To be less dependent on immigration, Britain must change its model of capitalism

The British economy is structurally dependent on migrant workers because it is lightly regulated and depends heavily on domestic demand, write Alexandre Afonso and Camilla Devitt. They explain why less immigration will require a greater role for the state.

The desire to lower immigration has been one of the main drivers behind the Brexit vote. Now, Theresa May’s cabinet has signaled its resolve to cut down numbers significantly, a longstanding pledge that the Conservatives had failed to make good on up to recently. With Brexit becoming a reality, however, the UK can expect lower inward migration, and numbers have been falling already.

Reduced immigration will be due to the restrictions on free movement the government will put in place and weaker economic growth (Britain has grown at a much slower rate than any other major economy in 2017). A number of EU citizens faced with uncertainties about their status will also probably leave. For the British economy, less immigration will be problematic because it has come to structurally depend on it at both ends of its labor market, mostly due to its liberal and demand-driven economic model.

In a recent article in the Socio-Economic Review, we argue that different varieties of capitalism – how the economy is organised across countries – generate different levels of demand for migrant workers. In this perspective, the UK displays features that make it especially dependent on migrant labour. The UK combines the features of a so-called Liberal Market Economy (with low employment protection, a lightly regulated labour market, and a large low-wage sector) and a consumption-led growth model (which depends heavily on domestic household consumption and population growth rather than exports). These institutional features have strengthened demand for migrant workers to compensate for mismatches and imbalances in the socio-economic regime.

First, the British economy is a demand-led economy which relies to a greater extent on domestic consumption than export-led economies such as Germany. The UK draws to a greater extent on population growth and increasing house prices. Unlike Germany, where exports of goods and services represented 46% of GDP in 2016, this share was only 28% in the UK. Another major difference is population growth: between 2006 and 2016, the British population has grown at a much higher rate than the EU average: 0.75% per year against 0.3% (0.3% for Germany). Immigration accounts for more than half of this growth, and reducing the number of people coming into the country (and consuming goods and services) will inevitably weaken what had become an important driver of growth.

This is important because apart from financial services, Britain’s export performance appears to be too weak to compensate for a smaller domestic demand. While Germany still has a strong export-oriented manufacturing base, the United Kingdom relies more heavily on services, not only high-skilled (e.g finance) but also low-skilled sectors (retail, cafés, restaurants, personal and social services) and the construction sector. These sectors depend to a larger extent on migrant workers, especially in low-paid employment. For instance, 41% of packers, bottlers, canners, and fillers in the UK are EU nationals, and so are 26% of cleaners and housekeepers.

Second, because of the liberal nature of the labour market, there is a comparatively high number of low-paying jobs that natives are reluctant to take up. About 20% of jobs in Britain are low-paid (that is, they are paid less than two-thirds of gross median earnings) while this percentage is only about 10% in France and 8% in Denmark. The turn to austerity pursued by the Conservative government may have paradoxically increased this demand for low-wage migrant workers. In social care, for example, pressure for cost containment due to austerity has led to a deterioration of working conditions, and migrant workers are often the only ones who accept the low wages and asocial working hours that these jobs entail.

In sum, the British economy offers many low-paying jobs that natives, due to higher expectations, are reluctant to accept. This mismatch is filled by migrant workers. Catering, construction and care – all domestic services sectors which had come to depend heavily on EU workers – have now all reported difficulties in finding labour in the aftermath of Brexit.

Third, the dependence on EU migration has also been accentuated by decades of deregulation which have lowered incentives for firms to produce skills domestically. This is a classic collective action problem: in order to have an adequate supply of skills, firms need to cooperate and pool resources to train new workers. However, it may be selfishly more expedient to let other firms train workers and then “poach” them without paying for training. If everybody is rational, no workers are trained.

A case in point is the construction sector, which has come to rely heavily on EU workers to compensate for the lack of domestic skills. Faced with fierce competition on costs, large-scale subcontracting and the widespread use of “bogus” self-employment, companies have been reluctant to invest in training workers, and the workforce is less skilled than its equivalents in other European countries. Naturally, it has been easier for firms to draw on the skills of workers trained abroad, especially from Poland or other Eastern European countries.

Once again, EU workers have been used to plug the mismatch between the demand and supply of skills in the British labour market, and many British firms have been free-riding on skills produced abroad. This situation is not new. The NHS is a case in point: in 1971 already, 31% of all doctors working in the NHS in England were born and qualified overseas.

There has been a fundamental contradiction in the combination of economic liberalism and hostility to immigration that has characterised Conservative policies in recent years, because austerity and free market economics tend to bolster demand for immigrants. In fact, countries which experience lower levels of immigration (e.g France) are also much more interventionist in economic policies, have larger public sectors, and higher taxes. Coping with lower immigration will most probably require a greater role for the state in training and regulation to solve the labour mismatches that immigration was solving up to now. The more interventionist tone of the last Tory manifesto may be a sign of this reorientation.

Originally posted on the LSE’s British Politics and Policy Blog.

The Labour Party is Losing the Centre

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The graph above shows the level of electoral support for British political parties by ideological self-positioning, based on wave 10 of the British Electoral Study (data collected in November and December 2016). I have left out people who refuse to place themselves. The curve obviously declines as you go right for Labour, and increases for the Conservatives (with a decline on the far right as UKIP goes up). What is the most interesting is the slope of the two main parties: electoral support for Labour declines faster as you go right, and the Conservatives rise earlier, meaning that the Conservative are stronger on the center ground. The Conservatives do much better than Labour among people who consider themselves in the very middle of the political spectrum (that is, choose a 5 out of 10). 27% of voters in this category intend to vote Conservative, against only 18% who plan to vote for Labour. As the histogram below shows, this is the largest category of voters in the electorate, among those who are willing to place themselves (23% don’t). The sample is 30’319.

