Wednesday, July 6, 2016

Ha-Joon Chang on Wage Determination in First World Nations

Ha-Joon Chang in 23 Things they Don’t Tell you about Capitalism states something few heterodox economists are prepared to discuss:
“Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the ‘free’ labour market, which, if left alone, will end up replacing 80–90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined.”
Chang, Ha-Joon. 2011. 23 Things they Don’t Tell you about Capitalism, Thing 1: There is no such thing as a free market

“… the living standards of the huge majority of people in rich countries critically depend on the existence of the most draconian control over their labour markets – immigration control. Despite this, immigration control is invisible to many and deliberately ignored by others, when they talk about the virtues of the free market.

I have already argued (see Thing 1) that there really is no such thing as a free market, but the example of immigration control reveals the sheer extent of market regulation that we have in supposedly free-market economies but fail to see. While they complain about minimum wage legislation, regulations on working hours, and various ‘artificial’ entry barriers into the labour market imposed by trade unions, few economists even mention immigration control as one of those nasty regulations hampering the workings of the free labour market. Hardly any of them advocates the abolition of immigration control. But, if they are to be consistent, they should also advocate free immigration. The fact that few of them do once again proves my point in Thing 1 that the boundary of the market is politically determined and that free-market economists are as ‘political’ as those who want to regulate markets. …

Countries have the right to decide how many immigrants they accept and in which parts of the labour market. All societies have limited capabilities to absorb immigrants, who often have very different cultural backgrounds, and it would be wrong to demand that a country goes over that limit. Too rapid an inflow of immigrants will not only lead to a sudden increase in competition for jobs but also stretch the physical and social infrastructures, such as housing and healthcare, and create tensions with the resident population. As important, if not as easily quantifiable, is the issue of national identity. It is a myth – a necessary myth, but a myth nonetheless – that nations have immutable national identities that cannot be, and should not be, changed. However, if there are too many immigrants coming in at the same time, the receiving society will have problems creating a new national identity, without which it may find it difficult to maintain social cohesion. This means that the speed and the scale of immigration need to be controlled.”
Chang, Ha-Joon. 2011. 23 Things they Don’t Tell you about Capitalism, Thing 3: Most people in rich countries are paid more than they should be
So why, then, you might ask, has the left been taken over by bizarre people obsessed with the cult of open borders?

Under a logically consistent free market economics, free movement of people is essentially the corollary of free trade. A real free market means abolition of national border control, which is exactly what the extreme anarcho-capitalist and libertarian lunatics want, and what the neoliberal elite who control the EU want inside their union as well (that is, complete internal free movement of people, despite serious differences between Western and Eastern Europe in the standard of living and wages).

Why so many on the left have become so unhinged on this issue is the million dollar question.

Chang, Ha-Joon. 2011. 23 Things they Don’t Tell you about Capitalism. Bloomsbury Press, London.


  1. It is odd. Most of the left institutions in the UK -- from the TUC to the Corbynites -- take a rational approach to this. Sanders did too in the US. It's actually pretty hard to pinpoint exactly what contingent of the left favour this. I think you should actually try to pin this down. It would be an interesting exercise.

    The obvious reference that comes to mind is (you'll love this) the postmodernist book 'Empire' by Michael Hardt and Antonio Negri. That certainly made the looney case that you refer to above. But who else is making this case? Do they have a coherent ideology? What are their arguments? And which demographics are listening to them?

    Serious questions. You'd do us a good service trying to answer them.

    1. I don't think it is too complex:

      (1) the beginnings of mass immigration as a policy seems to have begun in the late 1960s and 1970s (admittedly at much lower levels) in response to real or perceived labour shortages (almost a curse and unintended consequence of full employment). It may well have had real economic justification back then. But that real justification has long since ceased.

      (2) big business and capital have always had a preference for mass immigration. This can be seen even in 19th century Canada, America or Australia, though admittedly not so much in Europe.

