways: lower-skilled immigration might be largely harmless (if it doesn’t have any obvious effects on wages for natives), or there might be gains from trade from bringing lots of these people in, but if so only through a mechanism that involves lower wages (than otherwise) for the natives they are competing with.  It surely has to be one or the other?  No one pretends these people are where all the ideas and productivity spillovers are coming from.

Despite the literature they cite, the Initiative seems to be in the latter camp.  Here was another comment on lower-skilled migrants, and why we shouldn’t just focus on highly-skilled migrants.

Hiring migrant workers in the service industry, especially home production (childcare, cleaning, gardening), can free up time for workers in other sectors of the economy. This way, they can be an important complement to highly skilled workers.

It does that by lowering the relative cost of that type of work.

Earlier in the year, I wrote about an op-ed by a British economics academic that had run in the local papers, where she argued that low-skilled immigrants had been a great boon for professional women and their husbands.  I summed up my reaction to that this way

Perhaps this wouldn’t be (as) morally offensive if there was an entirely separable class of temporary guest workers, who didn’t substitute at all for low-skilled domestic workers.   The temporary workers would gain from the trade, and so would those employing them. But that (separability) isn’t how labour markets operate.  What Bateman is in fact arguing for is a policy designed to explicitly help people like her, at the expense of poorer less highly-skilled Britons (in fact, in the roles she talks of typically poorer relatively unskilled British women).  No one person is ever an exact substitute for another, but there is a great deal of overlap.    Even though she never says it, what Bateman is arguing for is a policy designed to increase the differences in incomes between the highly-skilled and the less-skilled –  for the comfort of the highly-skilled (women and their spouses).

I don’t see any gap between Bateman’s stance and that of the Initiative.

In their conclusion to their economics chapter, the Initiative try to sum up.  They begin

The overall impact of immigration on the labour market is small, but with a multitude of individual effects. Some individuals may experience wage reduction, some wage growth, and some may remain unaffected. The effect for each individual will depend on their own skills, the skills of the migrants, and the demands from the migrants.

I suspect that isn’t too far wrong, especially when we recognise that much of the immigration to New Zealand isn’t very skilled at all, and that those at the lower end of skill spectrum are those mostly likely to be losing.

But here’s the thing.  That summary really gives the game away.  If even the key advocates of large-scale immigration can only end up arguing that the impact on the labour market is small, what happened to those large gains they were citing a few pages earlier in their report.  Recall the recent IMF study they cited

The study finds that a 1 percentage point increase in the share of migrants in the adult population can raise GDP per capita by up to 2% in the longer run

If that was even remotely true, we’d have seen a massive increase in productivity, GDP per capita, and almost certainly wages as a result of the scale of immigration New Zealand has had over the last 25 years.    Perhaps the lower-skilled would still have done relatively less well, but  pretty much everyone’s incomes should have lifted, and by quite a lot.  The differences really should be quite easily discernible.  As it is, even the advocates haven’t been able to show those sorts of gains.  In New Zealand’s case –  and recall that that is my focus –  they just don’t seem to be there, and there is a plausible case –  weak productivity growth, high interest and exchange rates, weak business investment, weak exports, and a remote island location as personal connections have become more important –  that we might mostly be worse off.   Some people  –  some natives –  are better off (anyone, for example, holding regulatorily-restricted land in Auckland 25 years ago), but a best guess –  a best read of the New Zealand experience –  is that the country as a whole isn’t better off, and quite probably is worse off.

The economics chapter of the report ends with a line I quoted in one of the earlier of this series of posts

Free movement of labour is a fundamental driver of the creative destruction
process, just like free movement of goods and capital. It can be painful for some but it improves outcomes for many. And if managed well, the pain can be short-lived and the benefits perpetual.

It is a statement of faith at best.    We haven’t had “free movement of labour” but we’ve had a lot more of an inflow of non-citizens –  all policy controlled –  than almost any other advanced country.   And the perpetual benefits still seem, to put it mildly, very hard to spot.  Perhaps they are there in theory, in particular specifications (models), of how economies work generally, but the challenge for the Initiative should surely to have been to demonstrate that those gains are actually there for New Zealanders, amid the specifics  of how this economy has actually worked in recent decades.