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Will the Labour party turn into a losing machine under Corbyn?

Jeremy Corbyn is currently the frontrunner for the leadership of the British Labour Party. While few would have bet on him when he announced his bid, he is now the bookies’ favourite.

Labour leadership candidates by Google searches, May-August 2015
Google searches for Labour leadership candidates, May-August 2015 (Google trends)

A number of prominent figure on the right of the party have come forward to warn against the electoral consequences of him becoming leader. Tony Blair wrote that Labour would face “annihilation” if the left-winger were to lead the party, and Gordon Brown explained at great length how a Corbyn leadership would affect the party’s credibility. The general theory among pundits is that only a centrist candidate can be able to win elections in Britain. There are three reasons behind this. The first is institutional: in a majoritarian system, you win elections in the centre, and you need to convince the voter in the middle of the voter distribution. The second and third are historical: Tony Blair managed to win three consecutive elections on a centrist (or centre-right) platform; and Michael Foot faced a mortifying defeat in 1983 with a clear left-wing platform. But how does the electoral score relate to the left-right position of parties?

In the Graph 2 below (click for interactive version), I have plotted the vote share of the Labour and Conservative parties between 1945 and 2010 against their left-right position as measured by the comparative manifesto project. In other posts I have used the Chapel Hill Expert Survey, but the manifesto data goes back much further in time. Regression is faced with a number of problems: endogeneity (it is difficult to know whether the ideological position determines success, or whether electoral success in previous elections conditions the electoral position), measurement problems (the British party system has become more multipartisan over the last 30 years, so vote shares have declined for both parties). The correlation is very weak, and the relationship is not significant. The regression line (you can see it if you click on the graph) slopes downwards for both parties, but it has probably more to do with the fact that both parties were more left-wing in the 1950s, and also gathered more votes, than being more left-wing yielding more votes.

Left-right position and vote share of British Political Parties, 1945-2010

However, the representation of the data gives an interesting representation of the history of British politics since 1945. In the postwar period, both major parties were on the left according to the data. That’s the period in which the NHS was created and major industries were nationalised. Throughout the 1950s and 1960s, the difference between the two parties was not that big (Graph 3). This changed to a great extent in the 1970s, when the distance between Labour and Tories increased and a major period of polarisation started. The Thatcher era is of course the most symptomatic of this: the Tories veered to the right, while Labour engaged in soul-searching with large swings up and down (Graph 3). The Blair leadership shifted the party to the right, bringing back electoral success. The distance between the two main parties decreased again, but this time, convergence took place on the right rather than on the left, as in the 1950s and 1960s.

In graph 2, it is striking to see two parallel lines going right and upwards: the Tories between 1974 and 1979 (Thatcher) and Labour between 1992 and 1997 (Blair). In both cases, a major shift to the right coincided with a major increase in vote share (following crushing defeats). In contrast, the two instances where the Labour party veered to the left (in 1974 and 1983) coincided with lower vote shares. A move to the left did coincide with a higher vote share between 1987 and 1992, but this was not enough to secure a majority in parliament.

Left-right position of Conservative and Labour party, 1945-2010 (Comparative Manifesto Data)
Left-right position of Labour and Conservative parties, 1945-2010

The Economic Dilemma of UKIP

Let us take a short trip Back to the Future. Step into The Doc’s DeLorean modified time Machine, fasten your seat belt, greet Marty McFly in the back seat, and set the destination to 2016 Britain. We accelerate to 88 miles per hour, and after a loud “bang”, it only takes a few seconds to land after the next general election. There are no flying skateboards, the weather is still miserable and the Royal Family is still reigning, but we have a new government. Just like in the last 2010 election, none of the two big parties managed to gain a majority in the Commons. Due to poor electoral strategies, Labour did not profit from David Cameron’s failures in government, and the Tories have come out of the elections once again with the biggest number of seats. However, their former allies, the Liberal Democrats, have suffered a severe electoral setback, and no longer have enough seats to secure a majority. Instead, the Tories have chosen to form a coalition with the party that made a true electoral breakthrough: Nigel Farage’s UK Independence Party. What kind of policies can we expect  from such a coalition, and would it be viable politically? Would UKIP and the Conservatives agree on issues such as welfare, pensions, taxation and social benefits?

In many ways, a Tory-UKIP coalition in the future is not completely science-fiction. UKIP – as well as a number of other Eurosceptic, anti-immigration parties throughout Europe – is  bound to make considerable advances in the upcoming elections for the European Parliament. A poll conducted in January by the Independent on Sunday revealed that UKIP was the most favourably regarded party in Britain with 27% of favourable opinions, even if voting intentions still placed Labour and the Conservatives ahead. However, UKIP seems indeed to have overtaken the Liberal Democrats as the main alternative to the big two parties: Labour was first with 35%, the Tories were at 30%, UKIP was at 19% and the Libdems at 8%[1]. While European elections are often considered as “second-order” events where voters are more likely to sanction governments and bigger parties because they are presumably less important, EP elections still showcase the strength of the different political forces that will matter for future national elections. In Britain, UKIP is a serious electoral contender, and its impact on government policies can already be felt. The government’s tougher line about immigration control, or the promise to hold an “in-out” referendum about the European Union are without doubt targeted at voters tempted by Nigel Farage’s party. Some Tory politicians have already evoked potential alliances between the Conservative Party and UKIP[2]. Hence, such a coalition cannot be ruled out in the future, even if the first-past-the-post system obviously constitutes a severe hurdle for parties outside the Labour/Conservative duopoly. In first-past the post, what matters is not only how many voters parties have, but also how they are distributed geographically, and UKIP still seems to be lacking as to this second criterion.

