Examination of Witnesses (Questions 382
- 399)
TUESDAY 4 DECEMBER 2007
Mr Martin Wolf CBE
Q382 Lord Vallance of Tummel:
Thank you very much for sparing your time to come along and answer
questions this afternoon. Just a couple of preliminaries, if I
may? As we are being televised, if you could just introduce yourself—not
that you need any introduction to anyone around here—and
then if there are any preliminary remarks you would like to make
before we move on to the questions, feel free to do so. Finally—and
I know you are an old hand at these things, but if you can speak
reasonably slowly and reasonably clearly, that will help very
much in doing the recording.
Mr Wolf: I am Martin Wolf; I am Chief Economics
Commentator at the Financial Times. I do not have any preliminary
remarks I wish to make; I have written a number of things on immigration
which you will probably want to grill me on. I have nothing beyond
that to say at the beginning, so I would rather respond to questions.
Q383 Lord Vallance of Tummel:
Let me start. You wrote last year that the UK Government had avoided
serious debate on immigration. Do you think that has changed of
late, and what are the main obstacles, in your view, to having
an open and dispassionate public debate about the costs and benefits
of migration?
Mr Wolf: I do not think it has changed in the
sense that I do not think—or at least I see no sign—that
the British Government wishes to have an intense debate on this
topic. It has certainly written extraordinarily little, given
the range it produces on many very important topics, to explore
the full implications, which would be my interpretation of the
desire by the Government to have a real debate. But clearly a
debate has been forced upon the Government by some developments,
both in terms of awareness of the numbers—or some awareness
of the scale of the immigration that has occurred—and also
the awareness that the Government does not seem to know what is
happening. So as a result of these developments, which are clearly
if not outside its control outside its ken, I think the debate
has become much stronger. Why is it difficult to have a debate
on this topic? I think that is perfectly obvious and perfectly
reasonable and perfectly understandable. For all decent and civilised
human beings, it is very difficult to separate the question of
immigration, particularly in this country, given its history and
the history of immigration to this country, from questions of
race relations, the ethnic and racial composition of immigrants,
religious composition too, I suppose, unfortunately recently;
and that inevitably makes it very, very difficult to have a debate
which is civilised and rational, and civilised and rational people
therefore fear getting engaged in this. I think this is completely
understandable but it seems to me that where we have got to now—and
that is the main argument I have been trying to make—we
do need to have a reasonably clear policy. I do not think it is
possible for any country like ours to have no immigration policy
at all and we cannot have such a policy if we do not first debate
what we think immigration is for and whose benefit counts and
all these absolutely fundamental value and economic decisions.
Q384 Lord Lamont of Lerwick:
The Government and the Home Office in their arguments for immigration
never refer to the capital that migrants bring with them; they
seem completely indifferent to that. I think I am right in saying
that that contrasts with the analysis in the United States of
the National Research Council, which argues that if immigrants
have exactly the same skill distribution as domestic workers and
if they brought sufficient capital with them to maintain, in the
United States, the existing capital labour ratio, then existing
workers would neither benefit nor lose from immigration. Would
you agree that in assessing the benefits of immigration one ought
to take into account the capital that is brought with the immigrants?
Mr Wolf: I would agree with that very broadly
although I personally would think that that relates to the broader
point I would make, that their human capital is probably more
important that financial capital.
Q385 Lord Lamont of Lerwick:
I am alluding to financial capital.
Mr Wolf: For an economy like ours, human capital
very clearly is more than the physical capital. But, yes, broadly
defined the capital of immigrants is a very important determinant
of how well they do in a country and what they contribute to it.
Q386 Lord Lamont of Lerwick:
We have had a lot or argument about the impact of immigration
on domestic workers and the level of domestic wages, but would
it not be the case, if I can put it this way, if some workers
are not, so to speak, harmed by immigration, many of the benefits
attributed to immigration—higher profits for manufacturing
or lower prices for consumers—would not exist and if there
is no reduction in native wages there is no added return to capital
and no way in which the share of pre-existing capital and wealth
required by immigrants can be provided.
Mr Wolf: Immigrants can presumably, in theory,
provide other benefits if they lead to increasing returns of various
kinds. For example, the arguments from diversity, the benefits
of diversity, which is one argument made for immigration which
does seem to me have value, is an argument in an important way
for increasing returns. That is to say, by having immigrants in
the society, you increase, let us say, the labour force by 10%,
you will increase output by more than that because you are in
some fundamental way changing the composition. Ultimately what
you are saying then is that the factors of production that immigrants
are, as factors of production, are essentially different from
what you have already in the country, sufficiently different that
their effect on total output is more important that relative price
effects. Otherwise I would agree with you that, apart from those
sorts of arguments, the most important effects are obviously through
relative prices.
