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Warning: Immigration Can Seriously Damage Your Wealth

Page 7 of 10

Temporary migration

The arrival of temporary migrants without capital is little different from having permanent migrants arrive. Temporary migration to take part in the general economy needs to be distinguished from specialized activity, such as a one-off construction project – for example, an oilfield in a Middle Eastern desert – for which migrant labour is recruited on a temporary basis and for which the ‘created assets’ are supplied by the employer as part of the project costs and are depreciated over the lifetime of the project. Temporary immigrants into the general economy also require wealth in the form of housing, ‘tools of production’, water supplies, roads, power, etc. There may, of course, be marginal differences, such as a lower call on educational resources if they do not have children with them, and they may occupy more crowded and inferior housing. Whether or not the latter is beneficial is a value judgement. Government ministers, the bishops of the Catholic Church and the Church of England and the media would state that it is not tolerable. They also may not have the language skills of the host community – and this generates an extra burden.

All in all, a temporary migrant worker will require only a marginally smaller share of wealth to be allocated to him than a permanent migrant, and, of course, there is less chance of him paying for his wealth needs through economic contributions, since, by definition, these are short term.

If we take the arguments of the free market economists in favour of migration, and apply them to temporary migration and its effects on wealth, we can see that the arrival of temporary migrants causes a fall in the wages of competing native labour and a shift of income to complementary labour and capital. It is then claimed that the capital–labour ratio is restored by capital adjustment. Obviously, if migration is temporary, this process ceases and goes into reverse on the departure of the temporary migrants. Labour that is competing with the temporary migrant gains, while complementary labour and capital lose. The process of capital adjustment is thrown into reverse. It is thus an expensive and costly waste of money. To take just one example: a farmer who expands his crops and supporting capital equipment on the basis of a supply of only temporary labour will misallocate and waste his investment when the temporary labour is withdrawn.

Temporary migration actually leads to a misallocation and waste of capital.

Migrants without capital

What happens when the immigrant worker does not have £141,000 of capital with him? We then have the phenomenon of ‘crowding-in’. Immigrants use dwellings more intensively; they overload transport, water resources and all the other accumulated capital (we assume the native economy is in equilibrium). Production per head decreases, because there is capital dilution and so each worker has fewer ‘tools of production’. As the National Institute Economic Review (No. 198, October 2006) pointed out: ‘For each extra pair of hands income rises less in proportion because there is no extra capital.’ This diverts some capital from the job of intensifying the wealth of natives to that of supplying the needs of immigrants – either voluntarily, by the means of capital readjustment described below, or through government taxation. So, the increase in the capital backing of the natives is reduced, and there may also be some diversion of natives’ consumption into supplying capital to immigrants. Immigration, therefore, reduces the wealth and consumption of natives.

Thus, not only is the per capita GDP of the new, combined workforce of natives and immigrants reduced below the previous per capita GDP of natives by the effects of immigration without capital, as the Dutch Economic Institute study shows, but so is the accumulation of the wealth of natives, their standard of living, and also, therefore, their future production.

The NRC and Professor Borjas use such words as ‘assimilation’ and ‘capital adjustment’ to describe the merging of immigrants into the economy. In fact, the process is one of appropriation of capital from natives, either by means of taxation or through diversion of capital. While the appropriation of capital for immigrants in housing, education, etc. may be visible in extra taxation and council taxes, diversion of capital is less obvious, though it is no less powerful.

An indication of how the wealth of UK natives will be appropriated is shown by the sort of comments ‘respected’ commentators make in The Londoner, the house magazine of Ken Livingstone, indicating the scale of appropriation required to produce the necessary capital and wealth for immigrants.

According to Ian Barlow, a senior partner with KPMG:

The amount of people using public transport in London is set to grow by more than a third in the next few years… Money must come forward [sic] for things like Crossrail. London also needs cheaper housing and more skills’ training.

Tony Travers, the director of the Greater London Group of the London School of Economics, added:

If London is to grow the way the government says it wants to, then [ministers must invest] in the capital’s infrastructure. Transport, schools, hospitals, roads and everything else that makes a city work will all have to have more money spent on them.

The diversion of capital investment occurs as capitalists re-rank the profitability of investments after immigration. Where increased returns are available because of immigration, some investment will be made in these areas and, therefore, some investment will not be made in the lower-return areas that increase native wealth or production. Of course, one reason why there are lower returns in some areas is that native wages have been depressed by immigration, so native workers who are in competition with migrants suffer not only from lower wages but also from diversion of capital.

As indicated above, this phenomenon is similar (though more accentuated) to that engendered by an increase in the native population of workers through increased fertility. It also suggests why the employment of non-workers in the native population (the unemployed, women workers, the retired) is so beneficial, as their employment is a pure gain, since, as dependants of the workers, they are already users of capital. The transfer of a person from being a dependant to a worker means there is an extra contributor to capital formation each year but no extra requirement for wealth use, except for the tools of production.

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