UKIP as a Working-Class Party

Besides institutional barriers to acces constituted by the electoral system, UKIP and the Conservatives would need to reconcile the preferences of their respective electorates. If this does not look like a huge problem when it comes to issues such as immigration control and relationships with the European Union, it would certainly be more problematic when it comes to public spending, welfare, pensions, taxes and the like. This is essentially because UKIP and Conservative voters tend to have different socio-economic profiles, different interests and different preferences.

On the one hand, recent research has shown that UKIP has the most working class electorate of all British parties[3]. For some time, many believed that the typical UKIP voter was the disgruntled anti-EU middle-class Tory in the South-East. However, it appears that the UKIP electorate is in fact similar to that of other populist radical-right parties in Western Europe: working class, “pale, male and stale”. The core electorate of UKIP is constiotuted by blue-collar workers, predominantly male, older, with low formal education levels, who feel threated by immigration and economic change, and loathe a political class composed of what they perceive – no without reason – as a bunch of posh, privately educated middle-class Oxbridge graduates. Sociologically, UKIP voters would have been the social groups which used to vote Labour in the 1960s and 1970s, but have been forgotten by New Labour in its drive to appeal to urban middle classes. This pehenomenon is by no means a British exception: in countries such as France, Belgium or Austria, the populist radical right is now the most popular party family amongst the native working class – after abstention – while left wing parties essentially source their voters in the new middles classses (teachers, public sector workers, healthcare workers and professionals). After Tony Blair’s drive to the right, managers are now as likely to vote for Labour than for the Conservatives, and the days of old Labour seem long gone.

Interestingly, the preferences of UKIP voters in terms of economic policies also tend to be more left-wing, even if they intend to vote for a party often considered on the far-right. Research on the US also shows that supporters of the Tea Party, which can be considered as the equivalent of UKIP, also often rely on federal welfare programs while supporting a party that wants to scrap them. Hence, there is often a wide gap between the preferences of the voters and the agenda of the party elites in these domains. A recent Yougov poll showed that 73% and 78% of UKIP voters supported the nationalisation of railway and energy companies respectively[4]. Corresponding figures were twice 52% for Conservative voters, and 79 and 82% for Labour voters. Hence, UKIP voters tend to be closer to Labour voters when it comes to socio-economic issues and state intervention in the economy, while Conservative voters prefer market-based solutions, a smaller state and lower taxes.

Accordingly, austerity policies and cuts in public spending pushed by the Conservative party can be thought to hurt the UKIP electoral base, as lower-educated working-class people also rely to a larger extent on public services than higher incomes who can purchase services privately. A conservative-UKIP coalition would inevitably run into this kind of dilemma, and UKIP is conscious of this. At first, its electoral manifesto promised both lower taxes for all and more spending, for instance by scrapping the bedroom tax[5], or establishing a 31% flat tax rate for all.[6]This is is feasible in opposition, but more problematic when a party accesses government and needs to fulfill its irrealistic promises.Eventually, however, UKIP ended up disowning its whole 2010 party manifesto until after the EP elections, claiming that all its policies were now “under review”.[7] It has been shown that populist right-wing parties such as UKIP are particularly prone to “blur” their positions on economic issues in order to solve these dilemmas.[8]

Betraying Voters, or Betraying other Parties?

In a forthcoming article in the European Political Science Review[9], I show that once these parties take part in government coalitions, however, blurring their position becomes more difficult, and they need to make a choice between office and votes when it comes to socio-economic policies. On the one hand, as argued above, they appeal to a large segment of working-class voters who are supportive of state intervention, and obviously those from which they benefit directly. This includes traditional social security schemes such as old-age pensions. On the other hand, in Western Europe – things are a bit different in Central and Eastern Europe –  these parties have only been able to form government coalitions with Conservative or Liberal parties who are more likely to retrench these very same welfare programmes, and who can even be rewarded electorally for cutting public spending. If populist right-wing parties choose office and want to maximise their coalition potential, they may support retrenchment measures in exchange of concessions about immigration control, but at the cost of betraying their working-class electorate and facing substantial electoral losses at the next elections when cuts in public spending bite in. If they choose votes and seek to protect their electorate from retrenchment, they jeopardise their participation in government by betraying their coalition partners, who often cooperate with them precisely in order to pass austerity measures with little opposition. For this analysis, I have carried out fieldwork in the Netherlands, Austria and Switzerland, three countries where the radical right took part in government at some point in time, and where pension reforms were put on the agenda. In all three countries, the tensions between office and votes outlined above were visible, and can serve as interesting signposts for the problems a Conservative/UKIP coalition might face.

In Austria, the Conservative ÖVP chose to form a coalition with the radical right FPÖ in 2000 as a way to curtail the left and trade unions, and push retrenchment reforms that had been impossible to carry out with the social-democrats in government. Accordingly, the FPÖ went for office and basically subscribed to the retrenchment agenda of its coalition partner in exchange of a tightening of immigration rules. While reforming welfare had proved extremely difficult in the past, this allowed for a number of swift welfare reforms to cut public spending, notably by increasing the age of retirement. The problem was that these reforms soon led to a revolt within the FPÖ, precisely because they were hurting the very electoral base of the party, which just like UKIP, was composed of blue-collar, older and male workers. A number of internal dissensions led to the creation of a splinter party, the BZÖ, and Jörg Haider, the party leader, heavily criticised its own ministers for hurting the “small people” the party was claiming to represent. In the end, the Conservatives of the ÖVP chose to drop the FPÖ and get back to form a coalition with the social-democrats, whom they considered more reliable.