Q387 Lord Griffiths of Fforestfach:
Do you think there are in practice increasing returns?
Mr Wolf: For some immigrants, yes. Difficult
to know ex ante but pretty clear ex post. It seems
to be pretty obvious that the City of London as it exists today
would not exist—could not exist—without a very large
number of immigrants, because its multinational character is essential
to its success. So that seems to me a pretty good example where
there are probably increasing returns. I have never seen any rigorous
economic analysis of that but it seems to me a plausible a
priori argument.
Q388 Lord Lawson of Blaby:
You have on a number of occasions argued very cogently—and
if I may quote from one of your pieces—that, "continuation
of net immigration on the recent scale is hard to justify."
Indeed, when one looks at the Government Actuary's latest projections
it looks as if it is projected that it will increase. The median
projection is a 25 million increase in the population of this
country, which is quite significant, entirely as a result of immigration,
and presumably largely from the developing world, because a lot
of the Eastern Europeans will go back to their own countries.
I have not read everything you have written but I have not read
anywhere what level of immigration you think would be about right?
Mr Wolf: That is the most interesting question
of all. I tended to argue—because I wanted to get around
that problem, and that is why I argued for using the price mechanism—
Q389 Lord Lawson of Blaby:
But if you use the price mechanism you still have to know how
many—
Mr Wolf: No, it is an iterative process. First
of all, it is very important to stress that when I made those
remarks I made those remarks from the point of view—or the
assumption was—of the welfare of the pre-existing inhabitants.
I clearly do not wish to argue that in aggregate welfare is not
increased because it seems to me very clear that the welfare of
the migrants has increased. So there is a very interesting question
about whose welfare counts and in this case I was referring to
the welfare of the existing inhabitants. In terms of the numbers,
the reason—and it does not matter whether we start with
a quantity mechanism or a price—I was thinking about it
in these terms in that it does seem to me that a number of the
externalities associated with large scale immigration—although
not all—both positive and negative, can be computed to some
degree. We know what it costs if there is additional population
with additional housing requirements, with additional infrastructure,
additional schooling and all the rest of it. You can define those
costs relatively well. So there a minimum additional cost for
the society in having additional people in it. It seems to me
then that those, as it were, are a floor for the price that you
would want immigrants to pay. I would be very interested to see
what the market demand would be for coming into this country if
you set a price. If the price for the inflow of workers—we
are talking about workers, we are not talking about asylum seekers
or family reunion—then we could start adjusting the quantities
and the price in the light of what then subsequently happens.
So without knowing what people are prepared to pay for this, and
without doing some work on what you think the incremental costs
of additional people are, it is very difficult to set a number.
One could do it either by charging for the work permit initially
or you could do it by setting a quantity rather lower than the
present quantity and seeing what the price is. Either way, one
would get some idea of what the people are willing to pay for
this in relation to what margin it costs us to supply the additional
infrastructure and all the rest of it, to which I would of course
add some allowance for the cost of congestion out of such externalities.
It does not seem to me possible, outside such an analysis and
such a pricing mechanism, to give an answer in terms of hundreds
of thousands or millions—I do not think it would be conceivable.
That is why I wanted to see what sort of answers the pricing mechanism
would give.
Q390 Lord Lawson of Blaby:
I am not sure really whether—although the price mechanism
approach is an interesting one, not that it has ever been invoked
or is likely to be invoked, as I think you yourself have conceded—you
really believe it yourself because what you have also written,
which seems to me to be extremely sensible, if I may say so, "The
focus now should be on bringing in skilled people who are most
likely to make a big economic contribution to the country and
to fit most comfortably within its norms and values." But
if you are just leaving it to the market you have no idea whether
it will be the skilled people who get the permits or those who
are most comfortable with the norms and values of this country.
Mr Wolf: I would tend to assume that the two
are very similar. By and large, the people who are likely to fit
in most comfortably to this country are going to be people who
have the skills that are also of economic value.
Q391 Lord Lawson of Blaby:
I agree with you.
Mr Wolf: I think one of the best indications
that people have skills is that they regard working here as extremely
valuable to them. That is an indication that they have a large
valuable economic contribution to make. So it seems to me that
the price that either they or their employer is prepared to pay
for a work permit is a pretty good indication of their actual
economic skills. So I find that more attractive than a whole set
of arbitrary points, which is where we are going to go, as a measure
of what people's actual economic contribution is going to be.
