High immigration is creating an illusion of growth

ScreenHunter_16 Jun. 06 16.17

By Leith van Onselen

Business Spectator’s Callam Pickering has written another good piece today, this time questioning the merits of Australia’s world-beating immigration program, which risks lowering the living standards of the pre-existing population:

…high migration levels are not achieved without a cost. High population growth puts pressure on existing infrastructure and commonly leads to greater congestion on our roads and public transport. Not to mention the impact on our natural resources and environment.

There is also considerable debate as to whether high migration policies benefit the existing population. The Productivity Commission has found that… the real beneficiaries of migration are the immigrants themselves who benefit from higher domestic wages and relatively better infrastructure…

Unfortunately, it is doing little more than creating the illusion of growth…

Immigration is not a substitute for productivity and so far Australian residents are seeing little benefit from Canberra’s immigration policies…

The end result is an economy that is being driven by population growth, with little consideration of the long-term implications. How will we deal with the additional traffic congestion? What about increasing the housing supply? Does anyone care about the environment or natural resource depletion?..

Spot on. The key issue when it comes to Australia’s immigration policy is whether expanding Australia’s population by more than 1 million people every three years is beneficial to the existing population. Sure, while it might be great for Australia’s business elites –  who enjoy the fruits of an expanded market – it imposes real costs on the rest of us, who must endure increased costs of congestion, higher housing/infrastructure costs, lower environmental amenity, and minimal uplift in material economic well-being.

From a narrow economic perspective, population growth (immigration) is good only if it raises the real incomes of the pre-existing population (e.g. real GDP per capita). While it is true that Australia’s high population growth over the second half of the 2000s boosted Australia’s real GDP (more labour inputs, other things equal, means more outputs), evidence is sketchy as to whether real GDP per capita increased due to population growth. In fact, as the below chart shows, real GDP per capita has remained lacklustre since 2007, suggesting that while the overall economic pie has increased in size because of high population growth, everyone’s share of that pie has barely grown.

ScreenHunter_1890 Apr. 02 10.15

The question around living standards becomes more important when infrastructure constraints and the environment are taken into account.

Indeed, a big negative of Australia’s high rate of population growth is that it is placing increasing pressure on the pre-existing (already strained) stock of infrastructure and housing, which reduces productivity and living standards unless costly new investments are made. Further, controversial and expensive investments like desalination plants would arguably not have been required absent such population growth.

Further, when infrastructure and housing investment fails to keep up, it places upward pressure on inflation, requiring higher interest rates, which can then damage productive sectors of the economy. As explained in a 2011 speech by the Reserve Bank of Australia’s Phil Lowe (summarised here), these factors were certainly in play in the late-2000s, when rapid population growth placed upward pressure on rents, as well as caused a big surge in utilities prices as the capacity of the system struggled to keep pace with the growing demand, requiring costly new investments.

Ongoing high population growth also places additional strain on the natural environment, causing greater environmental degradation, increasing water scarcity and pollution, and making it more difficult for Australia to reduce its carbon footprint and meet international pollution reduction targets.

A related concern is that Australia earns its way in the world mainly by selling its fixed mineral resources (e.g. iron ore, coal, natural gas, and gold). More people means less resources per capita. A growing population also means that we must deplete our mineral resources faster, just to maintain a constant standard of living.

As noted in part by Pickering, modelling by the Productivity Commission has also found that immigration is neither beneficial for the economy or living standards, nor can it alleviate the impacts of an ageing population.

All of which raises the question: what is the end-game of Australia’s current population-based economic model? If all we are doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, where does it lead?

High immigration and population growth is fine if it is part of a grand plan. Otherwise, it is not a genuine economic driver, but rather a way of back-filling previous booms when we over-fattened ourselves; of sliding backwards without anyone really noticing.
Unconventional Economist
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Comments

  1. Does anyone care to guess what the actual end game could be? Or is this yet another instance of “ye olde’ way”, where growth can only be good… When will economic models/policies start to consider resources are finite, not infinite!

