Monday, 20 June 2016

Economic Convergence Not Migration is the Major Issue Facing the EU

The EU referendum campaign in Britain has been focused almost entirely upon the question of immigration. The specific focus of the Leave campaign has been about the supposed need to restrict immigration, arguing that if Britain left the EU it could control the amount of immigrants arriving from other EU countries. This of course diverts attention away from the failures of the Conservative Party government and the policies of austerity, onto blaming immigrants. It fails to account for the huge positive economic effect of immigration in Britain and it also does not consider what is driving migration and at how these trends may change.

The major source of EU migration over the past decade has been from the Central and Eastern European countries that joined the EU in 2004 and 2007 (I exclude Croatia here due to the short time it has been a member of the EU). The biggest of these countries is Poland (with a population of around 38 million), with Poles making up the largest number of EU migrants. 

In 2014 it was estimated that around 685,000 Poles lived in the UK, up from 150,00 in 2004. This is a very active section of the population, with almost 90% either in permanent work or education and one that pays much more in taxes than it takes out in benefits. Although the Polish community is now a well established part of British society, the number of immigrants arriving has significantly slowed, growing by just 60,000 between 2010 and 2014. In contrast more than 140,000 Poles have moved to Germany for work during the same period. 

The reasons for the large outflow of Polish workers over the past decade are clear. The CEE countries underwent a huge economic decline after the end of Communism, although this decline was much shallower than in many of the countries of the ex-USSR. These countries' economies were deindustrialised, creating huge pools of poverty, large social inequalities and deep structural unemployment. In Poland prior to joining the EU its economy was in stagnation and unemployment had reached almost 20%. 

This neo-liberal transition to capitalism brought huge benefits to the stronger economies in the west. Western companies began to buy up and monopolise large sections of the CEE economy. They had a new and expanded market for their products in the east and access to a fresh supply of highly skilled and cheap labour. This movement of capital is less evident than the movement of people to many people in countries like Britain, despite the fact that they have hugely benefited from it. 

The CEE countries had already been incorporated into the international division of labour as semi peripheral economies prior to EU entry. It was therefore inevitable that there would be a period of mass migration westwards. During the initial stage following EU entry only Ireland, Sweden and the UK opened up their labour markets to the new countries from CEE (there was a 7 year period before all countries were compelled to do so). It is to the great merit of the then Labour Party government that it immediately opened up its labour market to CEE workers. However, this was done in an extremely disingenuous manner. The official estimates of the government  prior to EU enlargement were that just 13,000 Poles would come to Britain. By not openly recognising the reality of the situation, the government not only failed to prepare the British population for this social and demographic change, but more importantly did not carry out the  necessary investment (in public services and housing) that was needed to facilitate the flow of people. Rather than fully using this as an opportunity to develop the country,  migrants were seen to be undercutting the wages of British workers; whilst public services, housing, transport, etc countinued to deteriorate. In the wake of the economic recession and years of austerity,  UKiP and the Conservative Party have found a receptive audience for their xenophobic and reactionary ideas. 

The scaremongering tactics of the Leave campaign is based upon the idea that Britain will continue to be 'flooded' by hoards of migrants from CEE. However, as shown above, the flow of immigrants from countries like Poland has significantly slowed, a trend which is likely to continue. Although the countries of CEE are still poorer than those in the west, since joining the EU these countries have drawn closer to the living standards in Western Europe. The graph below shows GDP per capita in the CEE countries (100 = the average of the whole EU). As we can see, in almost all of the CEE countries (excluding Slovenia) GDP per capita has grown closer to the EU average over the past decade or so. This has been particularly marked in countries such as the Czech Republic, Poland, Slovakia, Bulgaria and Romania. In some CEE states (particularly the Baltic countries) this  stalled following the outbreak of the economic crisis in 2008, but the trend towards convergence has once again continued. 

The reasons for this convergence are two-fold. Firstly, has been the inflow of EU funds to these poorer countries, which for the first time since the transition from Communism represented some sort of redistribution of capital eastwards. During the transition private capital tended to be tied to privatisations and/or the buying up and monopolisation of large parts of these countries' economies. Although the EU funds are insufficient in size and not concentrated on developing these countries' productive sectors, they have at least developed parts of their infrastructure and helped to boost economic growth. This allowed many of these countries to avoid the economic catastrophe suffered by  many countries in Southern Europe following the financial crisis. Secondly, the ability to move and work in other EU countries eased unemployment and allowed people to work and earn abroad. Many of these workers have returned to their home countries with savings and new skills. 

The CEE countries are still blighted with huge social and economic problems and are considerably poorer than the countries to their west. They face their own rise in nationalism and political authoritarianism, which will  be boosted by Britain leaving the EU.  Whatever happens on June 23 Britain will still belong to Europe and be tied to the European economy. If divisions between the richer and poorer countries start to diverge again then new waves of migration will open up (whether these be legal or illegal). The issue is not whether people are free to move within Europe or not. This is a right that benefits everyone in the EU, not least the more than 2 million Brits that live in other EU countries. Rather, the real problems are the large economic inequalities between EU countries and regions and whether Europe can further integrate and converge.