More proof high immigration stifles productivity

The Centre for Future Work has released a new report showing that Australia’s “pace of automation is lagging behind other industrial nations”:

Startling new research from the Centre for Future Work has shown that Australia’s economy is now regressing in its use of new technology, with negative implications for productivity, incomes, and job quality.

The new report, The Robots are NOT Coming, compiles 8 statistical indicators confirming that the pace of innovation and automation in Australia’s economy has slowed down dramatically in the last decade.

Major findings of the report include:

• Business investment in new machinery (including robots) is weaker than at any point in Australia’s postwar history.
• Business spending on new research and technology has also been falling in Australia, and now ranks well behind the average of other industrial countries (and even some emerging economies, like China).
• The average amount of machinery and equipment used by the typical Australian worker has been declining since 2014, and has since fallen by 6%.
• Because of less automation and innovation, average productivity in Australia’s economy has also been declining for three straight years – also the weakest performance in Australia’s postwar history.

The findings contrast sharply with the common concern that robots and other forms of automation will threaten future job security for Australian workers.

“In fact, the biggest problem is that Australian businesses are not investing nearly enough in new technology, not that they are investing too much,” said Dr. Jim Stanford, author of the report and Economist and Director of the Centre for Future Work.

“The decline in average capital intensity and average productivity in the Australian economy is very unusual, and very concerning, because it suggests a structural regression in our overall economic development.”

“The unprecedented weakness of business investment in new technology does not mean that Australian jobs are somehow safer. To the contrary, the failure of business investment means that even more jobs will be located in low-productivity, low-tech, low-wage industries – with terrible implications for wages and job quality.”

“Business leaders love to complain that Australia’s productivity problems are due to red tape, taxes, and unions. In fact, the evidence is clear that their own failure to invest in new capital and new technology explains the stagnation in productivity. Instead of blaming others for this outcome, business leaders need to look in the mirror.”

These findings are hardly a surprise.

For 15 years, Australia has run one of the biggest immigration programs in the world, which has allowed Australian employers to grab cheap migrant labour en masse:

Allowing Australian firms to pluck cheap migrants in lieu of paying higher wages to local workers has necessarily discouraged them from innovating and adopting labour saving technologies, which would boost the economy’s overall productivity. It also prevents creative destruction by enabling low productivity firms to remain in business.

Put another way, stemming the flow of low-wage migrants would force the least productive firms to shrink and go bust, transferring workers, land and capital to more productive businesses, thus raising average productivity across the economy. Further, all firms, observing higher wages, would invest more in labour saving technologies and restructure to raise productivity.

There’s a reason why construction firms, farms and manufacturers in advanced nations typically involve a handful of workers operating heavy machinery, whereas in low-wage developing countries these are manned by many workers doing manual labour. The higher cost of labour in advanced countries forces these firms to invest in labour saving machinery, which lifts productivity.

None of this is rocket science. Yet it has been completely ignored by the Centre for Future Work. Why?

Lowering immigration would also unambiguously reduce one of the major drags on Australia’s productivity: rising infrastructure bottlenecks and congestion. It 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 it 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 two biggest migrant magnets 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 that the mass immigration ‘Big Australia’ policy promotes ‘dumb’ growth, concentrated in urbanisation and household debt, and associated sectors benefit (think Big Property, Big Retail and banking). This has its limits, as we are already seeing in debt stress everywhere and declining liveability, as it benefits the few over the many, increasing inequality.

But it’s not the preferred model of growth. Far from it. Productivity enhancement and competitiveness are a far 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.

Returning to the mass immigration ‘Big Australia’ policy post COVID will only further stifle productivity, worsen the unemployment queues and further depress wages, smashing Australia’s working class.

The policy needs to be junked for the sake of productivity, liveability and equality.