British Politics is now Immigration vs Inequality (December 2014)

Needless to say, the opinions expressed here are mine alone.

Two topics are competing to be the Big Arguments of our times: immigration and inequality. They are starting to suck most other issues in British politics into their orbit. Here’s why inequality will win. 

Blair called it a Big Argument. Others talk about narratives or frames. But the point is similar: in politics, if you can tell a story that seems to explain most of what’s going on, you’ve got a better chance of shaping the debate and winning the day.

So it was, for example, that Blair did his best to make the 1997 election about underfunded public services, so that by election day every hospital wait and leaky school roof felt like a symptom of eighteen years of Tory rule. And Cameron did his best to make the 2010 election about the deficit. It works because, as neuroscientists like Drew Westen and linguists like George Lakoff remind us, we’re wired to notice and care about only those facts which support what we already believe. Most of the time, the facts that don’t bounce right off. That’s why Guardian articles don’t tend to change Telegraph readers’ minds, and vice versa. If you have a Big Argument and you successfully use it to change the story and show how the facts support it, you’ve got a better chance of winning peoples’ votes.

Since the last election, not one but two themes have emerged: immigration and inequality. They’re now competing with each other to explain most other domestic issues. You can see them bubbling up in the political rhetoric, in comments on articles below the line and in conversations in homes and pubs around the country.

The immigration drumbeat has got ever louder with the rise of UKIP, and it was given a boost when Lynton Crosby told David Cameron to talk about it to try to win back their supporters. We all know the familiar notes by now – crowded island, pressure on public services, immigrants holding pay down and pushing house prices up – and how it often comes with unsavoury mutterings about crime, the EU, benefits tourism, human rights, Muslims, foreignness, change. Its standard bearer in British politics is, of course, Nigel Farage.

It’s a similar story with inequality. You know the familiar proof points here as well: living standards, energy and train prices, zero hours contracts, bankers’ pay and financial scandals, food banks, perhaps even the fact that the average FTSE 100 executive is paid 130 times that of their average employee. Its drumbeat has got louder in recent years too, driven by Barack Obama’s calling inequality the defining challenge of our time, the Pope’s saying similar, Pikettymania. Each year, IPSOS Mori asks people what they think is the most important issue facing the country. This year, more people said poverty and inequality than at any other time since they started asking about it in 1997. Inequality’s standard bearer in British politics is Ed Miliband. His zero-zero speech was his clearest statement about that yet.

Of course, concerns about immigration aren’t confined to the right and those about inequality aren’t confined to the left. But in the last few years immigration has given the right power, energy and a unifying theme, as inequality has done on the left.

Evidence

But there is one significant difference between them: evidence. Most of the most common fears about immigration don’t survive contact with it. Most of the most common fears about inequality, though, emerge enhanced. In our current national debate, the dangers of immigration have been overstated, but the dangers of inequality understated. As a cause of other problems, immigration has been overdiagnosed, inequality underdiagnosed.

And that matters in the long-term because while today’s news cycles might be full of immigration-related fear, pumped up by Kippery electioneering and Tory pandering, they probably won’t be two or three years down the line; a populist panic can’t survive on hot air alone unless it points to some genuine problems that can be fixed. But when politicians and policymakers try to respond to peoples’ worries about immigration, they tend to find that it’s not a straightforward thing to do. Many of the things people fear the most are myths. No policy can fix a mirage.

With inequality, it’s the opposite: many of its consequences are real, measurable, harmful, and worsening.

Immigration

Let’s take immigration first.

The actual fears about it are real, of course. If you’re disorientated to hear so much Farsi on the bus, see so many Polish shops on your street, or if you just feel in your gut that the England you knew is now no more and you never had a say in it, politicians should have the decency to hear you out.

And yes, some of the things people fear about immigration are real problems: caste discrimination, for example, and job displacement in certain places and sectors, as Ed Miliband has said.

But most just aren’t. And that argument deserves a hearing too.

I know stats don’t win hearts and minds, but they’re a handy way to set some boundaries of rational debate. So, to take a sample: do immigrants automatically get a council house? No. But can they jump the queue for one? No. Is the British population now 31% immigrants and 21% Muslim, as people seem to think? No, and no. The figures are 13% and 5% respectively.

Do EU immigrants take British jobs on aggregate? No. There have been many studies on this, and when the Civil Service did a study of the studies it concluded that “there has been little evidence … of a statistically significant impact from EU migration on native employment outcomes.” Is the problem that one more job for a foreigner means one less job for a Brit? On aggregate, no. The average immigrant is more likely to start a company than the average UK national, so immigrants probably create many more jobs than they fill.