    • end game?

      Sydney as LA or Tokyo or Bangkok

      nah, kidding

      actually, (and this is an edit, sorry) i’m quite serious – i can not imagine that those who share dreams of Australia’s future don’t take it for granted that our major cities will be as big (and ugly, nasty, brutish etc) as any other big city in the world

      why not?

      with that view held by many investors who come from such cities Australian ones look pretty attractive

      but everything i ever loved about living in Sydney has gone

      except maybe the food – but that’s not enough on its own to keep me there

      living in southern Thailand i have everything and more that i loved about Sydney when it was the best place in all the world to live

      except maybe the food, oh i miss a decent meat pie….

      p

      • Unless you’re rich Sydney’s a hole and has been since the boom. The end game is London methinks. LA still looks relatively meritocratic to me. We’ll have lots of suburbs like Chelsea where it’s $1m for a 2 bed and the only people who can afford them are rich foreigners.

        This is what we are voting for, except me. Moving to a regional town looks better by the day. Shame about the lack of work though.

        Why can’t we just be Australian? What was so bad about that?

      • In Bangkok at the moment. The infrastructure projects here in transport put Melbourne to shame. Shambolic public financial controls over expensive new stations (the previous Labor government to be fair) is in contrast to the rail and subway system here similar to those that are in Japan. Fix the 1920s met system. Stop the inflow of people unless those who benefit from the bigger market are taxed out of their trees to pay for the infrastructure and not people like me. They are freeloading leeches.

      • notsofastMEMBER

        fitzroy,

        But Bangkok is sinking at about 3cm per year. And even more in some parts of the city.

        I’m not sure that this aspect has been adequately considered when the decisions are made to build very expensive transport infrastructure in a city that will suffer from increasing amounts of flooding as time goes on.

      • ah yes BKK sinking, global warming (sorry, climate change)

        well let’s bank on the more than 50% of Americans (and who knows how much of everyone else) that thinkss that climate change is all a left wing conspiricy

        from what i can tell living here the population is like 50 years from even knowing that climate change is an issue

        really, we are talking about one of the dumbest populations of people on earth

        i should know – i live with them and love them dearly but boy oh boy are they an ignorant bunch on the whole

        p

    • Immigration displaces the onus on Govment/business to provide adequate education & training.

      It allows for the policy of charging for higher education cause we can always get a 457 over.

      Talk to anyone in vocational training and the Mining sector is doing diddly.

      • It also negates the need to explain why expensive government education is not delivering the goods.

      • @ Hugh

        If you have any affinity for the daily blogs containing the constant refrain regarding the establishments misreading of the economy, then the education system is on par.

        I would suggest that a generalization as to the effectiveness of the education system needs to be read into the context of which sector of the economy is leading the charge in properly utilizing the resources that are on offer.

        Vested interests rain and the education system is in constant flux trying to reflect the priorities of the incumbent.

        The only constant is the continual degradation of the education system and squeezing more money out of those who will hopefully generate the next generation of jobs.

        If you have had to pay for your education why would you feel any loyalty to this place?

        It seems that in the end that some one educated in a third worlds country is just the fit for business and the country?

  2. Answer- probably pretty soon…as China can’t run a population policy like us and they are about to find out what happens when you run a massive debt bubble into the face of falling demographics…

  3. The answer to the question, ‘What is the end game for high immigration population growth?’ is simply that it stops when the eroded living standards and real incomes erode the attractiveness of moving here.
    Given high wage growth in developing nations, especially China, rapidly slowing birth rates in virtually every country and more and more nations such as Germany trying to shore up their own populations via the same strategy, and our need to ramp up immigration intakes at at least the rate the population grows to keep achieving the same effect, the day Australia rolls out the welcome mat and not enough people show up seems increasingly close.

    • “…and our need to ramp up immigration intakes at at least the rate the population grows to keep achieving the same effect,..” ?

