A British visitor championing free trade and open borders

Last Thursday British journalist and economist Philippe Legrain gave a lunchtime address at Victoria University (of Wellington).   Legrain was apparently in the country mainly to talk about some work he does on refugees and employment, but this particular event (hosted by the New Zealand Initiative) was on the topic “How our open world is under threat, and why it matters”.   He is a Blairite (ie active government)  globalist (a term I don’t mean in any pejorative sense) –  favouring, it appears, as much open trade, open investment, and open migration as possible, and then some.   For anyone sufficiently interested, the Initiative has now posted a video of Legrain’s talk.

I found it a strangely unsatisfying talk on a number of counts.   Perhaps it worked for those already converted to his cause, but even then there wasn’t anything new, or any fresh arguments or evidence.   And it didn’t greatly help that despite being an obvious fan of New Zealand (or at least of the fourth Labour government) he didn’t know much about it, despite speaking to a central Wellington audience probably largely made up of policy wonks and junkies.

In his younger days, Legrain had worked as an adviser to Mike Moore in his time as head of the WTO.  There, I presume, he had picked up stories about the sheer dreadfulness of New Zealand 35 years ago, and heard tales of the subsequent reforms.  We were, he claimed, in some respects the “birthplace of globalisation”, which still – reflecting on it days later –  seems a very odd claim.  The reformers of the 1980s mostly saw the reforms as being about bringing New Zealand policy back more into line with the mainstream  of advanced country practice (even if, with a small single chamber parliament, some reforms could be pushed through in more elegant and intellectually appealing ways than some other countries managed).   Lamenting (quite rightly) the insanity of the days when New Zealand assembled television sets (and cars) here from disassembled kits, Legrain (again, fairly enough) observed that New Zealand needed to do more international trade.

But then his tale became rather more detached from reality.  We were told that New Zealand had “flourished” since the early 1980s, we were “richer, freer, more diverse, better connected”, we’d found niches in world markets (he mentioned film-making, apparently oblivious to the subsidies so generous they’d have made an early 80s sheep farmer blanch), had better economic growth, and higher living standards.  All because we’d opened to the world.

All of which would have been a good story.  It was, after all, the way things were supposed to be.   But what of the evidence?

Foreign trade for example?  Successful small economies tend to do a great deal of it, and there is no doubt that the protective structures we wrapped around the economy for 40 years or so tended to reduce both exports and imports as a share of GDP.  But here is how the export and import shares of the New Zealand economy look, for the first four years of the 1980s and for the last four years.

foreign trade

I think I am pretty safe in saying that no one involved in the reform process 30 years ago envisaged our foreign trade shares shrinking.

And what of the “richer” claim?  Well, certainly real GDP per capita and real productivity measures are higher than they were, but that is true almost everywhere (Venezuela perhaps excepted): there are common global forces, technological innovation etc, at work.    What matters, in assessing the success of New Zealand policy, is how New Zealand has done relative to the rest of the world, and in particular to the other advanced economies we’d been falling behind for several decades.   Since 1983, New Zealand’s productivity growth (real GDP per hour worked) has been in bottom quartile of the 25 countries the OECD has complete data for.  If you prefer simple GDP per capita comparisons, then despite a big sustained gain in New Zealand’s terms of trade  –  almost totally beyond our control –  we’ve fallen further behind the G7 industralised countries on that score over the same period.

It isn’t even as if things went badly worse for a few years and are now coming right: trade shares are still trending down, we’ve had almost no productivity growth in recent years, and so on.   If New Zealand really was the “birthplace” of globalisation, advocates such as Legrain should be looking to bury the evidence –  or, more to the point, think more deeply about what aspects haven’t worked well, and whether some things matter here in ways they mightn’t matter elsewhere.

He was a bit hazy on his geography too.  In (fairly) noting that trade deals between a post-Brexit Britain and New Zealand won’t make much difference for either country, he launched into the old line about New Zealand’s future being in Asia, and our great good fortune in being on the doorstep of the fastest-growing part of the world.  It probably escaped his attention but Wellington and London are each about the same distance from Shanghai, and London is much closer to Delhi or Mumbai than Wellington is.

Legrain’s misconceptions about New Zealand continued to the present.  He is a big fan of immigration –  having written a whole book about it under the heading Immigrants: Your Country Needs Them – and lamented that New Zealand was slashing its immigration numbers by a third.   I presume this was an allusion to the Labour Party’s policies in last year’s campaign, which might (on their estimates) have reduced the net inflow by about a third for one year.  But perhaps he hadn’t caught up with the fact that the government seems to be following through on very little of that, and (more importantly) that they never promised, or even suggested, any reduction in the annual target for new permanent migrants.  That target remains probably the highest, per capita, anywhere in the world.  But never mind; don’t let troublesome details get in the way of a rhetorical flourish.

