Examination of Witnesses (Questions 400
- 410)
TUESDAY 4 DECEMBER 2007
Mr Martin Wolf CBE
Q400 Lord Turner:
Can I go back to the question on which Lord Lawson was quizzing
you, which was essentially whether one should set a quantity and
let the price be the endogenous variable or set a price and the
quantity be endogenous, and you basically argued somewhat for
trying to set the price and the quantity as endogenous. But you
said in order to accept that price one really has to do a lot
of work to think out what the marginal costs and benefits are.
If we then put that together with the discussion that you had
with Lord Layard, if it is the case that actually the most fundamental
cost and benefit is to do with congestion and externalities, and
actually comes down to some very emotional things about what value
one places on open countryside, etcetera, is it ever really going
to be possible to set a price, to work out what marginal costs
which you attach to that? Or ultimately, in political reality,
are we not going to have to set a quantity limit and, if you want
a price, make the price the endogenous variable?
Mr Wolf: Let me take it very simply. We seem
to be prepared to place a close-on infinite price on the marginal
piece of land in this country, as green fields—if not infinite
in an extraordinary large number. If that is the starting point
for this discussion, then the optimal level of net immigration
is zero. So we should have a policy that delivers that. I think
choice is completely irrational—
Q401 Lord Turner:
Let me ask another question, which is also actually about prices
and quantities, because you have described the arguments of business
for immigration, which we have heard, in this Committee, to fill
labour shortages as no more than a statement of their desire the
benefit of cheap labour, and clearly dismissing that is a classic
economist way of saying that they are not talking about equilibrium,
they are not talking about price adjustment, they are suggesting
an arbitrary quantity limit. We have had it put to us, however,
that there are some sectors where, as it were, the price adjustment—and
this is why it is equivalent to your argument—would be so
great that it is almost useful to think in quantity terms. That,
for instance, if you look at residential healthcare there may
be non-price barriers to native workers being willing to work
in that area, such that of course you could have a price adjustment
but it would be a huge price adjustment. Do you accept that at
all, that there are some sectors where one can meaningfully think
in quantity terms and what does that imply through your point
of view on the Migration Advisory Committee, which does seem to
have been given a remit to think in quantitative labour shortage
terms?
Mr Wolf: I suppose it would be like saying—I
have to think about it—that effectively the elasticity of
domestic supply of these people is perfectly inelastic.
Q402 Lord Turner:
Or extremely high.
Mr Wolf: Extremely low.
Q403 Lord Turner:
Yes, I am sorry, extremely low.
Mr Wolf: So what we rationally want to do is
to get foreigners in that produce a surplus. Why not? In my case
I suppose I would have to think very carefully about the overall
effects of such a policy. You are, by definition in this case,
taking away from some relatively unskilled British people the
opportunity to earn a great deal more because of the condition
we have just talked about.
Q404 Lord Turner:
I suppose if there were this incredibly low price elasticity it
would be the only case in which Lord Lawson's argument that there
might be a willingness to pay a high rate for a work permit for
a relatively unskilled person would apply, so it could still come
out of your price adjustment.
Mr Wolf: You still would not pay more than the
wage. So since the wage is £6,000 or £7,000 a year,
that is the most people will pay and they are clearly not going
to pay even that much for a relatively unskilled person. I think
it is clear—and was thinking that you might go for this
argument in other ways—there may be some cases, which is
the way I would put it, that there are no domestic substitutes.
It is rather similar to the argument about diversity that we had
earlier. If there are no domestic substitutes, which can also
be revealed in the price mechanism, as you are suggesting, then
it is certainly a reasonable thing to look at the question of
whether you would want an exception for those people. My own view
has been that except for the diversity point, clearly, for example,
there are not many domestic substitutes for a perfect Mandarin
speaker. I just give that example. But I am certainly open to
the possibility that there are effectively no domestic substitutes.
But since nearly all the unemployment of our British-born people
is concentrated among the relatively unskilled, it seems to me
very depressing to say that among the jobs that we have to have
unskilled immigrants to do are precisely those jobs which are
relatively unskilled. It is a very depressing statement and I
would need a lot of evidence to believe that it is true; but there
may be some cases in which it is true. But I would stand by my
general point which I put more broadly in my arguments with the
business community, that from a national point of view the aim
of policy is to make labour scarce and not abundant.
Q405 Lord Lamont of Lerwick:
But is not your general point also that the shortages argument
is self-defeating? I have in front of me the article that you
wrote on 28 January where you say: "The argument from shortages
creates an open-ended demand for more immigration: if the UK had
a population of 120 million it would still have job shortages
and a demand for yet more immigration. The demand could never
be satisfied."
