Immigration is a Big Drag on the Economy, and Our Lifestyle

[Now on Independent Australia, 15 Mar]

Australia can choose not to be ‘big’ if it wants. Both our material income and our quality of life would benefit.

It’s good that the ABC’s Four Corners has provoked a debate on immigration, and it’s good that it avoided racist, xenophobic or xenophilic claims, but still so many of the arguments presented are ill-informed or self-serving.

The program predictably repeated the mainstream myth that immigration is good for the economy, even as nearly everyone agreed we’re not keeping up with the cost of the required infrastructure. No-one seems to notice the contradiction.

It is bemusing that so many seem fatalistically to accept a ‘big Australia’ as inevitable. Some seem to imply a large population is an inevitable consequence of the laws of demography, but a tool on the ABC web site shows that in fact current policy on both immigration and birthrates can have very large effects on population later this century.

More disturbingly, many don’t seem to believe governments will bend to the popular will and slow the rate of immigration. Well if we all believe that, it will be true. In fact most Australians don’t want our population to grow beyond 30 million.

Such fatalism reflects the disempowerment engendered by the arrogant, out of touch and corrupt state of our politics. But people’s tolerance can’t be stretched forever.

In the 1990s the rate of immigration was as low as 70,000 per year, a third of recent rates. The rate was raised only a decade or so ago, so obviously it can be reduced if we want it so. If the rate was suddenly dropped there would be some economic dislocation, but that just means we should do it carefully.

The big business types claim that as immigrants allegedly do some of the less desirable jobs then without them the economy would collapse. There would be no one to collect the garbage, no-one would work on assembly lines (if we still had any), and no doctors would work in rural areas.

This is just a thinly disguised bid for cheap labour. If no-one wants to do a job, then the pay is too low – a good old free enterprise argument. The claim re-surfaces regularly in the guise of an alleged ‘skills shortage’.

If we don’t have enough skilled people, including doctors, then we need to educate more. We’re failing our own young people by not giving them the full opportunity to participate in our economy and society.

If doctors are reluctant to work in rural areas, then pay them more, with government supplements if necessary, or find out what other inducements will help. Perhaps we could make a serious effort to re-invigorate our regional and rural economies, and take some pressure off the big cities in the process.

But the central claim pushed by politicians and business lobbies is that immigration is ‘good for the economy’. The claim is self-serving, and wrong on several levels.

The big cost is the expansion of infrastructure, and of other ‘durable assets’ like houses and shops that are paid for in the private sector. No matter who pays for them the cost is still borne by our society.

Although in the medium term immigrants will contribute to the economy, they need durable assets on day one, so those assets are paid for by the pre-existing population (or their lack burdens the population). With a moderate immigration rate the burden is not large, but the net 400,000 we took in last year cost us around $200 billion.

That number comes from a straightforward analysis by development economist Jane O’Sullivan. The logic is not hard. If your average infrastructure lasts 50 years, you have to replace 2% of it per year. But if the population increases by 1%, then you have to build or rebuild 3% of your infrastructure. Those costs are thus 50% larger.

Infrastructure and other durable assets are very expensive. O’Sullivan took apart the numbers and reached a startling conclusion: every 1% per annum of population increase uses 7% of GDP. Put another way, every new person costs us $500,000.

Economists don’t seem to do this calculation, because their models are static. They can model (poorly) the economy before and after, but not the change in getting from here to there.

When the business lobby says building all those extra houses and infrastructure is ‘good for the economy’, it neglects to consider what we could be doing instead, like building enough schools, hospitals and public transport for the people already here. It’s a completely self-serving argument.

Politicians are also self-serving because population growth hides their poor economic management. ‘The economy’ expands each year, but the GDP per person is hardly growing at all.

So immigration imposes a large cost on our society. It also exacerbates our heavy footprint on our fragile Aussie environment. It tells future generations they can’t have backyard cricket matches, nor easy access to the beach, nor free weekends in which to enjoy those things we took for granted a generation or two ago.

We need the debate on immigration policy. We also need it to be much better informed.

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