      As the Conservative and Labour or left-wing parties were taken over by neoliberalism, it is obvious they have caved in to the business love of mass immigration.

      (3) with the replacement of the Old Left with the (a) 1960s New Left Marxists and (b) Postmodernist left, being pro-mass immigration is seen as being progressive and part of social and cultural leftist program, particularly since the Old Right provided an easy target against which the Left could fight on the issue. Moreover, the far left anarchists and internationalist Marxists have always have a bizarre, utopian vision of a world with open borders.

      (4) modern cultural leftism, so popular with the university-educated young, which is an outgrowth of

      (a) 1960s New Left Marxism,
      (b) Postmodernist leftism, and
      (c) social justice warrior mentality

      is strongly pro-mass immigration because of colonial guilt (there is even a special branch of Postmodernism devoted to it called "Postcolonialism"), Postmodernist multiculturalist obsession with "diversity" as a good in itself, and because of a, more or less, well intentioned concern with refugee rights.
      This has all been reinforced by the collapse of the Old Left's social conservatism and its opposition to mass immigration on longstanding and real economic complains about it. I imagine this is connected to the collapse of trade unions and politically organised working class. The working class has been badly socially atomised and divorced and alienated from politics all over the Western world.

    2. basically as i can see what happened is that the elite of both camps conservatives and postmodernist in the west are well off and are haves and are not haves not.

      so they mostly have a certainly good economic future as well as their kids and they have the ability to live in a good homogenous culturally and econosocially neighbourhoods (while preaching about how diversity is important) in their countries or alternatievely emigrate comfortably to another countries if there is a need (economic social and etc).

      this eilte of high class people (not only the 1 percent but i guess something like the first 7 percent).

      not caring much about the economic issues because they will be better off almost in any case and if not they will make sure the government will bailout them (not only banks but lets say doctors which have strong lobby).

      so in this case its way more trendy to care about social issues ( no matter if from conservative point of view or postmodernist point of view).

      basically as people call the elites in israel they call them the disconnected (from the people of course)

      thats why conservatives are good with working class people because working class people are not dumb (no matter how much the elite want to portray them as such).

      and when working class people understand that economically there is no difference between left wing or right wing so they will go to social issues instead and as far as i understand working class people are more conservative socially and are against immigration both from economic reasons and cultural (not any opposition to immigration on cultural grounds is racist).

      so thats why labour lost them and the funniest thing that the blaritte elite cant even understand why they lost them (indeed this class should be called the disconnected).

      also one more point is that if any party in the uk want really to win all this votes of the working class they should create a party which will outhright reject neoliberal policies and will be moderately social conservative (not to go to extremes as well of course).

  2. The addiction to the free movement provisions in the EU from the likes of Jonathan Portes and others in the Open Borders/'flexible labour market' camp is similarly disturbing.

    That is hardly a 'rational approach'.

    We already know that free movement within a transfer area doesn't work as the text books say. That's why huge areas of the North are laid waste via the "brain drain" to London and why they have recently voted to leave the EU.

    So if free movement doesn't work in a relatively unified transfer area, how can it work at all between them.

    There is no way you can create a social differential between transfer areas unless you control numbers accessing it.

    The argument then is for the other government area to bring their social standards up to yours if they want free movement.

  3. Yep. I have been in arguments with these people.

    "3) FOM allows those unemployed in the Eurozone to find jobs in the UK. Why is it beneficial to prevent them doing that?"

    Well it is not just "the unemployed" but anyone in the EU.

    "Your apparent assumption that mass immigration is a major factor in the “race to the bottom” is incorrect. Other factors have played a much larger role. In my home area of South Wales, it is the loss of well-paid secure industrial jobs that has driven down living standards – and those jobs were lost in the 80s and 90s, before the rise in net migration.

    Migration may have a significant effect in certain sectors such as building trades or hospitality but that occurs because those sectors are notoriously prone to casualization and poorly organised. With better regulated labour and housing markets, the impact of migration would be much reduced.