Mr Wolf: Unless you define the shortages argument
in a very narrowly sectoral way, which is very difficult to do,
yes, I would hold by that view.
Q406 Lord Vallance of Tummel:
Could you clear up a practical point for me? There are no other
countries, are there, that will use immigration permits as an
auction?
Mr Wolf: Not that I know of. This question was
asked and I have not had the time to do the research. The answer
seems to be the other systems that have used the points systems
at the various times. I think that involves the fallacy of central
planning. So I would like to try a market mechanism. There was
once upon a time no country in the world that used index linked
bonds, so I do not accept the argument of the thin end of the
wedge. Sometimes one has to do things for the first time.
Q407 Lord Lamont of Lerwick:
Can I ask you to comment on what I think you called another bad
argument, that immigration will halt the rise in the dependency
ratio as the population ages?
Mr Wolf: Unless the immigrants have especially
desirable characteristics, like they come here, they work very
hard, they go away and they do not take a pension, immigrants
have children, they age and in a fairly short period of time—unless
they are purely temporary, that is an important point—they
become like the rest of the population with all the normal characteristics
of the population. So there are some very well known and famous
forecasts, done by I think the OECD, which showed that in order
to—and this is a fairly obvious point—keep the dependency
ratio of the European Union constant through immigration, the
population in the European Union, over about 40 years, if I remember
correctly, had to rise to well above a billion. Of course, at
the margin they can make small contributions if their characteristics
are somewhat different from those of the native population, and
that is particularly true if, for example, we are talking about
people who come here and work for a few years and go away again.
But as a general proposition we know very well—and Lord
Turner has written endlessly about this in much greater depth
than I ever have—that immigration cannot solve the dependency
ratio problem.
Q408 Lord Best:
Does it make any odds to the value of the auctioning system, thinking
of the well being of the nation as a whole, if the employer bidding
is the state? If the people who need the workers are paying for
them out of taxpayers' money, does that make any odds to the attractiveness
of having an auction system? This is the health service; it is
social care and whatever.
Mr Wolf: My general view is that the Government
should pay the same prices as anybody else for anything it buys,
because that is an indication of their opportunity costs or marginal
value, or however you like it. So it is clear to me that if the
Government is deciding that it is more valuable to have foreign
doctors or foreign nurses than domestic ones, and not train them,
then it should face the same sorts of prices in determining this
as everybody else and in competition with everybody else, and
raising taxes for that purpose is essentially internalising that
price. It seems to me quite important that we do not any more
conscript in any area that I am aware of, and I think there are
very good reasons for that, so this seems to me to be a generalisation
of that argument. Obviously the implication would be that, properly
understood, the cost of greatly increasing our health expenditure,
which is meeting that by importing people, is actually costly
because it has implications for something we are concerned about,
namely the composition of the population. And I think that is
a perfectly reasonable thing for the Government to be aware of.
Q409 Lord Lawson of Blaby:
Lord Layard mentioned en passant Turkey. It is of course the commitment
of the European Union that Turkey should become a member of the
European Union and it is the policy of the British Government
to support that strongly and it is also the policy of the Opposition
in this country to support it. It may be unlikely but given that
it cannot be said to be an impossible outcome, what is your view,
given your concern about immigration and the fact that immigrants
from the European Union countries have freedom of access, maybe
after a brief transitional period, what is your view about that?
Mr Wolf: My view is two stages of a view. The
first is the wider question of would it be desirable for Europe
and the world if Turkey were a member. I have to say—and
I have written quite a bit about this—that I have been very,
very torn on this because I can see strong arguments on both sides,
but on balance I would favour entry. I do understand the problems.
On the specific issue, it would seem to me really inconceivable
that one could have Turkish membership with full mobility of labour
until very much greater convergence of incomes has occurred than
is now the case. It does not seem to me in any way inconceivable,
given what is happening in Turkey—but by no means certain—that
over, say, 30 or 40 years very substantial convergence will occur
and we can be pretty relaxed about free movement of labour. But
to accept Turkey—and I think it is very unlikely that Turkey
will become a member of the European Union; I think it is almost
inconceivable—but if it did, it seems to me quite clear
that there would be—everybody knows this—a transitional
mechanism that would probably last decades rather than years,
in which free movement of Turkish labourers were not permitted,
and I think that would be almost certainly the price of Turkish
entry, and realistically, given its size and the huge unemployment
problems that the country has because of the characteristics of
its growth process, I do not see how you could sell this politically
in the rest of Europe, of which we are part without those constraints.
Q410 Lord Vallance of Tummel:
We could probably keep you here all evening if we had the chance,
but we do not. So many thanks for spending the time and answering
the questions so lucidly.
Mr Wolf: I look forward to your report on this
interesting topic; I am sure I will write about it.
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