In the Netherlands, Geert Wilders’s eurosceptic Party for Freedom (PVV) similarly committed to support a minority coalition formed by the Liberals and the Christian Democrats in 2010. In the run-up to the elections, Wilders had said that he would do everything he could to keep the retirement age at 65 for “Henk and Ingrid”, the typical hard-working, “squeezed middle” Dutch voters that he sought to appeal to. Accordingly he had said that the retirement age at 65 was a “breaking point” in any coalition negotiation with other parties. One day after his party obtained its best election result ever, however, Wilders said that the retirement age was “no longer a breaking point”, and agreed to support a coalition government between the Christian Democrats and Liberals determined to pursue a harsh austerity agenda, with some concessions regarding immigration and healthcare. However, unwilling to betray explicitly an election promise, the PVV systematically refused to support any attempt to increase the retirement age, forcing the government to seek support from smaller parties. Eventually, after the Netherlands entered a recession in 2012 and was forced to carry out even harsher spending cuts, Wilders pulled out of the government, arguing that he could not support austerity measures that would hurt “Henk and Ingrid”.

Finally, in Switzerland, the Swiss People’s Party (SVP) consistently pushed for retrenchment in welfare programmes as a way to fight “abusers” of social assistance taking advantage of “honest taxpayers’s money”. The SVP notably also pushed for an increase in the age of retirement  without any compensation in an alliance with the Liberals and Christian democrats against social democrats and trade unions. In this sense, the Swiss radical right diverged slightly from parties in other countries by adopting a clearly more neoliberal profile, similarly to UKIP when it doesn’t seek to “blur” or conceal its socio-economic positions. However, in Switzerland as well, the contradictions between office and votes were also visible, as its electoral base is also constituted by large working-class segments. Hence, in the referendum votes called by trade unions and the left to challenge these reforms, a majority of the electorate of the Swiss People’s Party disavowed the party elites by refusing an increase in the age of retirement. Conscious of these internal contradictions, the party subsequently contributed to torpedo another reform where its internal conflicts between a neoliberal elite and protectionist voters would come out once again, this time in the run-up to a new election. This was another strategy to blur and conceal the contradictions of its economic agenda.

In general, parties such as UKIP which build their entire electoral profile on an anti-establishment agenda have a hard time being in government, at the very core of the establishment. The interesting thing about their economic impact is that they do not emphasise economic issues as their prime area of competence, and voters do not vote for them primarily because of their economic positions. However, this is precisely what makes them expedient allies for Conservative parties, since they may be more willing to subscribe to austerity in exchange of a tightening in their domains of predilection (iimigrationa nd law and order), hoping that their own voters won’t see how austerity affects their own interests. Oftentimes, however, these calculations tend to be marked by overconfidence, and to bite them back at election time.

Another version of this paper will be published in Dialogue, the magazine of KCL’s Politics Society.


A Modest Proposal to Improve Value for Money for Customers of Universities

Students increasingly want “value for money” from their university education. On a number of occasions, I have heard or read students concerned about what they get for the money they pay, especially with respect to the different individual components of their education. I have received emails calculating the price of individual modules saying that for that money, they’d expect a speedy return of marked essays, or heard students voicing concerns about how much they were paying for each hour of lecture or seminar that they attended. A friend of mine at another university told me that one of their students had asked for money back after one seminar session was cancelled. If you think about it, it is fairly normal that the introduction of fees has led students to put a price on each individual component of their education, and assess more closely the value that they get for their money. Arguably, the value of fees has tripled since they were introduced, but it is difficult to argue that the quality of teaching can triple as well.

This movement of pricing is what many people call the “marketisation” of universities, often with a tone of disgust. I do not think that this marketisation has gone far enough. Students pay very high fees to get an education, but they get little choice about the product that they get. If you compare universities to true commercial enterprises, you’ll understand that they actually sell a very small number of products, and choice, which is primarily what a market system should deliver, is actually very limited. Choosing a degree works as if you could choose between different airlines to get from point A to point B, but each airline would only have one class, you wouldn’t be able to choose your seat, there would be no speedy boarding and the price would be the same if you booked 3 months or 1 day in advance. Precisely, airlines could be a good model for universities to pursue their movement of marketisation, with a much greater deal of choice in price and quality of products for their customers. A simple way would be to introduce a clear and transparent price list for all the different services that we provide, allowing students to choose different speeds and quality of service. This could look like this:

Price of seats in lecture halls: 3 pounds standard, 5 pounds to sit in the front, luxury seats with reclinable back and built-in head massage to stimulate thinking: 10 pounds per lecture. Note-taking service by experienced unemployed PhDs available.

Replying to students’ emails: 2 pounds within a week, 5 pounds within 2 days, 10 pounds for a 1-day service. For an additional 3 pounds, correction of eventual spelling mistakes or typos.

Student meetings to discuss dissertations: 20 pounds an hour; 30 for a service with notes taken. Business premier service with gourmet coffee, cookies and shoe-polishing on demand (booking in advance recommended).

Recommendation letters: pricing per length and degree of positiveness of the letter. Extra pricing for the placement of specific words: “outstanding”, “amazing” and “mindblowing”: 30 pounds. Budget option available for 10 pounds, includes “alright” and “not too bad”.

Marking and feedback on essays. Budget service with no feedback and date of return undetermined: 10 pounds. Business premier service for 50 pounds: 5 pages of feedback, 10% top-up on the the grade, returned within 3 days on your doorstep by a drone, with a bottle of champagne. Personalized help in writing essays available on demand.

Credit cards and paypal accepted.

Related posts:

What if More Austerity Meant More Immigration?

Since January 1st, citizens from Romania and Bulgaria can freely access the labour markets of all EU member states, including the United Kingdom. Fed by the threat of UKIP and a tabloid press that doesn’t really bother with facts, both Tories and Labour are up in arms in the face of a potential “invasion” of Romanians and Bulgarian who are going to swamp Britain to take advantage of its generous welfare state and its great weather. On January 1st, MPs Keith Vaz (Labour) and Mark Reckless (Conservative) were at Luton airport to “welcome” (pronounce “deter”) Romanians arriving in Britain. Before the new year, the government promptly applied restrictions on access to welfare benefits drawing on the idea that “benefit tourism” is a main driver of migration flows. A report which showed that these fears were unfounded was duly shelved before Christmas because it was “too positive” about the impact of immigration on the British economy.

