Immigration and profits


‘Progressive’ critics of government immigration policy, seeking to explain the perverse and sadistic, often point towards electoral calculation. Politicians, devoid of conviction, ‘pander’ to a racist populace.

Thus in 2001 the left-liberal commentator David Marr wrote of Australia’s conservative prime minister John Howard:

He looks this country in the face and sees us not as we wish we were, not as one day we might be, but exactly as we are. The political assessment is ruthlessly realistic.

Passive evaluation of popular attitudes ‘as they are’ from the politician who concocted the ‘children overboard’ lie, and who deliberately polluted public language with terms like ‘queue jumpers’?

This piece of bienséance has become conventional wisdom. But it neglects a crucial fact: the governing elite holds and is animated by its own sturdy autonomous objectives with respect to immigration  goals that its functionaries, cabinet ministers and high-level civil servants are obliged to pursue regardless of electoral cost (such as it is).

Politicians and bureaucrats, along with technical advisers and business interests, formulate these goals independently of public opinion.

On the other hand, public preferences on the matter are not formed exogenously. They emerge instead from an acceptable range of policy options presented to the population by decision-makers and their media conduits.

‘Perennial’ popular racism in fact waxes and wanes  at least, public expression of it in does  with a period remarkably similar to the business cycle.

Productivity Commission - net overseas migration and population growth

RBA - Inward migration and business cycle

The ‘accountability mechanisms’ of electoral competition then form a very weak constraint on rulers: the shaping of public attitudes on immigration is entirely endogenous to the process of elite policy formation and implementation (and to the version of reality filtered through media).

If the policy elite is in unison (as the Australian one is on immigration), party ‘competition’ merely takes the form of a contest over the language in which immigration is discussed and the mood music accompanying its implementation (which may nonetheless have its own import, as we’ll see below).

If, one the other hand, there are rival factions (representing e.g. the wishes of different property-owning classes), then one fraction of the elite may find its policy goals more readily achieved if they find a mass constituency, i.e. popular support, to leverage in the process of elite bargaining. Only in this latter context is public opinion causally effectual at all (and it’s precisely in such circumstances that vying elite coalitions will have the strongest motives for manipulating public opinion).

So it’s important to consider elite objectives on the question of immigration.

Treasury Intergenerational report 2007 - Projected contribution of net inward migration to population growth

The latter are, naturally enough, remote from popular concerns. But they are uniform, and stated openly in any think tank report, self-respecting editorial page or departmental brief.

The policy desideratum that ‘a larger population is needed to support sustained economic growth in a rapidly ageing Australian society’ has been shared across ruling circles since the National Population Inquiry of 1975, chaired by the ANU demographer W.D. Borrie. (Borrie was appointed to investigate the consequences of the country’s sustained fall in fertility, the most alarming since birth rates dropped below replacement level during the 1930s.)

Adherence of the Australian state leadership to this outlook can be seen in models from Treasury and the Productivity Commission, and in discussion papers from the Committee for the Economic Development of Australia.

All share the premise that, if continued investment by private firms, leading to growth of the capital stock, is not to run up against a bottleneck of available labour — driving up and wages and reducing profits — high inward migration must boost workforce growth.

According to an ANU paper in economic demography:

[The] capacity to meet Australia’s future labour demand through increases in [domestic] participation rates is limited…

[Levels] of migration comparable with historical standards are required just to maintain the labour force growth rate at a zero level.

To maintain the growth of the labour force after 20 years at around its present level (1.25%), under the average participation assumption, NOM [net overseas migration] would have to rise to 239,000  by 2017 and to 405,000 by 2047.

McDonald and Temple - Demography and labour supply

Australia population size under NOM scenarios

McDonald Temple - Migration and labour supply

Percentage Australian population of working age (15-64) under alternative NOM scenarios

What is the basis for this elite position?

In a developed or ‘mature’ economy, in Kaldor’s sense, the long-run growth rate is constrained by the growth rate of the available domestic labour force. After the demographic reserves of farmers have been propelled from the countryside and housewives liberated from the kitchen, local labour supply to the capitalist sector is inelastic.

Pro-natalist policies, and other government efforts to boost participation rates by currently un-utilized sources, do give some flexibility to labour supply. (For example, disabled individuals may be compelled to enter capitalist employment rather than receiving welfare payments.)

In Australia, labour-force participation by women is comparatively low. Many remain available to be driven from unpaid domestic work into paid employment.

Joyce Jacobsen - Labour force participation rates by sex

RBA - Female labour force participation

But the size of these residual domestic pools is limited in the advanced economies. If bottlenecks in labour supply are not to limit growth and boost wages, firms in the advanced economies must be able to tap into the vast global reserves of labour found in pre-capitalist and under-developed parts of the world.

Why is this decisive for Australian politicians and bureaucrats?

The activity of state managers (insofar as this requires state expenditure) is ultimately constrained by the scale of fiscal resources at their disposal — that is, by the magnitude of available government revenues extracted from taxes and obtained by borrowing. Since both sources of revenue increase in proportion with the level of private economic output (i.e. tax is just a fraction of GDP), state managers who hope to spend money are obliged to promote the overall level of economic activity, whatever their other motives (sincere reformist or cynical timeserver) or ideological goals (conservative or social democrat).