Their skills might actually turn out to be entrepreneurial and
not measured in a points system, but if they are prepared to have
a go on that basis I would be happy with that.
Q392 Lord Lawson of Blaby:
I did not make myself clear. What I was suggesting is that it
is quite possible that a lot of the permits, if it was your system,
might go to employers who just wanted a lot of cheap labour for
agricultural, horticultural—
Mr Wolf: Not if they charge enough per person.
Let us suppose—this is an imaginary figure—that the
price of a permit ended up as £30,000 per annum. They are
not going to use that to bring in agricultural labour.
Q393 Lord Lawson of Blaby:
It depends on the return.
Mr Wolf: It is not going to be £30,000
a year; they pay that to an English worker.
Q394 Lord Lawson of Blaby:
When you say that the numbers are too great, I think it would
be helpful if you could give some indication, whatever the system
by which you reduce it, of what sort of numbers—because
you have obviously thought about this a great deal—might
be more sensible.
Mr Wolf: I think the honest answer to that is
that, without doing the work—which I have not done and I
have not seen, but it may be that someone in government has done—on
the incremental costs and on the wage characteristics and tax
generating and so forth of immigrants, I do not think I could
give a number. That is part of what I mean by having a serious
debate. Somebody actually has to do quite a lot of fairly rigorous
empirical work on what it costs us for additional people to be
here—and all the infrastructure, congestion and other costs
I have mentioned—and what their wage characteristics are,
what their lifetime taxes are, whether they stay for all their
lives or not, what use they make of the welfare services, there
is a whole range of things. Unless you know those sorts of things,
it seems to me really very difficult to answer the question what
the right numbers are. I have no idea whether we are roughly right.
I suspect we have too many now as an inflow, but I am not sure
because we have never actually done the work to estimate any of
these things, and I certainly could not give a number without
that.
Q395 Lord Skidelsky:
I was going to follow up from that. Would any numbers be sensible?
You have argued that the relatively high levels of immigration
that have been seen "cannot be founded on the economic benefits
to the existing population". That is to do with the excessively
large numbers. We have had evidence from other witnesses that
the economic impact of immigration is negligible. Therefore, that
leads me to wonder whether the argument about immigration reaches
pretty much a dead end when one is concentrating on economic costs
and benefits and the real decisions are in some other area—I
mean in the norms and values of the society, which Lord Lawson
talked about. Given that there is no evidence of any great net
benefit—or, the other way round—what should be the
criteria for an immigration policy?
Mr Wolf: I have certainly stressed that many
of the considerations are non-economic and they clearly are related
to what sort of society one wants to live in and what one considers
a deep value basis—the advantages of a diverse society on
the one hand, the relative homogeneity of values on the other—and
also quite clearly an important consideration is that for many
of the immigrants it gives huge opportunities and that does not
seem to me to be worth nothing either. So all of those are very
important considerations. As an individual citizen I may have
views about this but as an economist I do not. But I do think
that the statement that in aggregate immigration does not have
much contribution plus or minus is probably true, given the composition
of immigration, which, if you take the whole inflow, has an incredibly
diverse composition and many of whose impacts—for instance,
we have a lot of highly skilled immigrants and we have a lot of
highly unskilled immigrants—their effect on the economy
as a whole is going to be offsetting. So the fact that you cannot
make a statement about the contribution—and I have been
trying to stress the point about the contribution at the margin—that
you cannot make a clear statement about the aggregate flow given
its composition, does not seem to me to mean that you cannot say
anything useful about the contributions at the margin of different
types of immigrant. That is why I want some mechanism that allows
one to discriminate; that seems to me to be an inescapable part
of a policy. So you would then have to ask, if you were taking
in very highly skilled immigrants of particular types they are
going to have an effect on our society different from those who
are very unskilled and you can assess those separately, and I
would not be very surprised if you came to the conclusion that
the inflows of some immigrants are clearly quite strongly beneficial
for a whole host of reasons, and others are less so. So the aggregate
statistics again, I would like to stress, are not going to tell
you very much about an inflow which has, gross and net, such extraordinarily
diverse composition.
Q396 Lord Paul:
In your view, what role do you think the economic impacts play
in determining public opinion toward immigration?
Mr Wolf: They seem to me to play quite a large
part, although they are certainly not the only factor by any means.
You have already mentioned, of course, the obvious racial and
ethnic points. But I think the sense that a community is economically
active, economically productive, hardworking and successful over
time, clearly very significantly affects the attitude of the pre-existing
population to those immigrants. I can see lots of examples of
that including, if I may say so, my own community, because I am
Jewish. So it does seem to me that the sense that people make
a significant economic contribution to the country is quite an
important determinant. I would not say the only one but I would
tend to say the most important single determinant of, in the longer
run—it is not instantaneous—the attitude of the population
to those immigrants.