What is striking about this debate is that the political actors who are the most vocal against immigration are also the most vocal about fiscal retrenchment and reductions in welfare spending. However, nobody ever mentions that cuts in welfare spending may actually foster immigration rather than diminish it.  The common story is that retrenching the welfare state will deter immigration by making the country less attractive for migrants. At best, the welfare system may play no role at all, and at worst, retrenching the welfare state may actually increase immigration because the retreat of the state creates a demand for low-cost private services, for instance in care work, where migrants are over-represented.

First, it must be borne in mind that even if the welfare system was a driver of immigration, the British welfare state is not particularly attractive as compared to most other European countries. The thing is, in the UK it is completely possible for opinion-makers to ignore everything that is taking place “overseas” because nobody really cares. However, most available international data indicates that out-of-work benefits in Britain are actually much lower than most other countries of Western Europe (see also a comparison of net replacement rates for unemployment benefits here). The NHS is a different case because of its relatively universal access (this has been restricted for foreign nationals though) but is a service-based scheme that does not provide the cash transfers that could cause this so-called benefit tourism. If you were a benefit tourist, would you really come to a country with free healthcare but very low unemployment benefits?

Now, available evidence tends to indicate that welfare state generosity has no real impact on immigration flows. The opening of the labour market to Eastern and central European countries in 2004 offered a nice natural experiment: only three countries chose to open their labour markets right away to citizens of new member states: the UK, Ireland and Sweden. The Swedish welfare state is arguably one of the most extensive in the world, and if welfare provision was really the main driver of immigration, Sweden would have faced a much bigger flow of migrants than Britain. However, this did not happen. Between 2004 and 2011, Sweden received an average of 5000 Polish migrants per year, while the UK received 45’000. Immigration did increase after 2004, but nowhere near the proportion its big welfare state would suggest. Independently of welfare protection, demand for labour and wage differentials seem to play a much bigger role.

In theory, there are some valid reasons to believe that an extensive welfare state actually reduces the demand for foreign labour rather than stimulate it. First, to pay for an extensive welfare state such as that of Sweden or Denmark, you need fairly high taxes, which makes labour in general more expensive. Extensive collective bargaining coverage and strong trade unions makes it difficult to bypass this for employers, which means that it is more difficult to employ cheap low-skilled foreign labour in a profitable manner. Since a smaller proportion of the wages paid are actually determined by the individual characteristics of the workers, but rather by a whole set of non-market regulations and agreements which lift up wages, the lower wages that migrants may be ready to accept make a smaller marginal difference: taxes and collectively agreed wages have to be paid anyway. Moreover, since labour is expensive, employers have an incentive to invest in it. The workforce tends to be more qualified and there is a smaller demand for low-skilled cheap labour than in a more deregulated labour market. In short, this type of institutional arrangement tends to create a “race to the top” in skills and social protection, and there are therefore fewer low-skilled, cheap jobs that are typically left to immigrants. In Sweden, however, employers have sought to break this by using posted workers formally employed in other countries. This is pretty much what the much debated Laval case was about. Hence, if you reduce welfare and deregulate labour markets, you actually make it more profitable to employ migrants rather than natives, assuming that migrants are really willing to accept lower wages. More welfare, fewer migrants.

The second mechanism whereby welfare retrenchment may increase immigration is through the replacement of subsidised public social services by cheap private services that only migrants are willing to provide. In many ways, if the state cannot provide subsidized public services at a low cost, individuals will seek to buy them privately at a low cost as well, which often means from migrant workers on low wages. In  countries where the state was unable to cover needs for care for the elderly, such as in Italy, this task is already assumed to a large extent by migrant, mostly female, workers employed on an informal basis. In Britain, funding for social care has been cut by about 20% between 2010 and 2013. Since most of the care is not provided directly by the state but by private or non-profit providers that the state pays, this concretely means greater pressure on these providers on deliver the same level of service but for less money. The only way to do it is to reduce wages. In November, it was revealed that almost half of the firms delivering elderly care have been paying their workers below the minimum wage, and infamous zero-hour contracts are widespread. Unsurprisingly, this sector relies heavily on migrant workers. Research pointed out that half of the workforce in the care  sector in the London area was constituted by migrants. As working conditions in these sectors deteriorate as a result of spending cuts, they are bound to increasingly rely on migrant workers because they are the only ones willing to accept them. This is why the government’s policy stance about welfare and immigration is simply startling: like an arsonist calling the fire brigade, they are blaming a phenomenon that they are causing in the first place.

A Modest Proposal to Improve Cycle Safety in London

Cycle safety in London has become an issue of growing concern. After five cyclists died on the road in only nine days, the Mayor Boris Johnson has had to appear a number of times on telly to justify his cycle policy. The top cornflake’s superhighways have notably been criticised for leading cyclist into dangerous roundabouts. Barclays has recently pulled out of the Boris bikes scheme, officially for unrelated reasons.

Boris has argued that these deaths were essentially due to the erratic behaviour of some cyclists, notably at red lights. This is a strange thing to say for somebody who is a cyclist himself. I do often cycle to work and I do not think that the behaviour of cyclists is the main problem. I have regularly cycled to work in  Switzerland, the Netherlands, Italy and Germany, and I am actually surprised by the high proportion of cyclist over here who do respect red lights and signalisation. People even stop at pedestrian crossings with no pedestrians around. Official figures tend to confirm this: “in accidents were a cyclist was killed or badly hurt, the cyclist was presumed to have committed an offence in just 6% of cases. The vehicle driver was assumed to have done so 56% of the time while 39% of the time it wasn’t clear” (quoted from here). Cycling in London is great, but it is indeed more dangerous than in other places where I’ve lived; Amsterdam and Cologne are really different cases as there are separate cycle lanes pretty much everywhere. The problem, then, is drivers, not cyclists.