    In recent years, austerity has had a much bigger impact than net migration, which has never exceeded about 0.5% per annum of the population and includes a high number of students. Migration is simply not large enough to have the effects which you attribute to it."

    1. Note the lack of proof or even evidence offered for statements. Typical Simon Wren-Lewis fakery. He should try this which shows an enormous impact on the lower paid:

      "UK research suggests that immigration has a small impact on average wages of existing workers but more significant effects along the wage distribution: low-wage workers lose while medium and high-paid workers gain."

      Pseudo-leftist Wren-Lewis will not pay attention of course. Because he's really a Third Way Labourite masking as a radical. Corbyn should get rid of him ASAP.

    2. what can you expect from mainstream economist?

      sadly even some post keynesian economists are like him for example matias vernango gave me a research thats shows that immigrants dont affect average income.

      but in the same research its said that its affecting the income of low skilled and semi skilled workers (whcih been my argumenet against open borders) so basically when you present an arguement that its hurting the weakest people in the society they are dismissing it.

    3. It's incredible because the main bugbear for these people is extremes in income distribution skews. The evidence is clear that immigration is playing a large part in this.

      Why ignore this? What are the motivations?

      I'm serious that we should start to try to get these people to articulate their positions clearly.

    4. Illusionist,

      Is it likely that soaring demand for housing from open borders with the EU is at least one major cause of the housing bubble in, say, places like London?

      Is this just as much a factor as, say, feverish speculative activity from domestic and foreign buyers?

    5. It's not immigration. It is foreign buyers. The property is bought as a speculative investment by foreigners who usually do not occupy the property or rent it out. I suspect that these people are taking out loans in Malaysian and Hong Kong banks to fund the purchases.

      London is a heavily overcrowded city. But this is not really due to immigration either. It is because of a reversal of the regional development policies that were favoured until Thatcher came along.

      I've never seen immigration drive an overpopulation problem. I think immigration waves are too small for that (even the largest waves in the US in the early-20th century didn't cause these problems). The main issues are with wages at the lower-tier of the labour market, with culture and with brain-drain in the countries where the immigrants are moving from.

    6. Thanks for this analysis.

      "London is a heavily overcrowded city."

      I'm having trouble seeing how "overcrowded" isn't just another name for overpopulated, though.

    7. The general consensus is that London population growth is driven by a move away from regional development policy. You can see this effect here:

      But if you do look at the statistics you do see that the population boom is correlated with a large increase in net migration.

      In order for this to have purely driven the increase in population we would have to assume that all the net migration since around 1992 went into London.

      If we assume that half of it did then its probably 50/50 internal/external migration.

      My problem is that the driver is still the lack of regional development. If there were regional development then migrants would choose not to go to London but would go elsewhere.

      This ties into the other aspect of migration: the low birth rates in Europe and much of the West. I think these are the other side of the coin. I have no doubt as to the negative impacts of migration. But if we need warm bodies we might not have much of a choice.

      I know you'll say that the government can legislate higher birth rates. I simply do not believe that is viable. I have never seen a positive natal policy work. Never. And I see no reasonable case why it would. People simply do not take tax breaks or better childcare into account when they are deciding when to have kids and how many to have.

      The fact of the matter is that these decisions are driven by cultural norms. For example, the tendency toward unstable temporary relationships -- including the increase in divorce and 'alternative' sexual styles which seem to have become extremely fashionable (I can't use a different term, as this does seem to have moved from a 'rights' issue to a simple fashion in the past 5-10 years). The rise in the divorce rate and the denigration of the institution of marriage is also playing a huge role (the heterodox economist Robert Rowthorn has done very interesting work on this that is worth looking into).

