Is the suppression of migration the price that has to be paid for the transition to a high wage economy? Don Flynn argues it rather sets the scene for a long period of economic depression that will impact on all workers
Prime Minister Johnson has been working hard these past weeks to drum up enthusiasm for his ‘high-wage, low-immigration’ economy to which the UK is supposed to be transitioning. According to him, supply chain disruption is a temporary price we have to pay as a consequence of the country’s dramatic Brexiting from open borders and the over-supply of labour that has kept wages in check across the last twenty years. The simplistic logic of supply-and-demand – read as too many workers chasing after a limited number of jobs – is invoked as the reason why prosperity is eluding too many people.
There are obvious difficulties with this Tory take on the frailties of modern-day Britain. The first concerns the fact that the origins of low-pay Britain go back much further than the recent times that Johnson takes as his starting point. Back, in fact, to the 1970s, rather than the fifteen or so years ago that he prefers.
The ‘low wage’ component of the UK economy began with the shocks to global capitalism during the era of Nixon in the US and Wilson in the UK, when deindustrialisation got underway and the number of relatively high-paid jobs in manufacturing began a long period of decimation. The service sector jobs that came in over time in the 1980s, to replace those that had been lost, were rendered as immune as they could be to upward wage growth by the simple expedient of making effective trade union representation close to illegal. By these means, a low-wage structure for the jobs market was locked into the economy – and all of this achieved during a period when more workers were leaving the UK each year than were entering. Inward migration is blameless for having any role in setting a ceiling on wage increases during these critical years.
Maybe so, but how about later, when a lengthy period of economic growth from the 1990s onwards seemed to offer up a rosier picture? It was during this period that immigration became net positive, and particularly so after 2002 when workers from central and east European countries began to enter in large numbers. Isn’t it reasonable to suppose this was the time when immigration put the stamp on the UK as a low-wage economy?
Understanding what was going on in these years provides a case study in the dangers of confusing correlation with causation. Yes, wage growth remained very slow in the 2000s, even though the economy was growing at a rate of over 2 percent a year, and yes, inward migration did reach a historic highpoint. But the coincidence of these facts does not mean that one caused the other.
The relatively high GDP growth rate meant that labour shortages across important sectors were showing up and threatening the whole economy with ‘bottleneck’ disruptions. Much of this was taking place in labour-intensive industries like agriculture and food processing, and in service sector jobs such as hospitality, health and social care. Firms in these sectors operated in extremely competitive environments, often earning only modest rates of profit. Investment in capital that would raise labour productivity and hence reduce the demand for more workers was the high risk option which businesses were not able to take on because of the reluctance of financial capital to gamble in these areas.
Even so, demand for the goods and services provided by these sectors continued to grow. Supermarket expansion created a boom for fresh food from farms but at prices held strictly in check by the monopoly power of Tesco and its fellow giants. Hospitality expanded, driven by tourist booms associated with the ‘cool Britannia’ brand. The demand for health and social services continued to rise out of a growing dependent population. Faced with this situation, the only way for firms to meet rising demand for output was by increasing the size of their workforces. Since many British workers had better options when it came to employment than the low wages and low prestige associated with the growth sectors, then this could only be met by recruiting from the one group of people who had an incentive to take the jobs: migrants from countries with even lower income levels.
The rhetoric coming from Johnson and his cabinet ministers now indicts a whole swathe of UK businesses as the employers of low-wage labour by positive preference, implying that the option of paying more was always available but they were simply either too greedy or lazy or both to avail themselves of it. If there was a systemic element to this complacency it came from the UK’s encasement in the EU, which made access to low-wage migrants so amenable and further disinclined employers to up their game by becoming more productive.
The current Tory line on the transition to a high-wage economy asks us to believe that the route lies through the suppression of migration and taking advantage of the opportunities to trade with the world outside the constraints of the EU. The first of these requirements might be achieved through the repudiation of what remains of the rights of migrant people which is in legislation currently going through Parliament. But the global scene today points firmly towards depressed conditions of world trade as more trouble spots appear and governments continue to stumble through a difficult transition to low-carbon production. A hike in UK productivity might mean that the UK gets a bigger share of a depressed market, but bringing more labour-enhancing technology into firms anticipating lower demand for their goods can be expected to produce more business failure and higher unemployment, rather than better-paid jobs.
Labour movement arguments
For some even on the Labour and trade union side of the argument much of this will seem very obtuse. Not wanting to go back 50 years to find the source of our current predicament, they will look at how things stand today and accommodate to the view that an excess of labour supply in an under-performing economy is a barrier to the higher productivity and better wages that governments should be working to achieve. The talk about transition from Equilibrium A (low-wage/high-immigration) and Equilibrium B (high-wage/low-immigration) will seem very attractive to many in this camp.
The harsher truth is that whilst transitions within capitalist systems do take place, they always require a period of intense social and economic disruption in order that the Schumpeterian phase of ‘creative destruction’ can do its work. Recessions and depressions are the names economic historians give to these periods of time. In order for Equilibrium B to appear hundreds of thousands of jobs have to disappear, inflation disrupt the price mechanism and render life savings valueless, and the public spending which supports the health and well-being of the population slashed to ribbons. If we resign ourselves to this level of hardship there is still no certainty that Britain will return to what the Tories say is the UK’s ‘rightful’ place in the world: the continuation of its decline into the second and third tiers of global influence and power is a just as likely an outcome.
It stretches things to breaking point to imagine that the supply chain crisis now underway in the UK will ease the way to a new capitalism that is more generous to workers. The dislocations which are emptying supermarket shelves and petrol forecourts will add to the pressures on tens of thousands of businesses across the country who will then be hit even harder by inflation, interest rate hikes on outstanding loans and a fall off in demand as consumers retrench spending to manage the squeeze on their living standards. This is a hostile environment in which businesses fail rather than go onto better things. A few will survive by buying out their competitors and reducing the size of workforces to keep a check on costs. Demand for migrant workers will certainly be dampened by this turn of events, but so will the opportunities for well-paid jobs for fully employed citizens.
Johnson and his cabinet colleagues are renewing efforts to blame migrants for the predicament the UK has found itself in, but the truth is that we have got here because of decisions made by politicians whose ears have been most attuned to the interest of the dominant economic elites over the past 50 years. Migrants are not the enemy of anyone who, like them, shares their interest in obtaining decent employment and worthwhile communities in which to live. Starting with that fact in mind ought to prick any balloon the Tories now want to fly that claims that their exclusion is the precondition for a better life for the great mass of wage-earning citizens.