What about benefit tourism, the hordes of foreigners crowding onto planes to milk our benefits system? Funnily enough, the European Commission recently asked the government to give evidence – any evidence would do – that benefit tourism was a real problem. They couldn’t. Instead, they countered that the Commission was ‘placing too much emphasis on “quantitative evidence.”’

What we do know is how many Brits and non-Brits apply for a National Insurance number, and the House of Commons Library has tried to use those figures to work out where benefit claimants come from. It turns out that the vast majority – 92.6% – of people of working age who claimed benefits this year are British, and just 7.5% not. And what about the tax credits? 84.8% of claimants in 2013 were British, just 15.2% not. The idea of a mass influx of benefit tourists is just a lie.

But surely, the nativists argue, immigrants take up school places and hospital beds? But they don’t just go to hospital and send their kids to schools. They also work in them and fund them through taxes. In fact, immigrants pay more in tax than they cost, so fewer immigrants means worse-funded public services: even fewer school places and hospital beds. That, or higher taxes.

What about rising house prices? Plenty of intelligent people believe that they’ve shot up because so many new immigrants want to buy them. But again, the evidence just isn’t there. The research on skilled immigrants from outside the EU found that even after five years in Britain, most are still renting. Even when they bought, they were only likely to have added 1% to house prices over five years. And even if they did push up house prices, it’d be another argument for building more houses. After all, the price of mobile phones, package holidays and other things hasn’t shot up because so many more immigrants are buying those, because supply just adjusts. But housing is different: in the short-term, housing supply can’t adjust so that everyone who can afford one gets one (let alone adjusting so that everyone who needs one gets one). Government – especially local government – needs to get involved to see that more houses are built.

The nativists are probably on strongest ground with the claim that immigrants have held down real wages: here at least the evidence is mixed. But immigration isn’t the main culprit. After all, real median wages have stagnated or fallen in the USA, Japan, and across the Eurozone. There are many reasons for that: productivity hasn’t improved enough, competition from globalisation has held wages down and moved jobs abroad, technology has replaced jobs, there might be a shortage of good investment opportunities, certainly there’s a political culture of weak labour bargaining power. Maybe all of them. But the bottom line is that we don’t know that immigration is the cause, but we do know that inequality is the consequence.

When you try to pin the problems of immigration down, most of the time you find yourself chasing shadows.

Inequality

Inequality, on the other hand, is a policy problem. And once you start to recognise the symptoms, you see that it’s as underdiagnosed as excessive immigration is overdiagnosed. Many will counter that it’s a wonk’s issue. But even if nobody’s talking about it in the pub, nobody in the pub would turn down a payrise.

It’s worth pausing here to get David Cameron’s argument out of the way first. He says inequality isn’t rising because the gini coefficient – the economist’s traditional measure of inequality – is the same now as it was in 1986. But that misses the wood for the trees. Firstly because the big picture is that inequality has risen roughly from Thatcher’s election until the banking crisis. Then it stopped – but not because anybody got better off, but rather because real wages fell while the safety net protected the poorest. It is now rising again and is expected to continue to rise. These years of stagnant wages are a blip in the trend towards rising inequality. Secondly because this blip isn’t thanks to what his government has done, but despite it: his budgets have overwhelmingly taken from the poor and given to the rich. And thirdly because Cameron ignores inequality of wealth, let alone the kinds of inequalities of opportunity and power which any self-respecting meritocrat should really care about.

The long-run trend is that the rich are getting richer much, much faster than everyone else. And, like immigration, inequality is sucking other issues towards it.

That includes the familiar inequalities, like life expectancy, crime, literacy, health. To quote a recent Leader of the Opposition, “research by Richard Wilkson and Katie Pickett has shown that among the richest countries, it’s the more unequal ones that do worse according to almost every quality of life indicator.” That was David Cameron, in his 2009 Hugo Young lecture. He went on to recognise that inequality made more of a difference to these things than GDP per capita. (Cameron talked the talk. If Miliband wins, he’ll walk the walk).

It also includes issues of living standards. Complaints about energy bills, train ticket prices, even the rent, aren’t just about rip off prices and greedy rent-seeking. They’re also symptoms of the inequality of this growth: earnings at and around the median haven’t kept pace with earnings at the top for a decade, as the Resolution Foundation has documented. Between 1994 and 2010, the poorest 50% of households’ share of national income after taxes and benefits went down while the top 1%’s went up. Clearly, the problem goes back a long way. Real median wages remain stagnant or worse.