      I think a big part of this is also the spreading of what might be called a 'materialist' worldview. The idea that people are just smart monkeys or machines. People are very much so told that they are not all that important -- just another animal, another speck of 'cosmic stardust'. This has particularly impacted the trends in childbirth through the abortion debates where materialist metaphysical positions are taken on the nature of life that are immediately geared toward convincing people to not have children with no end, so far as I can see, but some vague notion that they should self-actualise or some other fashionable nonsense.

      In history any time these materialist ideologies -- which I think are at the heart of moral relativism (this used to be widely appreciated, today it is not) -- gain sway so too does extreme individualism, vulgar acquisitiveness and social decay. That is precisely what we see today. The correlation holds... again.

      So, my prognosis remains the same: the West is trapped. Western culture has run out of steam. Unless there is a major shift others will take over. This has already started and I do not think that we can prevent it.

    8. another interesting analyze of mass immigration can be found in israel in the begining of the 90-s 1 million jews emmigrated from the soviet union to israel (while the population of israel at the time been 4 million people) and israel had to ask huge sums of money from usa in order to be able to accept the immigrants and to build enough apartments and etc and etc.

      also i will explain to you the situation of israeli labour market with a personal example

      my dad is in structural engineering but for 15 years he got a salary which been close to minimum wage for structural engineering job (highly skilled job) in a dynamic highly important construction sector.

    9. The illusionist

      i think that there is policies which can help and helped in some countries to somehow maintain or even boost birth rates.

      1.long parental leave like in sweden (2 years if i am not mistaken)

      2.kindergardens from age 0

      3.kindergardens and schools should work from morning (8 am) until something like the end of the average work day (5 6 pm)

      4.In vitro fertilisation for free for women (its helped to boost birth rates in israel because now women can have children later in life in their 40-s and sometimes 50-s)

    10. TheIllusionist@July 6, 2016 at 7:30 AM

      "This ties into the other aspect of migration: the low birth rates in Europe and much of the West. I think these are the other side of the coin. I have no doubt as to the negative impacts of migration. But if we need warm bodies we might not have much of a choice."

      But what exactly is the absolutely necessary immediate reason why Europe needs mass immigration just because the birth rate has fallen??

      People keep saying this but I never see any immediately remotely convincing justification..

      Is it:

      (1) labour shortages? Geez, give me a break. How can this possibly be? There is mass unemployment in Europe, and mindblowing youth employment + young adults and middle aged people who have become discouraged and could be brought back into the labour force by retraining.

      (2) why is a falling population unmanageable? Industrial policy to encourage labour-saving innovation and aggregate demand policies ought to be able to deal with it, plus raising the retirement age in industries where it isn't cruel, say, where people aren't physically worn out by hard manual labour by 65. E.g., I see academics who are perfectly capable of doing university work when they are 70 and even like doing it.

    11. Presently there are no labour shortages. But these would undoubtedly begin to occur if policy was run correctly and population growth was constrained.

      When population growth really crashes out the economic effects are dire. You see this in Japan in the past 20 years. It becomes almost impossible to reflate the economy. Old people gain full control over the society, young people are infantilised and wages are held way, way down.

      Finally, there is a question here about the species. In vulgar evolutionary terms: a species that does not grow is an evolutionary failure. Likewise, a civilisation that does not grow will be outgrown by others.

      It is already happening. But we cannot see the woods from the trees. We cannot connect the cultural norms that have become dominant in the post-war era with the societal decline that is experienced everywhere in the West. Within 20-30 years we will have similar reproductive rates as Japan. Immigration might plug this gap somewhat. But probably not much.

      It's sad in many ways. But I think it is definitely the logical conclusion of the Enlightenment project, in many ways. You sew what you reap. We sewed the idea that the individual is sovereign over all else and that Man is just a monkey, a speck of dust, that has no responsibilities other than to enjoy himself. Now we reap the results of that.

    12. 1.first of all i will be happy if you will read my comment to you (its the one before lks).

      2.japan is a country with deflationary economy if there is shortage of labour the country should be in inflationary spiral.

      the problem of japan is the lack of aggregate demand not the lack of supply of labour actually.