Economic output is in turn sensitive to the level of private investment, which is based on the expected returns accruing to investors, as well as to investor perceptions of the overall business climate.

State managers must therefore maintain political-economic stability and investor confidence.

Should they fail to do this (say, by ‘irresponsible’ policies leading to wage inflation), their capacity for action is reduced by falling revenues and credits (they’re also likely to face popular pressure due to rising unemployment, capital flight etc). This hard constraint — by which the state’s institutional form restricts the range of policy options available to rulers — is more decisively straitening than any politician or party’s ideological alignment or conscious identification with the needs of business.

So how does this relate to immigration? Let’s look at some details.

The long-run profit rate of any country rises with the rate of growth of the working population. (It declines with the share of profit that is reinvested in expanding the capital stock.) This means, among other things, that historical demography has a big role to play in deciding the wealth of nations and classes.

Unless peasants are rapidly being propelled out of the countryside and into urban centres (as in present-day China), a country’s workforce generally grows at a rate similar to that of its population. The size of a population, in turn, stabilizes once industrialization has occurred, health and sanitation improves and infant mortality falls. Most advanced capitalist economies exhibit the falling fertility rates characteristic of countries that have passed through the demographic transition.

Thus, in Switzerland, fertility fell from 2.5 children per woman in 1965, to 1.5 children per woman in 1990. In Japan, fertility declined less dramatically from 2 in 1965 to 1.7 in 1990. Birth rates in the Republic of Korea, on the other hand, fell spectacularly from 4.7 babies per woman in 1970 to just 1.8 in 1990.

Observe what’s happened to each country’s profit rate (i.e. rate of return on capital invested) in recent decades.*

In Australia, fertility has fallen similarly, from 3.3 children per woman in 1965, to 1.9 in 1990. Fertility in the Netherlands declined from 3.1 in 1965 to just over 1.5 in 1990, and in Britain from 2.8 to 1.8 over the same interval.

But increased immigration can substitute for a low birth rate. The European Union and Australia have been far more open to immigration than Japan. Observe the profit-rate trajectory of Australia and some EU countries.

In the early years we see the same downturn in profitability exhibited by the first group of countries. This is, however, reversed or stabilized in later years.

Unlike Japan, Korea or Switzerland, this latter group of countries  along with the United States  was able to counteract demographic trends, and continue to grow their workforces. In each country, much of the workforce growth was due to high net inward migration. Compare plots of labour-force growth in Australia and Japan.

But of course labour supply is not the only factor at work.

Rising absorption of the surplus by unproductive expenditure (finance, advertising, military) reduces the leftover amount available for productive reinvestment. Slower accumulation of the capital stock helps to raise the output-capital ratio, and the consequence is a rising profit rate. The relative weight of these unproductive sectors (especially finance) in Australia, Britain and the Netherlands is exceptionally large.

Nonetheless we can see that state managers, dependent as they are on growth of the surplus product and continued business confidence, must maintain a growing workforce to satisfy the demands of firms. The Australian elite therefore has a definite interest (after demographic transition has occurred) in high levels of immigration.

This means especially high demand for ‘skilled immigrants’, rather than refugees or asylum seekers.

RBA - Immigration by visa category

The latter, however, may be used to distract attention, act as scapegoats and relieve social tension.

Attacking a small subset of the immigrant population serves to present what is a structural necessity for advanced capitalist economies  and thus a sine qua non of state policy  as the moral failure of a few readily identifiable people: Arabs, Afghanis, South Asians, East Africans and ‘evil’ people smugglers.

And, as a conspicuously ‘foreign’ group (thanks to salient differences of language, appearance and customs), overseas immigrants obscure divisions within the local population (i.e. the existence of a parasitic plutocracy with its own language, appearance and customs, and possessing, far more importantly, a monopoly on society’s productive assets and wealth claims, giving rise to its distinct social role and outlook).

Immigrants are thus doubly useful: a handy pool of labour, freed of their homes or any other means of livelihood; and a safe receptacle for popular anger and frustration.

The Scanlon Foundation is dedicated to promoting the notion that ‘the future prosperity of Australia’ is ‘underpinned by population growth’, and that given domestic fertility rates this means inducing high levels of inward migration. Peter Scanlon is a former Elders and Patrick Corporation executive and AFL commissioner, who operates a private investment and property-development firm called Brencorp.

On behalf of the Scanlon Foundation, the Australian historian Andrew Markus undertakes a biannual research project on ‘social cohesion’. The project is ‘designed to examine cohesion within the context of the social impact of a prolonged period of sustained and significant immigration’, during which, so it claims, ‘the potential for social tension is higher.’

Respondents are surveyed on attitudes to immigrants and various religious groups, etc.

