Late last year, RBA boffin, Professor Ian Harper, spruiked the riches that supposedly come from Australia’s mass immigration ‘Big Australia’ policy:
The Productivity Commission’s five-yearly review noted that 80 per cent of Australia’s output is produced in cities, and half of that comes from Sydney and Melbourne. Making our two biggest cities more efficient, affordable and accessible will raise the living standards of almost all Australians, directly and indirectly, and deliver growth in which we all share. As the cities grow, they will deliver more and better jobs and business opportunities, including in regional areas that service them…
None of Melbourne’s growth has been driven by extracting resources from the ground. It has been driven by the type of knowledge-intensive service industries that also are concentrated in Sydney. These industries have led to a self-referential, virtuous circle — people come because there are jobs, and there are jobs because they come.
Shortly afterwards, Harper followed-up with more ‘Big Australia’ drivel:
Speaking at the Melbourne Institute/The Australian Economic and Social Outlook Conference, Mr Harper said raising productivity, with a key focus on making cities accessible and liveable, was how to achieve the “holy grail” of economic policy of both growth and equity.
“Migration of course is right at front and centre here. We benefit an enormous amount from migration,” he said…
“It’s no longer the case…that Australia is a great quarry and farm,” Mr Harper said.
“The bulk of Australia’s growth is being driven by services….in our great cities,” he said, noting that 80 per cent of economic output is produced by cities.
“What drives productivity growth…is innovation,” Mr Harper said. “The source of this creativity…is when we are together. When we stimulate each other. The more diverse we are…the more creative we are,” he said.
“These are the debates that are presently live for us.”
“Importantly, in my view, we need to make our cities work. What matters for us is how we manage the accessibility and the liveability of our cities,” he said.
Today, Ian Harper is back, this time attacking ‘NIMBYs’ opposing high density across our cities’ suburbs:
Reserve Bank board member Ian Harper threw his lot in with the Grattan Institute think tank and urban planners the country over, saying that tackling “nimbyism” was a key ingredient of making Australia’s fast-growing cities work more productively…
“If you make our places better places to live and work and grow, by tackling congestion, by tackling nimbyism and all the other things that get in the way of making our cities grow and become productive, indirectly what you’re doing is boosting our social capital by building community,” he said…
“We’re social creatures. We live together. We work together. We spur one another on to greater heights,” he said.
This is daft closed economy thinking by Harper. The world has 7.7 billion people. We don’t need to import them to sell to them.
Lowering immigration would also reduce one of the major drags on productivity: rising infrastructure bottlenecks and congestion; would lower the Australian dollar (other things equal), rebalancing the economy away from ponzi growth towards productive tradeable growth; it would help to lift wages; and would improve Australia’s current account, since Australia would import far less and the nation’s mineral wealth (and exports) would be shared among less people:
On the last point – the current account – notice below how “our great cities” of Sydney an Melbourne have driven gigantic trade deficits?
Basically, all the extra migrants that have flooded into these two cities have barely lifted exports, since these cities don’t actually produce much that is tradeable. By contrast, imports have skyrocketed via more purchases of consumer goods like flat screen TVs, cars, furniture, etc. These net imports must be paid for, either by increasing the nation’s debt or via selling-off the nation’s assets. We’ve been doing both.
The truth is mass immigration promotes ‘dumb’ growth, concentrated in urbanisation and household debt, and associated sectors benefit (think Highrise Harry and Gerry Harvey). This has its limits, as we are already seeing in debt stress everywhere and declining liveability, as it benefits the few over the many.
But it’s not the preferred model of growth. Far from it. Productivity enhancement and competitiveness are a better model over the long run as they lower debt while boosting incomes per capita, are more meritocratic, and would send the 40% of the economy that is tradeable into overdrive.
If immigration is cut, there’ll be an adjustment period while the real exchange rate tumbles. But the Australian economy would be far better off in the medium and long term, as would living standards.