    13. "You see this in Japan in the past 20 years. It becomes almost impossible to reflate the economy. Old people gain full control over the society, young people are infantilised and wages are held way, way down."

      (1) But real per capita GDP is growing in Japan. The economic crisis from 1992 to at least 2005 was caused by straightforward crushing effects of the collapsing asset bubble, debt deflation, 1997 austerity, dysfunctional banks, and, structurally speaking, overreliance on export-led growth.

      I don't see how Japan should be permanently doomed to low wages for the young and middle aged.

      Also, the population projections suggest that the Japanese population decline will be gradual. By 2060 there will still be 101,000,000 Japanese people.

      With this decline, and when people see population thinning out, I find it highly likely that the conservative social instincts for reproducing will take hold and it will be reversed, quite frankly.

      (2) regarding the cultural changes, hedonism, extreme individualism, vulgar acquisitiveness and social decay, I am not broadly disputing there is truth in what you say.

      The post-1960s cultural left was a disaster. I even like the Old Left on certain cultural and social issues, e.g., marriage, stable nuclear family.

      This is why I do not like Postmodernism, because much of what you are complaining about is embedded in that miserable nonsense, and, even worse, this bizarre pathological self-hatred of the West and our own culture that we see around us today.

      Teach people that objective empirical truth does not exist + cultural relativism and you're already on the path to disaster.

      (3) Finally, I am much more optimistic about the future. Culture is malleable.

      The instinct for group and self-preservation will take hold once the full extent of the demographic issues become clear.

    14. (1) Japan's problems go deeper than the asset bubble. That was just a trigger. Hence why they never recovered and we did after 2008. The channel is wages:

      I spoke with the Vice President of the BoJ. They have now realised this. As a side note, the per capita GDP growth meme is a myth. The figures are very poor post-1991.

      (2) It is not postmodernism. This stuff came out of Enlightenment. Hence why you see these things being commented on an awful lot in the 18th century especially the 'freethinker' movement. Yes, postmodernism has picked up on some of these tropes. But so too has contemporary 'rationalism'. From the utilitarian ethics of John Rawls to the bioethics of Peter Singer to the philosophy of Daniel Dennett. These are just as influenced by this stuff as Foucault. You can trace its modern form back to the Medieval period:

      Frankly, LK, you cannot see this because you are part of it. You just hive off the particularly bizarre aspects and classify them as 'postmodernism'. You should be more reflective on that and honestly explore these issues in the history of thought. But I fear I won't convince you.

      Whatever you call it. And whatever source you trace it to, it now exists and that is the most important point. Scapegoats are nice. But they don't tackle problems.

      (3) I only comment based on present trends and past experiences. You have a crystal ball on hand. I can't compete with that.

    15. (1) Well, why can't wages for non tradable services in Japan (which presumably employ much of the population) rise? Why not a return to wage growth in manufacturing in line with productivity growth?

      They have a massive trade surplus. BOP can't be an issue. Inflation would help their economy.

      (2) "This stuff came out of Enlightenment.

      Geez, again, with the Enlightenment thing.

      Enlightenment was diverse, intellectually speaking.

      It's major influential legacy is:

      (1) abolition of absolute monarchy under divine right of kings,
      (2) constitutional government, civil liberties, cultural nationalism
      (3) removal of religion from political sphere when it is destabilising and divisive.
      (4) healthy scepticism about religious books written 1000s of year ago.
      How are these things responsible for modern population decline?

      Maybe you think it was the atheism or something. But atheism was a small fringe of the Enlightenment, and most of the big thinkers were real believers in god, just a Deist god.

      Also, even the philosophes would have been extremely socially conservative by modern standards.

  4. Migration is one of the main factors but not the only one austeitty free trade unrestricted capital flow deregulated financial sector all of them are factors.

