It seems to me that the single biggest divide in society at the moment is over immigration. It’s clear that immigration DID have a large role to play in the Brexit debate and there’s good evidence to suggest that a very large number of voters supported Brexit because they felt it would result in our government ‘taking back control’ over our borders and reducing localised pressure on social infrastructure in areas of high immigration.
It also seems obvious to me that every time President Trump bangs the drum about immigration in the US – be it over the wall or the scheme for young illegal immigrants – his vote steadies and his core base cheers. This wave of suspicion about immigration even extends into Eastern and Central Europe, traditionally a beneficiary of emigration (think of Poland) but which is now turning steadily against even low levels of immigration. A stereotyping of Muslims may be an ancillary factor but I can’t help but think that the base concern is an influx of all foreigners regardless of race or creed.
As a good old fashioned liberal I can’t say I share these worries, and that’s not because I employ an army of cheap, foreign labour (which I don’t for the record)! I think that immigration is an absolute necessity for the UK economy and generally a positive cultural force. Maybe it’s because I grew up in Leicester with its own huge ethnic minority of Asians – my sixth form was largely Asian by the time I got there in 1982. I’m in favour of immigration because I think it’s an absolute necessity for our labour force and combatting an ageing economy. I’m sure there’s no need to remind readers of the importance of immigrants and foreign workers in the NHS, in agriculture, or Amazon delivery drivers! But without immigration, we’d also be facing a devastating long term decline in the size of the available labour force.
Which brings me to my core concern – Japanification. If we are looking for one society that beautifully exemplifies what could happen if we bolt the door and shut down mass immigration, it is Japan. It is a very culturally homogenous society which has never seen anything remotely wrong with, in effect, stopping immigration in its tracks in relative terms. Refuges are few and far between and the native Korean population has traditionally been subject of deeply entrenched racist prejudice although attitudes are now changing. Local citizens are even reacting in horror in some areas to an influx of Chinese tourists – all these foreigners in their shops! Japanese society has quietly and it has to be said very effectively decided that it doesn’t want our multicultural society. It has made a very conscious choice and I’m always curious why nationalist conservatives the world over don’t look to it as a shining example of whats possible with a Siege mentality.
But Japan is also a society in the grip of a decade’s long process of steady demographic decline i.e it’s ageing at a frightening rate. Again, I don’t need to repeat the statistics because we all know them. One number though stands out for me. Its population is set to decline from the current 126 million to 83 million by 2050. It’s startling number but not unique – Italy’s population is also set to decline from just under 60 million to 49 million over the same time span.
This declining population must inevitably result in a number of co-dependent processes not least a decline in consumer spending but also a weakening in the GDP growth rate. Another co-dependent process must be an increase in national level debt, as the burden of paying for an ever-increasing, ageing dependent population falls on a smaller number of working age people.
Combine high levels of debt with low trend growth rates, and a declining population and we have the textbook definition of Japanification. But for me (managed) immigration is one of the keys to unlocking this challenge – though of course not the only one. If, as many policymakers are now arguing in Tokyo, immigration levels were to rise very steadily, that demographic headwind could be minimised.
Back in the West, I think we are reaching a crucial juncture with immigration. Those of us arguing in FAVOUR of managed immigration are in danger of entirely losing the debate. When even reasonable Conservative ministers argue for an absolute immigration cap at entirely token levels of 100,000 pa, you know the argument is lost. The great mass of middle England has decided that it has had enough of mass immigration. It wants it stopped and stopped now. If it means slower economic growth rate, so be it. But I think the reaction will be much more extensive and long-lasting. The next crisis on Europe’s borders (Algeria, Egypt, Morocco, Ukraine, Belarus – take your pick) will bring another huge wave of desperate refugees into Europe and I can foresee the barriers going up across the continent. We mock Trump for his walls but within a few decades, we’ll have our own walls at all key land crossings into the Eurozone. I can also foresee a series of ever-tougher maritime controls to keep out refugees. And crucially, I wouldn’t be remotely surprised to see Europe attempt to renege on the various UN conventions on refugee status – and rewrite the rules to exclude sudden mass migrations.
The investment effect of this movement to close the borders will, I think, be huge. Immigration will begin to ebb away as a driver of growth. This will happen at exactly the same time as the inevitable ageing of our societies – and the consequently increased cost burden will start to really bite. The Economist Magazine only this weekend carried an article suggesting that the single biggest burden on most states and cities in the US is their DB pension schemes liabilities. Cities are quite literally going bust because of the weight of these liabilities. We’ll also feel this pressure here in the UK over the next decade, straining an already fragile public-sector balance sheet. Immigration is one way of helping to mitigate this pressure but it will slowly recede in importance as a policy tool, forcing us to consider a combination of higher fiscal debt levels and more punitive and egalitarian tax rates.
The net effect in investment terms is that the Japanification process will intensify in Europe and I believe that investors need to get their heads around the business implications. My guess is that we’ll see lower trend growth and the need for more extensive central bank and fiscal intervention. We’ll also see many businesses react to tighter labour markets by investing in new labour saving technology which might paradoxically help to increase per capita productivity levels I’d also guess that these forces will help keep inflation under control which will, in turn, underpin a regime of below-average long-term interest rates. This might, in turn, help underpin what are already highly rated bonds and equities.
All is not lost though if liberals and enthusiasts for a more multicultural society make the argument in favour of immigration, and of managed population policies that extend beyond just letting foreign students study at our universities and a few IT experts work in the City. Liberals throughout the West have simply assumed that just having more diversity is a public good. For many of our fellow citizens, it isn’t. It’s actually seen as a threat to their worldviews and their sense of social cohesion. We need to take those views seriously and not just write them off as racist – if they lived in Japan they’d be regarded as normal and mainstream. If we fail this challenge, Trump will just be the start of a much nastier trend.