The problem in London is that bikes compete for the road with a restricted subset of drivers: professional drivers. Because of the congestion charge, it is completely unaffordable to drive to work with your private car unless you are an oligarch, and the only vehicles to be seen in central London are driven by people who make a living out of it: cabs, lorries, trucks, buses and minicabs. This can have two potential effects on cycle safety. First, since there are fewer private cars, the remaining vehicles can drive faster and more erratically. The total number of vehicles has decreased after the introduction of the charge, the number of cabs has increased, and average driving speeds have tended to increase, even if they have declined later on. This argument doesn’t hold all the time, however, as traffic jams are fairly common. Second, and more importantly, professional drivers tend to be overconfident. Cabs systematically stop on the space reserved for bikes at red lights, and  honk their horn right at you if you take a second too long to move off. If you make a living out of driving, time is money, which leads to more erratic driving. They would perhaps be more modest and less arrogant if they were swamped in a flow of private cars like in Madrid, Paris or Rome. In London, the congestion charge has given them too much power: they basically own the road, and behave accordingly.

At a more practical level, a major source of risk is simply trucks and lorries turning left (Figure 1). This is a especially problematic issue for me as a Continental European because, seen from the back, I still expect drivers to sit on the left of their car and see me if I’m on the left of the road. However, they don’t because they sit on the right and I may be in the dead angle. If they turn left, I can be quickly in trouble. There is a fairly simple solution to this, however: forbidding trucks to turn left (Figure 2). This would involve a few more manoeuvres on their part, but they would be able to see cyclists at all stages. This could be implemented through appropriate signalisation, or more realistically, by some simple but compulsory technical modifications to lorries, cabs and trucks so that they can only turn right. Since the omnipotence of professional drivers is surely a major cause of cycle casualties, such small restrictions on their freedom couldn’t possibly hurt.

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Figure 1: Dangerous left turn
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Figure 2: Series of safe right-turns

 

How Margaret Thatcher Made Britain a Soviet State

When I moved to the United Kingdom a year and a half ago, I thought that I was moving to a free market experiment. Margaret Thatcher and her followers – from Blair to Cameron – had crushed the unions, liberalized labour and financial markets, privatized public services, reformed the state following business principles and reduced its interference in the economy. They had freed us from the threat of socialism, its bloated Kafkaesque bureaucracies and its mountains of red tape. I was aware of the massive social inequalities which had emerged as a result, but this was perhaps the price to pay for more freedom and a smaller state, for everything being faster, more fluid, agile and efficient.

The Kafka Bank

I kept this illusion for about three days after moving here, until I tried to open a British bank account. I chose a bank because of its declared “ethical” and responsible approach – it turned out that it was in fact severely mismanaged and its chairman was an avid user of Crystal meth and male prostitutes, but this is irrelevant here. To open a bank account, you need to prove that you live at a particular address. However, there is no government authority where you can go to register and prove that you live somewhere. Because of its concern for the freedom of individuals, Britain also doesn’t have ID cards. A plan to introduce them was axed by the current government in 2010. You have to pay council tax where you live, but it can be in the name of your flatmates or your landlord. The bank in question would not accept a private tenancy agreement as a proof of address, because the private tenancy market is a dodgy business full of rapacious landlords and greedy estate agents. What they accept to prove your address are letters from a bank, but this implies that you already have a bank. The only option for me to prove my address were utility bills, for which of course I needed to wait until the end of the month. As I didn’t have a British bank account and my employer wouldn’t pay my salary on a foreign bank account, I received my first salary in the form of a cheque that I could not cash (or only at these dodgy pawnbroker shops where they charge you a 15% fee).

After a month, I received my energy bill, or more precisely an internet link to an online energy bill. Energy companies strongly encourage or force you to opt for e-billing and direct debit, and they are unwilling to send you actual paper bills, in order to save costs. The friendly Scottish person from the call centre made it clear that it was much better for trees and my wallet to go paperless. I brought the prints to the bank. They didn’t accept them as a valid proof of address because they hadn’t been sent to my physical address. I also tried with a TV license, which I had also bought paperless after I had arrived. I called the TV licensing authority asking them to send me an actual paper license. After a number of requests, what they sent me was a certificate certifying that my TV license existed online. The bank said no again because it wasn’t the actual TV license. Eventually, I managed to have utility bills sent to my address (energy companies charge you a fee for that). Once again, the bank refused because the street number on the bill was “22C”, while the address that had been entered in their “processing facility” was “22”. The lady at the bank said that the computer system in their division in charge of regulatory compliance with money laundering regulations probably wouldn’t accept it if it wasn’t exactly identical. Since the financial crisis, banks had become very careful. If I wanted the “22” to be changed into “22C”, I needed to reapply.

I gave up and went to another bank that had an agreement with my university. Supposedly, you could open a bank account with them easily online. Again because of money laundering regulations, you have to indicate where you’ve lived for the last three years. For some reason, it wasn’t possible to enter a foreign postcode, so online didn’t work. I had an employee sent to my office, who didn’t know either why foreign postcodes couldn’t be introduced online. “It’s out of the ordinary” he said. Of course, nobody that has lived abroad ever moves to London, except perhaps for a few millions a year. In total, it took 7 weeks to open a bank account, right on time to receive my second salary. I am told that it would be tricky to get a British credit card because I have no “credit history” in Britain, so I didn’t even try.