And the symptoms of that trend can be brutal. When we says that one in five families in Britain bring in less than £423 a week, that one in five families can’t afford a day trip to the seaside, that more than 100,000 people a year have to get into debt just to pay for a family funeral, or that most teachers say they see kids coming into school too hungry to learn, the problem isn’t just poverty, as some inequality deniers want to argue. It’s also a problem of inequality of growth. The gains from growth – because there have been plenty – have mainly gone to those who already earn the most.

But the main reason why the inequality drumbeat is likely to carry on getting louder in the coming years is because there are so many other issues which turn out to be about inequality when you scratch beneath their surface.

Why, for example, is the economy reviving so sluggishly compared to previous recessions? A big part of the problem is weak demand. Real disposable income fell between 2007 and 2013. Consumption per head fell between 2005 and 2013. Too many people don’t have enough money to spend.

There are many reasons for that. But with that backdrop, is it any wonder that it’s harder for business to find good investment opportunities, or that shops are struggling to find customers? No wonder, for example, Tesco is losing out to discount retailers when their customers have got less money in their pockets. This didn’t used to be a problem. Demand deficiency never affected the headline growth figures back when growth translated into rising wages. If you’re wondering why the economy is recovering so slowly compared to past recessions, a big part of the answer is: inequality of growth.

It’s a similar story with low interest rates. Many older, richer people with savings are wondering why it’s taking so long for interest rates to rise. But here again, it’s inequality of growth that’s to blame: if incomes were rising decently at and below the median, chances are we’d have enough inflation for rates to have risen by now. And it’s a similar problem with bubbly asset markets. Inequality of pay growth causes restrained interest rates, which causes a higher chance of bubbles, which means a higher chance of a crash.

And then there is everything else that inequality makes more difficult. Closing the deficit, for example. In the last year or so, it’s beginning to dawn on some on the right that the reason why it’s so hard to close the deficit is because so many of the new jobs are so low paid that they bring minimal tax into the Treasury. Complaints about the government not closing the deficit boil down to complaints about the government not doing the kind of reforms – like more and better training and apprenticeships – that encourage better paid jobs.

Then there are tax credits. They were always designed, lest we forget, to top up the income of the low-paid. And they do. But the money comes from the exchequer, so each new lower paid job helps deficit reduction less than each new higher paying job. Encourage companies to raise wages, and you don’t just dent the inequality of growth, you also make it easier to close the deficit.

The reason so many issues are likely to be pulled into the orbit of inequality is because so many turn out to be a symptom of it. Take housing affordability. Sure, it’s mainly a housing supply problem, but it’s exacerbated by a ‘too-many-salaries-not-rising’ problem: rising house prices would be less of a problem if incomes were rising with them.

Take the issue of London pulling away from the rest of the country: the Spectator devoted a cover story to the issue, written by one of George Osborne’s advisers, back in 2012. That’s really a right wing magazine writing a cover story about the growing divide between the rich part of the country and the rest.

And those on the right who are outraged by such a high percentage of the tax take being paid for by the rich should note that it’s not mainly fiscal drag or tax rises that are doing it, it’s the rich earning that much more than everyone else. Or as we like to call it: inequality.

Inequality even distorts the meaningfulness of the GDP figures; the more unequal we get, the less important GDP becomes. After all, the only reason anyone really cares about GDP is as a rough and ready proxy for how well off we are as a country. But when the labour market begins to split into two lumps of the high paid and the low paid – as it is increasingly doing in developed countries around the world – then GDP doesn’t really work as a proxy for our how well we’re doing as well as it used to. Median salaries become more representative.

And then there’s wealth. For the last thirty years, house prices have gone up about four times faster than wages. That skews incentives. After Cathy Colston left her senior job at Boots, she got into buy-to-let property investment. Within four years, she was able to replace her salary. Meanwhile, a third of us don’t even have one house, let alone a portfolio. This isn’t the kind of property-owning democracy Margaret Thatcher had in mind. We all know that being a buy-to-let landlord isn’t actually harder work than helping to run Boots, much as we know it’s not actually harder work collecting the rent from the Duke of Westminster’s land than, say, cleaning his house. But we turn away from these thoughts because they remind us of the unpalatable fact that in a world where assets return that much more than work, reward is ever less commensurate with skill and effort. When owning returns so much more than earning, the happy idea that work is the best way to get on in life begins to look hopelessly naive. Having assets becomes the best way to get on in life. Work is just for those who don’t yet have any. And that, it seems, is the way we are going.