The ABC and Fairfax media (herehereherehere and here) typically use this and other reports as an opportunity to tell audiences that ‘half of Australians are anti-Muslim’, ‘boat people have no friends’ and ‘we fear’ immigrants. The Herald Sun used a similar survey by University of Western Sydney’s Kevin Dunn to declare ‘Australia a land of racists’, while the Daily Telegraph reported that most Australians ‘are concerned about the number of Muslim people in Australia.’

Markus has constructed the Scanlon-Monash Social Cohesion Index, which purports to measure each individual’s ‘level of identification with their country, the fundamental prerequisite for any cohesive society.’

The assertion that high migrant inflow necessarily threatens ‘social cohesion’ echoes precisely the infamous statement concerning immigration from Asia made, in 1988, by then-Liberal Party leader John Howard. Howard claimed that it ‘would be in our medium-term interest and supportive of social cohesion if it were slowed down a little so the capacity of the community to absorb were greater.’

Howard was responding to the FitzGerald committee of inquiry into immigration, appointed by ALP Prime Minister Bob Hawke and chaired by a former Whitlam government diplomat.

With members including the economist Helen Hughes, the FitzGerald committee recommended a reduction in the humanitarian (refugee and family-reunion) intake and a focus on the productive skills, youth and English-language ability of new arrivals.

Of its investigation, the report also declared that ‘confusion and mistrust of multiculturalism, focusing on the suspicion that it drove immigration policy, was very broadly articulated. Many people, from a variety of occupational and cultural backgrounds, perceived it as divisive. The majority of these people also expressed concerns about immigrants’ commitment to Australia and to Australian principles and institutions.’

This opened the door for Howard to announce ‘there are profound weaknesses is the policy of multiculturalism.’ He announced a new policy that ‘requires of all of us a loyalty to Australia at all times and to her institutions and her values and her traditions which transcends loyalty to any other set of values anywhere in the world.’

This was taken up by Hawke’s National Agenda for a Multicultural Australia, released in 1989. It announced that, alongside the rights conferred by official multiculturalism, immigrants incurred certain obligations, including the responsibility to ‘have an overriding and unifying commitment to Australia, to its interests and future first and foremost; to accept the basic structures and principles of Australia.’


Consider now the circumstances producing global people movement:

  1. Wage differentials between regions of varying levels of development.
  2. Global capital flows.
  3. The existence of labour reserves in countries which haven’t gone through a demographic transition.

These factors (along with aggressive imperial wars and various forms of state breakdown) combine to cause migration flows toward high-wage regions such as the EU, US and Australia. These migration flows will only stabilize once labour reserves in low-wage regions deplete.

Until this occurs, and workforce growth is reduced to a low or negative level, the glut of labour relative to capital (the latter made ‘scarce’ by international mobility) reduces bargaining power for workers in advanced economies. Profitability, as shown in the figures above, is bolstered. Where profit rates are low (as in Japan) capital is free to flow towards low-wage regions with high labour reserves.

This in turn makes left-wing politics more difficult, while increasing the appeal of racist chauvinism.

In these circumstances, the only effective response  for socialists and for any minimally ‘left-wing’ people  is a consistent internationalism: refusal to take the poisoned (if clumsily laid) bait of a ‘frank, open, honest national conversation about border protection’, and coordination across borders of the ruling elite’s common enemies: that is, the vast majority of the world’s people and the people of every nation.

*These figures use historical data from the Extended Penn World Tables, assembled by Adalmir Marquetti. Profit is calculated as GDP minus wages and depreciation. The profit rate R = Profits/Fixed capital


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9 Responses to “Immigration and profits”

  1. Daniel Golding Says:

    Hey Nick, thought you might be interested in this piece:

    I disagree with a fair chunk of his argument, especially the way he goes about it, but the final point seems to ring true: “This issue is a mess, not because Australians in outer suburbs are inherently racist, but because our elites, our leaders – politicians, journalists, commentators, academics – refuse to deal with the matter honestly.”

  2. Nick Says:

    Must disagree with Dunlop: I prefer to see this as a triumph of sterling leadership.

    “Life makes way for the determined”, said the minor American poet, Ella Wheeler Wilcox:

    There is no chance, no destiny, no fate,
    Can circumvent, or hinder, or control
    The firm resolve of a determined soul.
    Gifts count for nothing; will alone is great;
    All things give way before it soon or late.
    What obstacle can stay the mighty force
    Of the sea-seeking river in its course,
    Or cause the ascending orb of day to wait?
    Each well-born soul must win what it deserves.
    Let the fool prate of luck. The fortunate
    Is he whose earnest purpose never swerves
    Whose slightest action or inaction serves
    The one great aim.

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  4. Nick Says:

    I admit to feeling amused by various articles in this week’s Australian and Fin Review, in which several dopey corporate honchos fretted that Gillard might actually be serious about all this “sustainable population” stuff. She had to issue a clarification: no of course I don’t actually mean anything by it policywise, I’m just stirring race hatred. The honchos were obviously confused about just which of Gillard’s words were intended for an elite audience (the adults, the active citizens), and which were directed at a mass audience (the kids). And clearly it gets dangeous for the mining and real-estate execs once pollies start bashing immigrants generally rather than just refugees.

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