Before moving to the UK, I lived for a year in Germany, the country of rules everywhere and rigid old-style bureaucracies. To open my German account, I took my tenancy agreement to the local authority (Bezirksamt), they stamped a certificate that I brought to the bank, and my account was open within a few days. Now I assume that one of the reasons why British banks are so absurdly picky, it’s because you can apparently do a lot more with a British bank account than with a German bank account: fee-free overdraft, special conditions for loans, etc. Actually, you have access to a lot of things that can go wrong, and with which you can get yourself and the bank in trouble if you default. In Germany, as everybody knows, you are not supposed to spend more than what you have, so you simply can’t go in the red. For British banks willing to take advantage of deregulated financial markets, having customers is almost a liability, which is why they need a lot more guarantees to make sure that they are reliable. However, banks cannot obtain these guarantees from the state because the state doesn’t want to interfere in your freedom, and they don’t want them from other private companies because they know that they are as greedy and untrustworthy as they are themselves, notably because they have all engaged in never-ending chains of subcontracting which dilute responsibility. The only way they found to get this insurance is by requiring endless piles of paperwork from you. More economic freedom, more paperwork, more soul-sucking bureaucracy.

Freer Markets, More Rules

Think of the following analogy: one day, you decide to no longer accompany your small son or daughter to school to leave them more freedom. However, to make sure that they won’t talk to strangers (which they might do) you make them fill in a 50-page questionnaire every day asking them if they understand all the different kinds of risks they may be exposed to, you call them every 30 seconds to check that they’re alright, you hire a private eye to check on them along the way, and another to monitor the first private eye. My understanding is that the British political economy works a bit along these lines. Governments have privatized, liberalized and outsourced, but every time they’ve done so, they’ve had to set up giant bureaucracies to monitor, control and repair the blunders of the market, and so do private companies to enforce and take advantage of competition. When you have freer markets, you need more rules. Britain and the United States have the most liberal labour and financial markets in advanced countries. Since there is so much freedom, why is there one CCTV for every eleven people living in Britain, and the United States have the largest rates of incarceration in the world? Since the UK doesn’t have ID cards and nobody is required to carry a document of identification to preserve individual freedom, it is actually easier for the police to take you to the policy station to identify who you are. While you seek to free market and individuals, you eventually end up establishing systems of control that are even more intrusive and alienating.

The problem is that when you don’t set up bureaucracies to monitor and control private markets, things usually go wrong, and the state has to step in to repair the damages with new bureaucracies, new commissions of enquiry and new regulatory authorities. Recently, Britain has privatized its probation services, or the monitoring of offenders on parole. It turned out that the company in charge of this had massively overcharged for this service, leading its chairman to step down. Now, you need more bureaucrats to check that the private service providers actually do their job, and more judges to sue them when they commit abuses, sometime dramatic ones. Security services are outsourced, but the army and police had to step in when G4S totally mismanaged the security of the 2012 London Olympics. Railways were privatized, but the company which managed the British Railway tracks had to be partly re-nationalised after a major crash. The British minimum wage is low not to outprice low-skilled workers, but the Treasury pays 3.2 billion a year in tax credits for low wages. It seems to be the same story time and again. The more market you have, the more state and bureaucracy you need after all.

Bureaucratization in British Universities

British universities are a particularly dramatic example of market-induced bureaucratisation. Since I have arrived, I discover the existence of a new rule, a new subcommittee or a new fancy job title (usually with word “strategic” in it) more or less everyday. If I go to a conference, I should fill in a risk assessment form listing 68 types of risks that I may face abroad, including whether I could be bitten by venomous snakes. I should also indicate the address of the closest hospital to the conference venue. The interesting thing about a large part of this bureaucracy is that it seems to have been created to respond to the needs of competition, while competition was supposed to make everything more efficient. Universities are in competition in the domain of teaching to attract students – and therefore income from fees – and in the domain of research, as government money is attributed on the basis of their research performance. As to teaching, as universities are desperate to attract as many students as they can, they have invested massively in marketing, recruitment and advertising services. In the US, for-profit universities are already spending more on marketing than in teaching (20% vs 17%, a report showed). Estimates for the UK are about 4 to 5% in marketing, but most experts predict a massive increase in future years. The consequence, in a context where resources do not increase because the total number of students is capped, is less money for what students actually want, teaching, and more to hire administrators and consultants in-house or – more often – hire private marketing firms. In short, the cost of selling the product to customers has gone up, and there is less money to actually produce it; then you need to rely on low pay to produce it with casual labour.

As for research, the major instrument to allocate funding is the Research Excellence Framework, whose goal is to rank and assess the research output of universities. My understanding of the achievements of the REF is that it has primarily created a giant time-consuming bureaucratic machine. Here’s how it works: departments are asked to select the “best” research outputs of their staff, and for that they set up reading committees who read all the publications to rank them. These rankings are then transmitted to higher levels within the university where the ranking is assessed, and decides whether it is reliable (Universities want to predict their REF score, perhaps for future budgeting). If it is not considered reliable, it is sent to external experts who can re-rank and re-assess the publications. At my university, heads of department have had to attend workshops to explain them how to tell their staff if they had been submitted for the ref or not. So what you have is thousands of people spending thousands of hours ranking and marking their colleagues’ work instead of doing more and better research, which was the first goal of the REF. And I don’t even mention the requirement of writing “impact case studies”: University College London advertised three “editorial consultant”  positions to write them. Salaries were roughly equivalent to those of a lecturer.

In all these examples, the logic is similar. You try to enforce economic freedom, competition and free markets, but you end up creating exactly what you oppose because, as Polanyi argued, self-regulating markets simply cannot exist. Margaret Thatcher is often credited for the downfall of Communism, but she may have paved the way for a system that displays disturbing similarities.

Why do people think that hitting the poor is the best way to cut the deficit?