Perhaps my description of Legrain as a “globalist” was best-exemplified by one of the items on his list as to how the world is going to pot.  He was, he noted, disturbed that New Zealand had a party in government whose name was “New Zealand First”.    I’m no fan of the party itself –  any more than any of our parliamentary parties –  but precisely whose interests does he suggest that governments should govern in?    He didn’t elaborate, but pursuing first and foremost the interests of your own citizens (or even residents) seems pretty basic to me.  And not very contentious among most citizens –  here or abroad.    Quite often, of course, what is good for us is good them (and vice versa)  –  free trade in goods and services is generally the prime example –  but the case for any New Zealand government action should be that it advances the interests, attitudes and values of New Zealanders.  Sometimes those decisions will be altruistic in nature –  taking in refugees for example  – reflecting the values of New Zealanders.  But most of us want our governments to respond to, and promote, the best interests of New Zealanders.  Legrain clearly doesn’t.

Now, I should make clear that I am a strong supporter of free trade in goods and services.  I’ve long argued, for example, that we should remove all our remaining tariffs unilaterally.  Legrain hates Brexit, but the fact remains that the current difficulties are mostly arising because the EU does not believe in, or practice, that sort of free trade.    I’m also a supporter of a pretty open approach to foreign investment, at least when it doesn’t involve state actors (and even Legrain noted that, thus, China should be something of an exception).   Actually we also apparently share a view that trade agreements among advanced countries –  if we must have them at all –  are not a place for things like ISDS agreements or intellectual property rules.

Where we differ quite strongly –  and this would be particularly so on New Zealand, although the point generalises –  is probably around immigration.    Because in his paean to globalisation he draws no distinction between free movement of goods, of capital, and of people.    But voters appear to, and often for good reason.  Legrain, unlike many voters, doesn’t appear to have much time for concepts of nationhood, or cultures which bind societies together.   As the child of immigrants (French and Estonian) himself, perhaps that isn’t overly surprising, but most people have a different, more localised, background.

10 years or so ago, Legrain wrote a book in praise of immigration, an excerpt from which is available on the web. In it he declares himself scandalised that a politician can win an election on the promise that “we will decide, and no one else, who comes to this country” or that people would think it “normal and reasonable” to control migration flows.  He laments the fact that migration policy is largely decided on national grounds.

It was a book written just before the 2008/09 recession, when Blairite globalists of his sort were in the ascendant –  things felt rather good, especially if you were a successful middle class person in a major financial centre like London.   He captures some of that in this extract

the debate that is at the heart of this book: should we welcome or seek to prevent the unprecedented wave of international migration that is bringing ever greater numbers of people from poor countries to rich countries like Britain, Spain and the United States? Fear of foreigners versus the dynamism of multicultural London: a microcosm of the wider debate about immigration that is raging around the world.

As if these are the only choices; the only (or best) way of framing any debate.

He didn’t actually use the word “xenophobia” there, but that is what “fear of foreigners” is: apparently the only grounds why anyone might be sceptical of large scale permanent immigration.  But however things might have looked in 2007 –  when the UK and Spanish economies were indeed booming –  the subsequent decade isn’t necessarily such an advert for Legrain’s open border approach (the UK, for example, having had almost no productivity growth at all since then).

And although Legrain continues, as he did in his lecture the other day, to champion the view that countries need migrants, he offered very little in support of such a view.   The potential for relative prices to change –  whether to attract aged care workers or strawberry pickers, or substitute technology –  never seems to enter his calculus.  You might suppose his own country would be a prime illustration of his point: if relatively open immigration really offered the large gains to recipient countries’ own nationals as Legrain claims, a country that had very little immigration for a long time, and then opened up quite a lot should be a great case study.  That was the UK experience after 1997.  And yet, a couple of decades on, where can people like Legrain find the whole-economy evidence of how Britons have benefited to any great extent (and this in a country in a very favourable geographic location, with foreign trade heavily dominated by services and other intangibles)?  If there are macroeconomic gains, they look pretty hard to find even there (and even if one simply abstracts from the house price disaster –  as Legrain does with an wave of the hand, and a simple “well just build more houses”.  Would that it were politically that easy, there or here.)

