The axiom that deindustrialization, falling incomes, rising unemployment, and inequality has driven recent tides of populism in capitalist Western liberal democracies is true. However, most of the discourse around populism, fuelled by higher levels of migration into advanced economies has focused on miseducation, misinformation, and xenophobia. All of which is true, but to simply reassert the latter reasons fail to capture the broader changes in immigration trends since the 19th Century and how these affected the development of some economies.
A paper by Timothy Hatton and Jeffrey Williamson, provide a detailed analysis of migration trends between Europe and the U.S.A as well as from Europe to Canada, Latin America and Australia. As the U.S. economy grew, demand for labor rose and individuals from countries with an abundance of labor supply and lower living standards went to the U.S. This also explains migration trends from Spain, the U.K, and the Scandis even though Belgian and the dutch benefited from higher wages as opposed to their Spanish counterparts.
Migration coincided with economic growth
During and after the 19th Century, countries and individuals made significant capital investments, which required significant amounts of labor to produce goods and services. As such, most of the advances in technology at the time were productivity-boosting for laborers as apparel, cars, shoes, and machinery were produced more efficiently. This caused wages to rise, standards of living to improve and individuals settled in the United States while others returned to Europe. This explains a significant number of U.S. citizens from Irish decent. It is difficult to ignore the tolerance and almost affinity for migration perceived during periods of higher wage growth as opposed to recent years. The latter has seen falling worker bargaining power and wages as well as rising inequality. This, coupled with pressure on housing and public services has increased aversion to migration.
Following the industrial revolution, workers bargaining power was slowly chipped away, with a majority of countries boasting few unions, if any at all. This caused the benefits of industrialization and greater profitability to disproportionately concentrate at the top 1.0% of the income bracket. As factors of production became increasingly concentrated, the next technology-driven changes to labor market composition were more pronounced, causing deindustrialization to spread in some advanced economies, with the factory cities and resource-exploring towns falling further behind.
Technology Versus Migration: Who’s to blame?
These technological advances in manufacturing, healthcare, and services caused countries to gain a competitive advantage in some sectors, but also led to higher levels of unemployment and stagnant wages. As businesses sought low-wage destinations in Asia, Mexico, and Latin America, while consumers grew increasingly disenfranchised, it became increasingly difficult to disentangle the impact of technological advancements from migration.
This was compounded by the 2007–2008 financial crisis, followed by years of austerity in some countries, which saw cuts to public services accompanied by rising inequality. A slowing economy with households bearing the burden of higher dent levels explains recent bouts of populism in France (Marie le Penn), Victor Orban (Hungary), the United States (President Trump) and Italy (Matteo Salvini).
Furthermore, blaming migration is, at best, incomplete as close to 60% of jobs were lost as a result of technological advancements in manufacturing and other sectors. A closer look at global value chains also paints a more nuanced picture as the jobs lost in manufacturing were counterbalanced by jobs created in the service sector. Nevertheless, the lack of policies to improve matching in the labor market and the inertia in public policy is also to blame, at least in part, for the recent populist outcomes.
Is it all about dignity
When tragedy strikes, people always need someone to blame, which are migrants in this case. Nevertheless, it is important to point out an important flaw in the current design of capitalism. A significant portion of economic growth in advanced economies is driven by credit, with the majority of that debt held by households via mortgages. As such, instead of incomes supporting spending, which is sustainable over the long run, debt continues to serve as a drag on economic growth, productivity, and wages. what are consumers borrowing and who are they borrowing from?
A quick glance at Francis Fukuyama’s book “Identity, the demand for dignity” illustrates how less fortunate laborers in deindustrialized regions fuelled populist outcomes. By demanding dignity of work, livelihood, their love for the past is just as rooted in economic prosperity as it is in a misguided and incomplete view of their countries history.
His book makes an important distinction between the demand for dignity and the historical drivers of populist outcomes. The more racist factions of the populist movement versus the emergence of an anti-establishment pseudo-elite are cultural, some argue. I do, however, think the cultural context of now absent economic prosperity cannot be ignored. Furthermore, it is commonly assumed that misinformation is more prevalent amongst the least educated in society, which isn’t entirely untrue. But failing to distinguish the racist from the non-racist drivers of populism explains why our politics has become so polarised and why we might be a long way off from social cohesion. By failing to identify and act on their concerns, economic nationalism has become the norm and the anti-elite sentiment and mistrust in experts and public institutions abound.
Inequality and its spoils!
As a significant share of income growth has accrued to the top 1.0% of almost any income distribution, the excess saved income has to be funneled back into the economy via credit. The bulk of which is taken up by the other 90% of the population. Meanwhile in the past wages rose because extra savings were invested in production, which employed people, the story is much different today as our economies have become increasingly financialised and service-dependent. The latter, reminiscent of any mature economy, can exacerbate inequality in the absence of skills-driven labor market programs.
This is especially true in the United States and the United Kingdom, marked by the election of Donald Trump and Brexit; decisions which puzzled most liberals and the world at large. These are all symptomatic of the broader breakdown in the social contract, fuelled by weaker worker bargaining power, inequality, and increased market concentration.
The facts matter little
It is, however, easier for politicians to blame migration and citizens see rising pressure on public and social services as evidence of that, rather than induced by austerity. It is no surprise that every self-proclaimed populist is an upper-middle-class white male from a fairly, if not very, privileged background. Take Donald Trump who only got $1 million dollars from daddy to start his business or Nigel Farage who went to a fee-paying independent school. Can they claim to understand the challenges and difficulties facing income-strained voters?
Economic nationalism Versus culturally-driven populism
The recent aversion to immigration cannot be explained by xenophobia alone. The lack of jobs, deindustrialization and inequality play are equally significant in explaining the nationalism, both politically and economically. Furthermore, our debt-driven economies do little to help, but rather exacerbate inequality, which we talk about with very little done by governments. As individuals perceive politics to be driven by a small elite whom they regard as detached and conveniently open, it is challenging for politicians driven by short-termism and the next election cycle to begin addressing these deep structural flaws in society.
The anti-immigrant sentiment has worked, but the next crisis, stagnant wages and lower immigration will force voters to rethink the real causes of inequality and economic prosperity. The implications for politics cannot be understated in those circumstances. However, Hatton and Williamson, are a cautionary tale for countries thinking of the fourth industrial revolution and the role migration could play.
Controlled migration isn’t bad, but sooner or later, voters will realize that migration is not the cause the economic dystopia they face. Whether migration causes economic growth or economic growth causes migration will become irrelevant in a future of continued inequity. Although experience in the U.S and the U.K suggest that migration is generally positive for the economy and society, displaced and economically marginalized individuals will sooner or later start to ask politicians more difficult questions on inequality, climate change, deindustrialization, and regional inequality. Only then, might timely solutions suddenly emerge.