Some additional thoughts on the Productivity Commission’s migration report

Max Corden, one of Australia’s great economists, gave a speech in 2013 to the Productivity Commission which I like to read from time to time. He concludes:

In my own judgement, a substantially higher population attained within a period that allows plenty of time for adjustment, would be highly desirable. This is the Radical Approach. But the real constraint comes from the combination of two factors. First, there is the trend decline in the total fertility rate. Second, there is the political difficulty of bringing about the substantial increase in the rate of net migration that would be required. This difficulty, in turn, results from the combination of the conservative approach to immigration policy by the public and the pragmatic approach by governments. It is these two factors that lead me to believe that we will, after all, not have forty million Aussies by 2050 … though perhaps we will get to thirty.

Max Corden is an incredible economist, pioneering the study of what we now know as dutch disease and a career spanning from Oxford to the IMF. By the looks of things, he also has an interest in immigration.Yet both his underlying assumptions and his informed guesstimate have turned out to be out by a fair bit in the decade which followed. Fertility kicked up immediately after 2003 (although not to replacement levels) and it appears there are only very weak political constraints on the rate of net migration to Australia. We are going to smash past 30 million people and on track to end up somewhere between 35 and 38 million by 2050.

This begs the question: if one of Australia’s pre-eminent economists can get it this wrong on immigration, how are the urban planners, state governments, local councils, universities and host of other businesses and groups who are touched by migration dealing with the trends?

I was reminded of this by the Productivity Commission’s report released this week on Australia’s Migrant Intake. The first recommendation and one with the most punch is how Australia needs a formal population policy, instead of using immigration policy as an ad-hoc proxy. I used to disagree with this but I’ve changed my mind.

Clearly, we are unable to work through the variation in immigration flows adequately. Planning infrastructure, urban housing regulations, and urban transport need to be anchored in something stronger than “we’ve got this”. I used to think state governments could muddle through, that they wouldn’t fall far enough behind the eight-ball. An election campaign spent in suburban Sydney tells me this was incorrect.

I believe it’s a strong mistake to chalk up disquiet about congestion and housing to immigration itself. It’s not simply ‘take away the migrants and sit back to prosper’. The economic, social and cultural benefits of migration stand up by themselves but nothing can exist in a vacuum. The lack of planning and follow-up, the uncertainty fosters concern and hubris. The state government or local council who ignore or wish away increasing population only create a bubble down the road. See Sydney post-Olympics until the GFC.

After being knee deep in the mud for over 12 months, this is what the Productivity Commission proposed:

The Australian Government should:

• develop and articulate a population policy to be published with the intergenerational report

• specify that the primary objective of immigration and the Government’s population policy is to maximise the economic, social and environmental wellbeing of the Australian community (existing Australian citizens and permanent residents) and their future offspring.

Australia’s immigration and population policy should be better informed through:

• genuine community engagement

• a broad range of evidence on the economic, social and environmental impacts of immigration and population growth on the wellbeing of the Australian community

• a published five yearly review of Australia’s population policy.

The Australian Government should calibrate the size of the annual immigration intake to be consistent with its population policy objectives.

Arguably, the actual population policy document, like the IGR, isn’t the important part of this process. It’s the lead-up, the conversation and the national debate which shapes public opinion and political will. Getting people excited about these issues not from a position of fear but looking ahead to the future is a worthy goal. Yet at the moment, we are a long way from where we need to be to even have these discussions.

‘Genuine community engagement’, as proposed by the Productivity Commission, simply does not exist in immigration policy. Consultation occurs only on the surface and a select group of ‘stakeholders’ are sought out for opinion and invitation to comment. A mickey mouse process between the federal and state governments covers up for massive deficiencies in jurisdictional mismatch.

A real world example is required here. Why has the number of permanent visas available – 190,000 – been exactly the same for the last five years? Over that period, the economy and immigration trends in general have moved up and down yet not once has the number of permanent visas moved. I have no idea why this is the case and I don’t know if it’s good or bad. I don’t even know where to start because so few people realise this is the case or the role permanent migration plays in Australia’s migration framework in this day and age.

There isn’t a ‘broad range of evidence’ available for policy makers to assess. As very few people are engaged in the topic, research is starved and the Department of Immigration and Border Protection is reflexively risk-averse when it comes to sharing the trove of administrative data they have. We don’t know how many international students work. We don’t know the location of working holiday makers. We don’t even know how long migrants have been in Australia for. Newsflash: We don’t know. A population policy would hopefully address these massive gaps.