Q397 Lord Paul:
A lot of the time you see that if the economy is very good nobody
bothers about it and if the economy goes bad everybody wants to
blame the immigrant. How can that be balanced?
Mr Wolf: Both statements are true and they are
cyclical and trend. We have not had a bad economy for rather a
long time. That, I am sure, has been one of the most important
reasons why in practice—and I think that is very attractive—the
very high levels of inflow of the last ten or so years have not
created huge political problems. I am sure you are right that
if we have a significant downturn in the economy, which, the Lord
forbid but does not seem to be terribly unlikely at the moment,
then the tensions will grow. But at least some of the immigrants
that have come recently from the EU, I would imagine in those
circumstances are likely to leave, which is the natural safety
valve in that case. The Swiss have always managed their immigration
in that way. So there is a strongly cyclical element also in the
flows.
Q398 Lord Layard:
Would you agree that the way we should think about this should
be not about the total of immigration but the immigration where
we have some freedom of manoeuvre. There are huge chunks, like
the EU immigration, which there is hardly any point discussing
from a policy point of view because they are going to happen.
They are exogenous, except for the Turkish membership which obviously
is another issue. But if you are talking about the rest of immigration,
this is going to be skilled immigration. It is not an issue whether
it should be—it is going to be. So then you come to the
question, how much skilled immigration—going back to Lord
Lawson's question—do you want to accept? I cannot imagine
that you would want to stop the growth of the City of London by
stopping that skilled immigration—and that is the biggest
chunk actually of net immigration. The fact that it is temporary
is irrelevant. Nearly all these immigrants will eventually go
back, but the point is what is, the stock that builds up of the
temporary immigrants? That is the main issue on immigration that
we are going to have now. The next biggest is Commonwealth people
in the schools system. So I am not sure where this leads you when
you come to think about the optimal number, and I would suggest
that this is much influenced by the wonderful lecture by my colleague,
Lord Turner, that the real issue is land. Or, to put it another
way, housing. If we are actually going to go down your line of
this globalising world and people are going to come here, the
main issue is, can we adjust our housing policy to cope with the
larger population, or can we not? That to me is the central question.
Would you agree?
Mr Wolf: Would I agree? I tried to suggest—obviously
I have failed—in my discussions earlier with Lord Lawson
that in deciding a price, which also might be a shadow price,
if we are going to get technical about it, of the marginal immigrant,
one would want to take into account the marginal costs, and the
most important of those, broadly defined, are congestion costs
or externality costs and infrastructure costs. Your question about
housing is the most important single sub-set, I would say, of
those questions but not the only one because there are other infrastructure
costs associated with that and externality costs. But it is clearly
true, if that is what you are trying to get me to say, that it
is not reasonable for a country to pursue at one and the at the
same time a policy of making it almost impossible to build new
houses and a policy of encouraging a large number of wealthy people
to come and live in this country. That point has been made by
a number of people, including me. Then the question is, which
do I choose? Do I choose not to build the houses or do I choose
not to have the immigrants? I think the argument is, since I think
there are marginal benefits to the flow of immigrants and since
I think there are plenty of fields of this country I would be
happy to see built over (but I suspect some of the Members of
this distinguished group do not agree with me), for that reason
I would be perfectly happy to build some more houses. But clearly
if we do not want to build any more houses or schools or roads
and we do not want to have any more people using the Underground
and all the other infrastructure of our country, then clearly
it makes absolutely no sense to allow for an increase in population.
Q399 Lord Paul:
Just because the EU is open and the British economy has been very
strong, a lot of people come, but they will go as fast as they
can as soon as their economy is progressing and they are progressing
much faster than today in Britain. I see in India a lot of people
now want to go back and work there. The opportunities, et cetera
are far bigger than today in the western world. So that is bound
to happen. Why are we so concerned about it? It is a natural phenomenon.
Mr Wolf: If the problem disappears in the way
you suggest, we will not need to continue to talk about it. I
agree with that completely. My own view has tended to be that
the total stock of people in the world who are achieving some
level of education is extraordinarily large. This country remains
a relatively attractive destination for many people. It is a relatively
high income country which has many other attractive characteristics,
including the fact that it speaks the language that most people
learn. For these reasons, I would be extremely surprised if the
demand from immigrants to come into this country, even among relatively
skilled people, did not remain pretty strong if there were no
restrictions and a very large net inflow for the foreseeable future.
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