And New Zealand, of course, should be able to be his other showcase economy.  After all, we’ve had high levels of target non-citizen immigration –  much higher per capita than the US and the UK –  for a long time now.  But, beyond the handwaving and the pretty trivial (Legrain mentioned an apparent choice of Cambodian restaurants in Wellington), even the defenders of the current policy approach find it difficult to demonstrate the economic benefits to natives, and often seem left falling back on a “well, it would have been even worse otherwise” type of assertion.   Legrain’s world doesn’t seem to have much place for geography or natural resources –  perhaps not that surprisingly when you come from London – and, as already noted, he seemed oblivious to the failure to grow the trade sector of the economy, or the continued heavy dependence on natural resources, not obviously enhanced by simply bringing in lots more people to one of the most remote places on earth.

I think the New Zealand arguments are, or should be, different from those in countries nearer the centre of affairs.  But even in those countries, the advocates of relatively large-scale migration –  and actually in all European countries the numbers (per capita) are modest by New Zealand, Australian or Canadian standards –  struggle to demonstrate that citizens of recipient countries are benefiting.  Perhaps some of the middle classes do so –  cheaper nannies or strawberry pickers (the sort of complementarity story Legrain advances) –  but as I’ve noted before, to the extent this argument has force, it explicitly involves a redistribution in which poorer or less skilled natives are further disadvantaged.  If we should expect our governments to govern first and foremost in the interests of their own people, I’d argue that it is also important that governments govern with a particular eye on the interests of the most vulnerable or disadvantaged of their own people.   And there is no real evidence of the sorts of economic gains people like Legrain, or international agencies like the IMF have touted.  Of the IMF modelling, as I wrote a while ago

…the model also implies that if 20 per cent of New Zealanders moved to Australia (oh, they already have) and an equivalent number of Australians moved to New Zealand, we could soon be as wealthy as Australia is now, simply by exchanging populations.   Believe that, as they say, and you’ll believe anything.

As it is, large-scale non-citizen migration has skewed the entire structure of the New Zealand economy against producing competitively with the rest of the world (the real exchange rate has got quite out of line with the productivity performance and opportunities here).   We are reduced to living with sustained underperformance (often while our leaders pretend otherwise), with subsidies for trees (lots of them), trains, and other provincial baubles to attempt to buy off simmering discontent in parts of the country that should be doing really well.

Globalists like Legrain seem reluctant to accept that large scale immigration is mostly oversold as an economic instrument (if there are gains to natives, even in the North Atlantic countries, they appear small) or that the angst that he worries about (in lamenting Trump, Brexit etc) about it is often cultural and national in nature at least as much as it is economic.  For people like him, the world is made up of autonomous individuals, in which people of a country are united by, if anything, only a common passport and the authority of a common government.   Most voters in most countries see it as more than that –  they put a value, not just sentimental but practical, on common cultures, shared history and experiences and so on.  My own arguments about New Zealand immigration don’t really go along those lines –  I’ve repeatedly made the point that all our migrants could be from Bournemouth, Brisbane, Buffalo or Banff and the economics still wouldn’t work out well –  but people who champion an open economy, and the real gains on offer from foreign trade, risk losing that battle if they don’t wake up to the fact that people movements are different in all sorts of ways, and support for free trade has no natural or inevitable implications for a view on appropriate immigration policy.

 

17 thoughts on “A British visitor championing free trade and open borders

  1. The only economics you refer to boils down very simply to a few needs.

    1. Can I get enough to eat
    2. Do I have shelter
    3. Can I start a family and care for them
    4. Can I have a car, TV and some luxuries

    So whether we have immigration or not depends on whether these few needs are being met.

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      • Historically govts claimed to aspire to rather better outcomes than that – top half of the (old) OECD was one of the goals once articulated. That would take perhaps a 50% increase in productivity from here.

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      • GGS – I hope you enjoy a long healthy old age. Then at some point distantly in the future you will be cared for by either a well paid Kiwi care-worker who you will be able to converse with or alternatively it will be a low paid foreigner from the poorest country – maybe Somali or Venezuelan – who will not identify with you and your elderly woes.

        Liked by 1 person

  2. I don’t understand why economists talk up immigration. At the moment we are suffering from “over tourism” plus low wages (for many). Presumably when infrastructure is strained it is good for the economy”.

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  3. As usual you put into words my own thoughts but more neatly. This is the key “”it explicitly involves a redistribution in which poorer or less skilled natives are further disadvantaged””.

    Paul Krugman: “”Immigration is an intensely painful topic for a liberal like myself, because it places basic principles in conflict. Should migration from Mexico to the United States be celebrated, because it helps very poor people find a better life? Or should it be condemned, because it drives down the wages of working Americans and threatens to undermine the welfare state?…. I wish the economic research on immigration were more favorable than it is.””