    But yet random is still not a good arguement for open border policy specially when as far as i know real wages of people which work in low and semi skilled jobs in uk is stagnating not only in manufacturing building hospitality and trade (which as far as i know hire big percentage of unskilled british labour btw) but also in the entire service sector

  5. Again, LK,

    Is it possible to have a lax immigration policy in conjunction with a modified jobs guarantee program? The program could be modified in the sense that it would only be available for UK citizens. That way, low-skilled migrant labor will not detrimentally compete with citizens because they won't be necessarily working in the same sector (one would be privately hired, the other by the government).

    (Side note: Isn't the effect of low-skilled immigration on wages really small anyway? Not to mention that the impact of medium and high skilled labor on wages is positive.)

    1. But then you're just likely to have a massive underclass of illegal or legal immigrants who require social services, housing, and health care, and who work illegally.

  6. Here is a regressive leftist take on the issue of immigration and the labor market:

    Britain has indeed experienced relatively high levels of immigration for two decades, both from within and without the EU. However, the driving force of this increased migration is not freedom of movement within the EU. After all, this increase began in the 1990s, before the EU’s eastward expansion. Rather, the migration increase is the result of the ongoing casualization of Britain’s labour market.

    From the 1990s, the lower levels of Britain’s economy became increasingly centred upon short-term, non-binding, sub-contracted, peripatetic workforces that could be hired and fired at will and were constantly threatened with replacement by cheaper labor from elsewhere. This transformation of Britain’s labor market, which led to increased demand for rightless migrant workers to exploit, occurred at the same time as free-market globalization generated the conditions for large-scale emigration from many regions of the world, throwing up the migrant populations needed in post-industrial economies like Britain.

    Britain’s liberal elites assumed that the best way to respond to the anti-immigrant mobilization was to absorb a little of its energy. This tactic, dressed up as responding to “legitimate concerns” on immigration, seemed eminently pragmatic but was strategically counter-productive. It tried to make a distinction between a rational anti-immigrant sentiment and an irrational racism, the former to be absorbed into the mainstream, the latter to be marginalized. In fact, no such distinction existed and acting as if it did had the effect of further legitimizing racism in the political mainstream. To believe the anti-immigrant mobilization, aided by the power of the right-wing press and politicians, could be mollified with sprinklings of liberal “reassurance” was wishful thinking. Instead, its appetite grew stronger the more it was fed.

    In fact, the culprits were not Muslim or eastern European immigrants and their alleged enablers in Brussels. The real responsibility lay with Britain’s ruling political and economic class, who had imposed thirty years of Thatcherism and thereby tied English society to the whims of global capitalism. Alas, instead of rebelling against the globalization of capital, Britain rebelled against the globalization of labor, finding in the immigrant a suitable object of displaced resentment. Following the Brexit vote, that resentment released itself through a celebratory racism – with abuse and violence against migrants and anyone not white at levels not seen since the 1990s.

    It is misguided, as the author does in this article, to separate the globalization of capital from the globalization of labor. I think he does it so he is not forced to concede to the Leave camp the point that immigration has actually deleterious effects on wages, public services and the social fabric.

  7. He's right about people ignoring it. Conservatives in America are always complaining about licensing laws, unions and the minimum wage. These may have slight downward pressure on employment and certainly bump up the wages of professionals and union members but are no where near as important as immigration. Reading "The Rise and Fall of American Growth" I was surprised to find one of the reasons wages really started to jump after the turn of the 19th century was the US government putting a halt to the immigrants from Europe.

    In terms of actual advocates for more immigration I think I once read an article on Forbes about how "the free market not protectionism" should determine immigration. Beyond that only ancap Bryan Caplan(one of the few sane ones I might add) has actually advocated transitioning towards open borders. Milton Friedman wanted it, if certain changes to the welfare system could be made so that you would't simply have people coming to America to live of the government and not work. In the grand scheme of his work that was a relatively minor part. A few radical leftists also want open borders and most America libertarians want more openness in terms of entering and leaving the country.