      • of the world

        so when world population stops growing how might immigration rates keep pace with what we have now

        or so i assume

        but i disagree anyway – our rate of growth has more to do with the perception that we are still clean and sparse and free and safe and the food is better…..

        p

      • “Same effect” could better read “Same proportional population growth”.

        I said “at least”, because there is a population bulge that will cause a spike in the death rate in the very near future.

        Even if we were only aiming for equal numerical growth with below replacement TFR and a population bulge, we would still need to continually increase immigration intakes to maintain equal growth (the only reason our natural growth is technically positive is that children of immigrants have filled the gap. At zero net immigration we would have gone to negative population growth some time in the last ten years)

    • Perhaps even before then.

      As a 4+ gen Australian, there is no option but to ‘stick it out’, good or bad.

      Migrants and the children of migrants get a ‘free pass’ courtesy of our liberal dual citizenship policy. If the SHTF, it will remain to be seen how many actually hang around!

      • If and when the SHTF, I’m pretty sure that all but the wealthiest immigrants will still remain. Even a second rate life in Australia still beats living in the second world of Asia or India.

      • I’m not sure about the demographics but I’m sure most post war migration has been from ‘ european ‘ ( UK / NZ / Europe ). It may be better than India but ……

        Some are already using their ‘free pass’ to avoid/delay paying for their taxpayer funded high standard ( making them ‘high demand’) education.

        Historically, higher immigration came about due to fears of the ‘yellow peril’ when Oz realised how vulnerable we were. SHTF includes not only economic downturns but also any rumblings of discontent from malevolent ‘neighbours’.

      • To this day, our leading immigrant countries of origin are NZ and the UK.

        The choice is more likely ‘Unemployed without support network of friends and family in Oz’ or ’employed with friends and family in the UK’.

      • @statsailor

        Agree wholeheartedly.

        Living in Perth during the ‘mining boom’ we’ve seen in c10 years what is playing out nationally. The next step will see those two groups ( along with many from the Eastern States ) facing those exact questions. How many will want ( can afford? ) to stay?

      • @ prometheus
        “Even a second rate life in Australia still beats living in the second world of Asia or India”

        that’s what alot of Aussies think i.e. if theyve never lived or worked abroad in their lives…

  4. Callum is proving quite the MB echo chamber 😉

    I’m pro immigration pro infrastructure and when coordinated well see little reason to raise the drawbridge to those seeking a better life.

    Welfare states do face problems integrating costs for new immigrants but this can be moderated to some degree by choice of immigrant and if necessary restrictions on welfare access for some predetermined period.

    If we haven’t figured out by now that continued reliance on our resource wealth to auger our standard of living is a finite game then we deserve our fate. Our resource wealth should enable us to engineer a path to sustainable productive economic development via innovation and enterprise rather than increased housing speculation and growth of bureaucracies.

    This is a big country with a big heart. Welcome.

    http://mobile.nytimes.com/2013/03/17/business/the-egalitarian-tradition-of-economics.html

    • “If we haven’t figured out by now that continued reliance on our resource wealth to auger our standard of living is a finite game then we deserve our fate.”

      The problem is, the bigger the population, the more finite our resource wealth becomes, for reasons explained in my post.

      “Our resource wealth should enable us to engineer a path to sustainable productive economic development via innovation and enterprise rather than increased housing speculation and growth of bureaucracies.”

      How does rapid immigration help to achieve this aim?

      • I understand the mineral wealth argument which is why I plea for policy makers and pundits to push for an innovative adaptive robust business focus – look beyond easy mineral wealth.

        I’m pro immigration and may or may not agree with your definition of rapid. I think immigration can provide unexpected gifts in terms of the skills ideas and drive new immigrants bring with them. Provided we engineer the most receptive business and tax environment possible we can harness these energies and all benefit.

    • GunnamattaMEMBER

      ‘This is a big country with a big heart. Welcome’

      ….unless you are a single mother
      ….unless you are a refugee
      ….unless you are someone young hoping to have meaningful career somewhere other than in the rentseeking world
      …unless you are someone not inclined to take on loads of debt
      ….unless you are someone wanting media diversity
      ….unless you are looking for politics with vision
      ….unless you want to ask questions about babyboomer entitlements

      etc etc

    • So 3d’s end game is …I don’t know, I’m pro immigration, It’s a big country, don’t worry about it, it’ll be ok.