I don’t blame Ms Colston for choosing to do up houses over helping Boots sell pharmaceutical products: those are her incentives. But I do blame a tax system that compounds those incentives. And that is what this means for British politics: if we’re serious about tipping the balance back away from wealth and towards work, then the case for taxing income weakens and the case for taxing wealth strengthens. It shouldn’t be a surprise that some polls find 72% support for the mansion tax.

But in the end, none of these are the biggest charges I’d lay against inequality. Because perhaps the most corrosive things inequality does are exactly the three things the nativists accuse excessive immigration of doing.

They say it changes the look and feel of our towns and cities. But inequality does too: each year there are more Ferraris on the streets, more bearded men poking through the bins.

They say immigration changes how we relate to each other, but inequality does too: each year that more of us live in gated communities or have to sleep in doorways we risk becoming a little more numb to the extremes, a little more likely to dismiss them as the way of the world.

And they say immigration changes our sense of who we are. Well, I say inequality changes who we are.

I didn’t used to give too much thought to inequality. Not because I didn’t see it, but because I just felt it had two big arguments on its side: firstly that it might be ‘fair’ inequality: some people work harder or have more valuable skills than others, so of course they end up richer. And secondly, that the medicine – whatever we did to reduce inequality – might well be more harmful than the disease.

But the crash made me think again. It showed that many of the best paid people in the country weren’t actually so talented or skilful or wise or smart: all those long hours and that incredible brainpower turned out to be dedicated to running financial institutions into the ground. And that’s not their problem, it’s our problem: it brought on a recession in which we all suffered and blew a hole in the public finances that we’re all paying for. That’s not fair inequality. It’s dumb inequality.

Because inequality changes who we are by changing our incentives: what we think it’s worth dedicating our lives to, the skills we collect, the careers we choose and so the people we become. Any vocation where pay rises more slowly than it does in finance becomes a little less attractive each year. And finance itself – such an important tool when managed right – with its PPIs, its LIBORs, its FOREX scandals, its bubbles and bailouts – becomes the ultimate choice; a pied piper enticing those who would otherwise devote their ambition, talent, energy, and time to engineering, say, or medicine, public service, or entrepreneurship, towards the big money instead. If this is the disease, maybe the medicine’s not so bad.

Conclusion

But even if you accept that immigration is something of a panic in search of a problem, and inequality the other way round, you still might simply think that there’s nothing we can do to disrupt rising inequality. And I’m not about to tell you I’ve got a blueprint under my arm. 

But this much I know.

The first step is to win the argument. It will need all the real stories and lived experience we can throw at it. Most inequality deniers normally speak from self-interest: either because they fear they’ll lose out from policies to remedy inequality, or because they’ve somehow staked their identity on arguing that it’s not a problem and are too embarrassed to change their minds.

But the tide is turning. The old arguments that inequality is inevitable, useful, or benign are rapidly losing ground. Case in point: for decades, right wing economists have confidently asserted that redistribution normally impedes growth. In April, the IMF threw them into disarray by pointing out that that assertion had never actually been grounded in good, comparable, cross-country data. When they used a new, bigger dataset which covers “as many countries and as many years as possible,” they found that apart from in extreme cases, “redistribution appears generally benign in its impact on growth.” That’s a massive deal. It’s an evidence-based stake through the heart of the argument that the medicine is always worse than the disease. Slowly but surely, the burden of proof is moving towards those who want to do nothing about inequality.

Secondly, it should be pretty clear by now that the government spending of the Blair years was a palliative, not a fix. It didn’t do much about the underlying trends towards greater inequality. Spending has its place, but it’s the structural changes like changing the tax system, the minimum wage, and better training that do the heavy lifting. If and when people get round to defining ‘Milibandism,’ I think this idea should be seen as one of its starting points.

Third, wealth and income gains don’t trickle down by themselves. You only get them by bargaining for them, and bargaining structures matter.

But let’s not forget that inequality has been brought down before, after the war. Reasonable people can debate the best way to deal with it in a modern, open economy. But each year that pay is stagnant, good jobs remain scarce, and demand remains deficient is another year that inequality inches towards beating off immigration to become the central issue of British politics.

And then the real work can begin.

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