Daily mail Frontpage (The Media Blog)

Last week, Ipsos Mori and King’s College London released the results of a survey showing that Britons are (almost) wrong about everything, and especially welfare. They think that for every 100£ spent on welfare, 24 are spent on fraudulent claims, whereas the actual figure looks more like 70p. They think that a 26’000£ cap on benefits would be the most effective measure to reduce the welfare bill. It would only save 290m £, whereas stopping child benefit for families with high incomes (50’000 and above) would save £1.7bn (6 times more), and raising the pension age to 66 would save £5bn (17 times more). Almost 30% of people think that more money is spent on Jobseeker’s Allowance than in pensions, where 15 times more money is spent on pensions (£4.9bn vs £74.2bn).

Why are people so wrong about welfare? You can think of a number of reasons: data illiteracy, political spin and the tabloid press. While the first is quite self-explanatory (people have trouble dealing with very big and very small numbers), the latter points raise interesting questions about the political economy of welfare reforms, and the role of the press. What is particularly interesting is that people think that hitting the poor (through a welfare cap) is more effective to reduce the deficit than distributing savings across the whole population (through an increase in the retirement age).

Politicians want us to believe that they are there to solve problems, but sometimes solving problems involves huge electoral costs. Even if increasing the retirement age would save much more money than capping benefits for low incomes, it is not exactly the measure that will win the next elections: everybody will be affected, and everybody will be against it. Hence, it may seem rational for politicians to target benefit cuts at small or marginal social groups which represent a lower electoral cost instead. If you want to save money without alienating your voters, you are much better off hitting hard a small group who doesn’t vote anyway (like jobseekers) rather than moderately cutting benefits for a large group of people who vote (like pensioners). In a country where the middle class pays for welfare but doesn’t directly benefit from it because of the high level of means testing, you are even quite likely to gain credit for finally “making work pay” even if actual savings are rather marginal. Hence, as IDS is rolling out its benefit cap, the Sun says that 74% of Britons agree with it.

Since people usually believe what politicians say, and politicians say what they think people believe, this creates a mutually reinforcing perception that hitting the poor is the best way to cut the deficit. On top of this, there are psychological effects whereby perceptions of “deservingness” mediate perceptions of costs. There has been some research showing that there are fairly consistent perceptions of deservingness of welfare recipients across citizens of European countries. Elderly people are universally seen as the most deserving, followed by sick and disabled people. Unemployed people, by contrast, are seen as the least deserving. People may think that cutting benefits for “deserving” retired recipients (which will include themselves at some point) saves less money than cutting benefits for “undeserving recipients”. Normative perceptions determine cognitive perceptions.

Finally, there is the role of the press. There is an article in the last issue of the Journal of European Social Policy about the depiction of welfare recipients in the press in the UK, Denmark and Sweden. It shows that the British press is much more negative about welfare recipients than its counterparts in Continental Europe. It is more likely to report abuse, fraud and antisocial behaviour. It also frequently depicts “single mothers abusing the welfare system” or who “have made a living out of producing children to be supported by the welfare state” (the Philpott case was probably the most prominent recently). Interestingly, survey respondents often consider this kind of behaviour in their estimation of the size of benefit fraud, while it is not illegal.

This more negative view of welfare is probably influenced by the general political context, but also by the internal logic of the media field, which favours anecdotes, vivid stories and personalisation rather than abstract concepts and complex causes. A man with two wives and 11 children is more spectacular than falling consumer demand. But it may also have something to do with the social background of journalists and media bosses themselves, specifically in the right-wing press. What is striking about newspapers like the Sun or the Daily Mail is the abysmal gap between their target readership (the older, hard-working “squeezed” middle class that feels threatened by immigration and socio-economic change) and the living standards of its bosses. The Guardian reports that Paul Dacre, the editor of the Daily Mail, which has made its speciality of reports on “welfare abuse”, earned 1.8m £ last year, including 26’000 (the same amount as the welfare cap) in fuel allowances and other corporate social benefits (medical plans). He has a 14.8m pension pot, and got an inflation-busting 5% pay increase last year. Obviously, somebody with that kind of living standard has a very accurate idea of life on welfare.

How Strong Are British Trade Unions, Really?

In Wednesday’s Prime Minister’s Questions, David Cameron presented Unite’s Leader Len McCluskey as the real master of the Labour party. Len McCluskey is the alien creature about to take over the country with his horde of commies, the new Goldstein. But how powerful are British unions, really?

One can think of two ways to measure union strength: their representation within the workforce (union density), and their participation in public policymaking (how routinely they are involved in day-to-day decision-making). Jelle Visser’s database at the university of Amsterdam has data on these two things since 1960.

British union are weak compared to similar countries. Union density is higher than in France and Germany but way below Sweden.However, the real weakness of British unions is the lack of any significant institutional involvement in decision-making processes. This influence has been totally curtailed since Margaret Thatcher and hasn’t been restored under New labour: the lack of a bar does not represent missing data but a zero as decade average. When it comes to what we call concertation, (or the institutionalised participation of unions in policymaking), union influence in the UK is much weaker than anywhere else in Europe.

Now, this may be explained in part by the strong ties the trade unions have with the Labour party: when party-union ties are strong, it may be more rational for unions to lobby Labour rather than engage in direct negotiations with the government and/or employers like in other countries (there is a good paper comparing Denmark and Sweden about this here). However, it deprives them from any influence when Labour is not in power. Arguably, if Labour cuts its links with the unions, it may become more important for unions to institutionalize regular channels of influence within government, such as the tripartite bodies one finds in Continental Europe or at EU level. However, the window of opportunity for this seems to be long gone. Shameless plug: I discuss these issues here.

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Union density, 1960-2010. Source: ICTWSS database, University of Amsterdam: http://www.uva-aias.net/208
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Involvement of trade unions in decision-making, decade averages. 2 = full concertation, regular and frequent involvement. 1 = partial concertation, irregular and infrequent involvement. 0 = non concertation, involement is rare or absent. Source: ICTWSS, University of Amsterdam: http://www.uva-aias.net/208.
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