Monday, April 20, 2015

Farage's market metaphysic.

I can only let this nonsense pass so many times.  Nigel Farage has been polishing this one-liner for a long time.  On every single issue related to immigration, he claims as his alibi the sacred laws of supply and demand.

Unemployment?  Simple.  You increase the supply of labour relative to demand, the level of unemployment will go up commensurately.  Low wages?  Simple.  You increase the supply of labour relative to demand, wages will go down commensurately.  Housing?  Simple.  You increase the demand for housing, and the price of houses goes up commensurately.  NHS?  Simple.  You increase the demand for NHS treatment, and foreigners with AIDS cause Brits to die of cancer commensurately.

And so on.  He did it again in the most recent leaders' debate.  These arguments are seductively simple, and tap into a certain common sense about how markets work, as well as into a nationalist presumption that the appropriate unit of analysis is the nation.  But they are also glib and misleading, and it is troubling that they haven't been seriously challenged.  Perhaps this is because the arguments against it are complex, but they can be distilled into a few simple, equally commonsensical points.  So, what follows is the long version, and then the shorter version.

Sticking with the example of wages and employment, any reasonably alert politician debating Farage could and should point out that the laws of supply and demand don't just exist within a given national market.  Markets are always politically constituted, but they don't have to be constituted exclusively at a national level.  The global trend toward regionalisation and the accompanying creation of 'free trade areas' demonstrates just this point.  The European Union free trade area is a politically constructed market in which there is currently relatively free movement in labour, capital and goods.  Now, UKIP specifically say that they would not try to remain within the free trade area as long as its treaties "maintain a principle of free movement of labour" - in other words, what they are opposed is not the free trade area, and not the free movement of capital and goods, but the free movement of people.  When we speak of the dynamics of supply and demand, we have to apply them across the whole free trade area.

So at one level it's very simple.  If you impose national restrictions on the movement of labour, especially while capital still has freedom of movement - and, to reiterate, it is the principle of free movement of labour that UKIP opposes, specifically not the free movement of capital - you create higher unemployment and lower wages.  Why?  Because if workers can't move where the jobs are, they are stuck competing for work where the jobs aren't.  This sustains artificially high rates of unemployment and drives down wages.  It would be as if one introduced laws in the UK preventing workers from migrating from Newcastle to London and vice versa.  One might, with a strictly London-centric view, imagine that a resulting lower rate of net migration to the capital actually created a tighter labour market and benefited wages.  But since supply and demand doesn't just apply in London, the aggregate effect across the whole economy would be to drive down employment.  Unless, of course, businesses moved from London to Newcastle to benefit from lower wages in an area which otherwise has a comparable infrastructure and labour force, in which case there might be no net effect on employment, but a significant downward effect on wages.

The fact that the European free trade area is composed of national markets adds another dimension to this.  Within national markets there is an average cost of labour, determined in part by various inputs such as the price of food, housing, transport, the costs of raising a family, and so on.  If the cost of labour is lower in one national market relative to another, as it usually is, then consider the effect of having a free movement of capital without a comparable free movement of labour.  Some businesses would be empowered to move production to areas with low labour costs - provided there is an appropriately skilled, educated workforce and a viable infrastructure - thus adding a downward pressure to wages.  If workers in these countries can't move abroad to find higher paid work, then there is nothing to counter this downward pressure.  On the other hand, if workers can move abroad, not only will this reduce the pool of available labour in the low-waged economy, but the relatively lower cost of their labour is likely to mean that it will be possible for employers in the higher-waged economy to create new jobs which would otherwise not have existed.  In other words, the total rate of employment will be increased, while the downward pressure on wages created by the relative freedom of movement for employers would be counteracted.

The short version of this is: immigration controls in a market where employers have freedom of movement would drive down employment and drive down wages.  They would enable employers to exploit labour at its cheapest prices while undercutting wages and conditions for all workers in that market.