I disagree with most of the stuff written about immigration from Macrobusiness – this for example. But at least they have a clear, well-stated position and attempt to use what evidence there is to argue the case. A bigger discussion about population, and by implication immigration, would produce better policy and better outcomes. For full marks to the Productivity Commission for leading this conversation and calling for change.

Thanks to David Sligar for his comment on my previous post about the PC report. He raised a number of points, a couple of which I’ll post here and add my comments:

Some things I would like to have seen more of:

Discussion of defence and national security impact. IMHO the strongest ‘hard’ argument for migration from existing citizens perspective isn’t economic (effect on per capita income of existing residents is theoretically ambiguous and empirical studies suggest isn’t very large), but rather increasing total GDP and thereby defence capability.

By coincidence, Corden discusses and promotes the same concept in his 2003 lecture:

Furthermore, I have no doubt that Australia’s influence, whether in the region or the world, would increase if it were a substantially larger economy, able to provide more funds in aid, in contributions to international organizations or in joint international action. There are many ways in which other countries can benefit or harm us, and also many ways in which we can do some good in the world — if that is our desire. I have spent thirteen years in the United States teaching in a school of international studies where such matters are studied closely and considered important.

I have never been heavily engaged in this argument myself and when I first heard about it, I was sceptical. I understand the scale argument but specifically for defence, it makes me queasy. What exactly does a larger economy mean for defence policy? More submarines and JSF airplanes? More influence at the big kids table? These seem to be questions where there can be both good and bad outcomes, meaning a bigger scale could be beneficial but also could increase the damage done. Perhaps if I had a higher level of trust in Australia’s place in the world, I’d see this as a positive. There is definitely more to discuss here though and it is often ignored. David moves onto social cohesion:

On the flip side, migration could potentially damage social cohesion and this could obviously undermine domestic security and harmony. The report addressed integration but I thought this part was somewhat glib and insufficient given most the Western world is currently seeing large scale destabilising anti-migration movements. At one extreme there is obviously Belgium and France, where somehow something has gone very wrong. There is a hypothetical risk that even if things look pretty good now in Australia, social harm could be non-linear and rapidly increase once some tipping point is reached.

There is always the danger social cohesion could go backwards but to me, immigration flows today are not the driving factor behind this. For example, to take Brexit. The best political science research I’ve seen to date emphasises a range of factors, including “Of the twenty places with the fewest EU migrants, fifteen voted to leave the EU. By contrast, of the twenty places with the most EU migrants, eighteen voted to remain. In many of the areas that were among the most receptive to the Leave campaign there were hardly any EU migrants at all.

The people who are agitated about social cohesion and immigration aren’t – 0n average – living where the immigration is occurring. And the people who are living with migrants don’t – on average – have a major issue with it. To me, this means more or less migration isn’t going to have a marginal effect on social cohesion. It will be other factors which determine social cohesion. This isn’t an argument for more immigration but I also feel it isn’t a strong argument for less immigration.

How much does immigration reduce natural resource rents to existing citizens? Australia gets more income from stuff in the ground than most countries – how much does immigration reduce minerals per person? I don’t know how significant this would be but it’s almost never-ending addressed.

This is an excellent question. If anyone has decent research on this, please mention it in the comments.

Frankly acknowledge that we might have to assume second best policy settings for population policy. It’s fine to say migration would be great if matched with optimal infrastructure provision, tax transfer adjustments etc… but is it actually plausible that this will happen? What if Sydney never increases taxes enough to pay for the infrastructure that is needed?

I don’t know about plausible but I firmly believe the more people who gain an interest in this topic, as well as more information made available, can help address policy settings in a substantial way. At the moment, there is a complete dearth of interest in this area. In a relative sense, there are only are a handful of demographers, planners and technical specialists working across and between governments. No-one actually goes and asks what people think either. What type of housing do people think should be available? How far are you willing to travel to work? While Grattan has touched on some of this work in their Cities Program, I’m at a loss to think of common understanding to these questions as they aren’t on the radar.

There is no reason to accept second-best policy settings for population if we haven’t even had a decent crack at it doing it properly in the first place. This goes to the comments above about a formal population policy process, an attempt to better engage with policy matters which have material impacts on people’s lives each day. It’s almost unbelievable this issue goes under the radar as it does, occasionally bursting out in some form over a road development or house price debate.

No government can plan everything out perfectly – many mistakes will be made along the way – but at the moment we don’t even seem to be trying, at least on a federal level.

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