      That’s your business plan?

      Thanks but no thanks.

  5. Don’t do what we’ve done over here which is to ignore falling output per capita for the last 40 years and realise the accompanying fall in the tax take isn’t sufficient for the infrastructure spend required to handle on-going immigration.

  6. Good article, Leith. The extent to which population growth has granted the illusion of economic prosperity is quite alarming – and something few people appreciate.

    I am a supporter of balanced immigration policies. ‘Balanced’ in that the benefits (cultural diversification, creativity, skills) must be carefully weighed against the drawbacks (increasingly stressed infrastructure of various types, including housing).

  7. Callum makes and states the same error most in the media make in Australia, i.e. confusing immigration with net overseas migration, i.e. permanents with the far greater number of temps (of whom many do not have full time work rights) such as international students, 2nd year backpackers etc.

    Further, he also makes a direct causal link between ‘immigrants’ and infrastructure pressure, environmental decay etc., yet no one can ever provide evidence when claiming it’s so obvious?

    All adds up to how ‘immigrants’ (without specifying whom exactly) are to blame for our woes…..

    More dog whistling?

    • No dog whistle. Use the transport infrastructure. Rent or buy a house. Go to a hospital. Open your eyes.

    • Break it down for you:

      With sub-replacement total fertility for more than forty years (i.e. Australian born women do not produce babies to replace themselves any more) our population growth is entirely dependent on immigration.

      Infrastructure pressure derives from additional people using the infrastructure.

      It’s not really relevant ‘who’ the immigrants are or their specific purpose in coming to this fair land, it’s simply that infrastructure expansion is slower than population growth, and population growth is wholly due to immigration.

      That temporary immigration is growing while permanent immigration is falling actually just makes things worse, as it potentially leads to population volatility, making planning infrastructure more difficult, assuming anyone was actually going to make a serious attempt to improve it.

    • We hear and supposedly see infrastructure issues caused by Johny Foreigner in eastenr suburbs of Melbourne/Sydny…… Yes, you’ve cited anecdotal evidence, which may look like a correlation, but it’s definitely not a causal link.

      You know this is the basis of empirical science, thanks to the enlightenment……. but most here would prefer their own subjective preconceptions and prejudices, like Putin’s Russia?

      How different is such thinking from Russian ‘nativist’ Putin?

      If it’s so obviosuly true, there would be absolutely hard data available?

      Same old ‘neo con’ tactics, make spurious or negative claims without evidence (especially popular in Australia about ‘foreigners’ from leading demographers, media personalities such as Bolt et al and Labor politicians…), then smear anyone who disagrees…..

      Had my time already in the LNP heartland or flat earth society thanks very much….. same arguments used by ‘white nationalists’ in the USA arguing for ‘sustainable population growth’ because they are so concerned for the environment and quality of life for all…… I don’t think so…..

      • You postulate no link at all between migration and infrastructure pressure- your evidence ?

  8. As I’ve often said, if the government were to ask us (by way of referendum) if we want a Big Australia, there would be a resounding NO.

    So that’s why they don’t ask us – they just do it anyway.

  9. Anyone who thinks that an expanded immigration program is the solution to our “aging demography” problem, clearly doesn’t understand thr math.

    All it does is defer the problem for a generation.

  10. I made the stupid mistake of taking my family fishing on the Gold Coast yesterday. I usually have a rule not to leavemy property over Easter, but this time I forgot.

    Some may find it selfish, but I’d happily trade 10% of my disposable income not to have to continually share my communities’ limited natural resources with tens of thousands of extra people every year.

    Economic indexes don’t capture the benefits of low density. I can’t get back to the bush fast enough and my missus is beginning to agree with me following the spate of robberies, drug busts and machine gun hauls in our, not-so-long-ago low density neighborhood.