Did you notice Opposition Leader Peter Dutton’s sudden focus on immigration? He’s spent the last six months turning it into a key election issue.
Why?
Because it wins elections…
From New Zealand to Canada, and every developed country and state in between, immigration has suddenly become the deciding vote winner.
Voters elect politicians who promise to cut immigration. They vote out those who are pro-immigration. And they absolutely decimate those who promise to cut immigration but do the opposite.
By May next year, Australia is likely to follow the trend.
Dutton’s credibility backs up his promise of immigration cuts. He unilaterally cut migration processing when he served as migration minister. According to the Sydney Morning Herald, he did this against his cabinet colleagues’ wishes and possibly even contrary to the law.
His policies created an application backlog that delayed my wife’s spouse visa. Not that I minded. The government permits spouse visa applicants to stay in Australia while they wait. Which completely defeats the purpose of Dutton’s crackdown in the first place…
As you’ll discover below, a much more important reason makes it doubtful whether a Prime Minister Dutton would actually cut immigration.
Investors should focus on is why immigration has suddenly become a hot topic in just about every developed country on the planet.
And if we follow the global trend against immigration in Australia, what would it mean for us?
For once, it’s good news. For Australia, anyway…
Did everyone suddenly become racist?
Over the last three years, we’ve seen countless elections favour anti-immigrant political parties. Usually, they featured political characters considered fringe, or worse. In some cases, far worse.
The list of countries experiencing this trend has grown unignorably long. Sweden, Finland, the Netherlands, the UK, Italy, Hungary, Poland, Austria, France and Germany.
In Northern Ireland, the two sides of a religious war that has raged for centuries suddenly marched united against the inflow of migrants!
Listen to the media and the driver of this radical shift seems obvious: people suddenly became racist…
But a deeper mystery exists here. One far more important for investors worried about political risk. Why did the mainstream political parties lose control of the political centre?
And why can’t centrist governments around the world get a grip on immigration?
Cutting immigration is an obvious election winner. And easily achievable. Surely politicians consider high immigration less important than their own career…?
But, apparently, they don’t. Government after government in the developed world promises a crackdown. And then delivers the opposite. Migration takes off. Voters get angry. And voters fire the government.
It’s not until the real right-wing gets into power that they usually stop the migration flows…sometimes.
It’s easy to presume our leaders don’t know or care about what’s going on.
But what if they know something we don’t?
Why are they willing to sacrifice their political careers in pursuit of immigration?
Last week, we finally got the answer. It popped up in a state election in East Germany. Immigration was of course the key issue. But how is what was so illuminating.
An honest pro-immigrant political campaign
In most Western countries, the government at least promises to cut unsustainable levels of immigration. In Germany…not so much.
Instead, the German media and intelligentsia openly ridicule voters for their anti-immigration stance.
The local medium sized and often family-owned businesses of the German Mittelstand even organised a pro-migration ad campaign. Its motto? ‘Made in Germany, made by Vielfalt,’ which means diversity.
To be clear, this is immigration for its own sake — for the sake of diversity.
But that’s not the real reason. This comment in the Financial Times was a bit more direct:
‘[The German Family Business Association president] pointed to the negative demographic trends that were threatening the regional economy, with Thuringia due to lose 385,000 of its 1mn-strong workforce in the next 10 years. “The danger is that one in four jobs can no longer be filled,” she said.’
This seems like odd maths to me. But the point they’re trying to make still stands. Without immigrants, the number of workers in the developed world is set to plunge.
Even in Australia, this has already become a major issue.
But it creates a tug of war between two opposing policy goals…
The pie and the debt
GDP per capita determines our experience of prosperity per person. To illustrate the point, consider a theoretical extreme. If our population falls, but GDP falls less, then our GDP per capita is rising. We become wealthier, per person.
The opposite example is what Australia has been experiencing. Our share of the economic pie that is GDP is shrinking even as GDP overall is growing.
Leith van Onselen of the excellent MacroBusiness blog ran the numbers:
‘So, we have the weakest GDP growth since the early 1990s at the same time as we have had the strongest population growth in around 70 years.’
‘What this basically means is that everyone’s slice of pie, which is what really matters, is shrinking.’
How fast?
‘There were actually five consecutive quarters where Australia’s growth has gone backwards in per capita terms. And that is actually the longest period of per capita economic decline on record since 1973.
‘It wasn’t the largest decline; we had a bigger one in the early 1990s recession. But we haven’t had five consecutive quarters since the start of modern records in 1973.’
This is terrible. In fact, it’s far worse than many comparable countries. It explains why the economy feels miserable despite the lack of a recession.
But it’s only half the equation.
Government debt doesn’t care about GDP per capita. It cares about aggregate GDP — the total tax take, not the tax take per taxpayer.
This is the hidden reason why politicians are refusing to crack down on immigration in so many places around the world. When they try to, their advisors at the Treasury tell them it could trigger a Greek style debt crisis.
In order to keep the national debt affordable, overall GDP must grow. And so they turn to immigration to goose GDP, even at the expense of GDP per capita and social cohesion.
But Australia doesn’t have the same debt problem as other developed economy governments. At least, not to the same extent.
The key lesson is that Australia is one of the few countries in the world that can afford to cut immigration rates to more politically and socially sustainable levels. Presuming our politicians are willing to give up on overall economic growth.
This makes us almost unique. We may be able grow our slice of pie and eat it. Australia can manage its immigration levels to grow wealthier without having to push immigration rates to extreme levels to cover our national debt.
Europe and the US are in a terrible pickle. They can either sacrifice their political and social cohesion by allowing enough immigration to keep their debts affordable. Or they can cut immigration as voters want, and deal with an economy that cannot afford its national debt.
Australia can dodge this decision by prioritising our GDP per capita over our aggregate GDP. That’s why it is the place to be for your assets as well as your home.
What would this mean for financial markets?
The market historian Russell Napier claims that GDP growth and stockmarket performance are notoriously uncorrelated. What really matters is profitability and investor sentiment about the future. Confident investors are willing to pay higher prices for the same stock.
But I’d argue that a more politically stable country is a lot more likely to deliver stockmarket gains. European financial markets in particular are in trouble as political extremes take over their governments. Australia will be the place to be, for your money and home.
For now, though, Australia is stuck with a different type of risk. The prospect of a lingering economic crisis caused by bizarre mismanagement. To find out what it is, click here.
Until next time,
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Nick Hubble,
Editor, Strategic Intelligence Australia
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