    Herman Daly: “”“Open borders” refers to a policy of unlimited or free immigration. I argue here that it is a bad policy. If you are poor and your country provides no social safety net, you move to one that does. If you are rich and your country makes you pay your taxes, you move (or at least move your money) to one that doesn’t. Thus safety nets, and public goods in general, disappear as they become both overloaded and underfunded. That is the ‘world without borders,’ and without community.”” and “”We have in the US a strong cheap-labor lobby that uses immigration to force down wages and break labor unions, as well as weaken labor safety standards. “”

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    • Once upon a time, say, 100 years ago, migration from say the UK and Ireland and parts of Europe tended to be the disenfranchised in their own land who sought the potential for a new start in the antipodes, the lands of milk and honey and sunshine. They tended to arrive with $1 in their pocket with the hope of a fresh start. They started at the bottom of the heap and pushed the locals who were already on the heap upwards. Everyone benefitted. No-one was disadvantaged. Now, over the past two decades the game has changed. The wealthy from other countries are arriving as economic or political refugees with economic clout. They come in at the top of the heap and push the locals down economically speaking. They have the economic clout to out-bid the locals. Price no object.

      The worst aspects are they are arriving at a rate greater than the existing society can assimilate them. They are organising into self-help enclaves. That is one very noticeable change in Auckland. The enclaves. It is new. It is foreign. With the consequential pushing the locals out of their nests, and out-pricing the local new-home creators.

      Nothing has changed

      December 2015 – Croaking Cassandra
      https://croakingcassandra.com/2015/12/22/immigration-is-not-causing-poverty/#comment-6188

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      • 150 years ago when immigrants arrived in the main they exploited resources that were not being exploited by NZ natives such as gold and meat and exported them to the advantage of NZ. When the immigrants had wealth and numbers that exceeded the indigeneous suffered and lost the land which was their main resource.
        Similarly today we should welcome immigrants that exploit new resources especially if they create export businesses. Some do but not many. It just needs planning not the day-dreaming of a UK economist.

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  4. Are there any known instances of NZ journalists or economists that have gone to the UK and told them how good they are doing and how they should do things?

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  5. Can you believe this ….
    The Holy Grail – Greens MP Jan Logie’s Domestic violence Bill is now Law. It is the foundation stone of improving productivity – Seriously – henceforth all employers will be seeking to recruit only victims of Domestic Violence because they are more productive .. that’s discrimination

    She says – We have all the evidence. We’ve had the economic modelling here and over in Australia where over two million workers are already covered by these provisions and all of it tells us that actually the cost is minimal”

    “The cost is soon offset by the benefits to employers by improved productivity”

    https://www.radionz.co.nz/news/political/362659/domestic-violence-bill-nats-on-wrong-side-of-history-greens

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  6. Representative democracy no longer works. The media has overtaken the village square and the media portrays it’s own public.

    Why can’t every citizen have an identifier and a button to push? Parliamentary override?

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    • I like that idea. It treats voters as adults who are responsible for the important decisions in the life of their community, family and themselves.

      However it would work well for simple issues: death penalty, abortion law, immigration, teachers salaries but less well for complex issues – the economic and legal implications of Brexit, various free trade agreements. Unfortunately the media may end up even more influential – for example it is so much easier to write an article about the benefits of light rail than it is to make an economic case complete with risk analysis (unexpected new technologies and changes to population density).

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  7. Michael – Your thoughts resonate with much in Douglas Murray’s thoughtful and disturbing book “The Strange Death of Europe” – which you may be familiar with, but anyone who wants to have a view on immigration needs to read.

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      • Yes, mainly true about the religious aspect, and thankfully without the examples here of violence its strong conflicts can generate, but his analysis is generally still relevant here – religion is always closely tied to culture/values and his cultural impact discussion is relevant, as is his robust dismissal of the economic and other arguments most often used (politically) to support mass migration.

        You have written a lot on immigration and noted before that NZ and Australia have already had “mass” migration (more than most European countries in migrants as a percentage of population – 23% and 29% respectively – c.f Europe average 11% Germany 15% -UN 2017 numbers).

        The benefits of mass immigration accrue almost exclusively to the migrants. There is no empirical evidence to link migration to increased per capita . High skill and high net worth migrants are few in number and an exception to a general policy.

        We need a renewed discussion about why we should have migration and what level is appropriate. There is no really convincing argument for why we want population growth at all, or why demographic aging is a concern – and anyway, if it was, why immigration is the best response. We want increased per capita GDP, not just more GDP, and immigration does not increase that unless we are very selective.

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