Economics and politics - comment and analysis

Corbyn wins Labour Party leadership contest. Gaining members, losing voters. Labour has to move to the left.

Last Saturday, Jeremy Corbyn won the challenge for the leadership of the Labour Party with 61.8% of the votes. Since the Labour Party is the biggest political party in Europe, it is extremely important to see what its plans are.


Picture 1: Jeremy Corbyn after the result had been pronounced (Source: The Independent).

As Mark Steel writes, there will be a full three minutes of peace (see here). Calls for the party to finally unite have been made. Corbyn proposed to clean the slate and extended his hand to his opponents. It will be in vain. The Labour Party is as deeply divided as ever. The Blairites won’t stop and someone has to write up a thesis about the coverage by the media of Corbyn’s victory this weekend (see here). There is another very serious problem. The Labour Party is well on its way to make an enormous political mistake. I am for a Left wing Labour party. This is why I support Corbyn. The great danger is now that the party is going down the path of right wing nationalist and escapist populism. This has to be prevented at all cost.

‘Axe freedom of movement’ and the issue of ‘perception’

“We should be prepared to sacrifice single market membership in order to axe freedom of movement” said Chuka Umunna, a Labour MP, former Shadow business secretary and, ironically, the former chair of Vote Leave Watch (see here and here). Umunna wants to prevent EU citizens travelling to Britain looking for work. The focus is on banning highly skilled workers from less affluent EU members taking up low-skilled jobs. Umunna said the last Labour government had been wrong not to impose work restrictions on Poland and seven other eastern European countries when they joined the EU in 2004. “The founders of the EU had in mind free movement of workers, not free movement of job seekers” (see here).

Umunna’s proposals go well further than those proposed by Cameron some time back, who called for restrictions on EU benefit claimants. Cameron said the government should clamp down on ‘benefit tourism.’ Clegg from the Liberal Democrats agreed with the Conservative Kenneth Clarke when he said that “people should be able to move in the EU for work; they should not be moving in the EU in order to take advantage of benefit systems” (see here).

The position of Labour with regards to the Brexit is inconsistent and unrealistic. The party campaigned for Remain, now Corbyn opposes a parliamentary debate on invoking Article 50 and he wants to exit as soon as possible (see here and here). Labour wants the advantages of the single market and restrictions on immigration. Even the Swiss or Norwegian arrangements with the EU do not work on this basis (see here and here). The Conservatives are laughing their way to the elections. The strategy is crystal clear. Given more time, the electoral base of the Brexit will erode. According to plan, the Tories will negotiate with the vindictive Europeans and heroically fail. Some secretaries will be axed. Labour will promote policies the majority of the population no longer has any appetite for. It will all end up in electoral disaster (see here).



Picture 2: Title page of House of Lords Select Committee on the Constitution. Why does Labour oppose a parliamentary debate about invoking Article 50? (Source: YouGov). 

Influential MPs such as Jonathan Reynolds, Rachel Reeves, Stephen Kinnock and Emma Reynolds all agree that migration has to be curtailed. Jonathan Reynolds argued that “people’s genuine emotional concerns about uncontrolled immigration cannot be dealt with just by pointing to reports and statistics which talk up the economic benefit of freedom of movement” (see here).

This is the pernicious ideology of ‘perceptions.’ People are tired of facts and who are we to contradict their emotions? The following quote explains it in detail:

“Anyone who spent a lot of time talking to people in the EU referendum, particularly in a constituency like mine, cannot fail to appreciate how strongly people feel about freedom of movement and why, whatever the economic advantages and disadvantages of leaving the Single Market, they are frankly not willing to even engage in that conversation unless there is a recognition of their concerns. (…) (T)hat’s not always about personal impact on wages or personal impact on their community it is about a concern about what is, frankly, a record level of immigration to the UK and concerns about our ability as a nation to absorb that scale of immigration” (see here and here).

This is UKIP language (see here). Whatever the problem is – some are supposedly not white enough or not protestant or they do not have enough tattoos or else their English is too bad or, perhaps, too good, this quote is impossible to interpret in any other way than a capitulation to exclusionary and nationalist mythology. It therefore needs to be fought nail to tooth. Populism is being confused with democracy. It is also highly self-serving. If Labour, or at least the center and the right wing of that party, accept these ‘perceptions,’ it doesn’t need to fight for social justice or even act as if it does. It doesn’t need to fight racism. Let’s, as good democrats, give the people what they want. As if the people’s ‘perceptions’ fell out of the sky and as if they themselves are not at least in part responsible for it. Because what did New Labour do for those at the bottom of the income distribution for the last twenty five years? Where does their powerless and, hence, frustration and aggression originate from? If this aggression is subsequently being canalised by the media towards the archetypal scapegoats, who is Labour to say that they are wrong? Have we gone mad? Big business has been mercilessly exploiting and abusing immigrant labour at locals’ expense and has been pitting one community against another for many years – that comes of it when there are no effective social rules left, when there is no real minimum wage, no control of social dumping. Why does Labour – leftist Labour – not stand up against that?


Figure 1: Percentage of the population across Europe in favour of ‘the right for EU citizens to live in every Member State. It may be time in the UK to work on ‘perceptions.’ (Source: The Financial Times).  

Haldane, chief economist at the Bank of England, tells that, when he visited a community centre in Nottingham

“I was stopped in my tracks by a forest of furrowed brows and a phalanx of probing questions, not all of them gentle. “What exactly do you mean by recovery?” one asked. “My charity is dealing with 50% more homeless people than three years ago.” Every other charity in the room had similar stories to tell. Whether it was food banks, mental health problems or drug addiction, all of the numbers were up. The language of “recovery” simply did not fit their facts” (see here).

In the UK’s very weak economic recovery since 2009, it is the rich, those in the south and those who are older than have ‘recovered’. The rest have not at all.  Haldane commented:

“At least as measured by GDP, the economy and society as a whole is 5% better off. But is it? The income of the already-rich has risen by just over 10%, while the income of the already extreme poor has fallen by 50%. Does the former really swamp the latter when it comes to the well-being of society?” (see here).

Haldane found that in only two regions – London and the South-East – is GDP per head in 2015 estimated to be above its pre-crisis peak. In other UK regions, GDP per head still lies below its pre-crisis peak, in some cases strikingly so. For example, in Northern Ireland GDP per head remains 11% below its peak, in Yorkshire and Humberside 6% below and in Wales 2% below (see here).

As Michael Roberts writes, since the end of the Great Recession, the largest gains in income have come in regions where income was already high – London (incomes more than 30% above the UK average) and the South-East (14% higher). Contrarily, some of the larger losses have been in regions where income was already-low – Northern Ireland (18% lower than the UK average) and Yorkshire and Humberside (14% lower). So, who recovered? To a very significant extent, only the asset-rich ‘recovered.’ The rest did not (see here). That is the social reality behind the ‘perceptions’ of the powerless who take it out on the immigrants. These people’s ‘perceptions’ do not need to be facilitated. Instead, their social conditions need to improve. That should be Labour’s proper role.

Let’s talk about some facts and then about what should be done about these ‘perceptions.’


The economic impacts of immigration

Most studies on the economic impacts of immigration suggest that migration on average benefits the native population. With very few exceptions, there is no statistical support for the view that immigration has an adverse effect on native-born workers. Overall, immigration has not had much effect on native wage inequality, but low-skill immigration has been linked to greater income equality in the native population. Research also suggests that cultural diversity has a net positive effect on the productivity of natives. The net fiscal impact of migrants varies across studies, but the most credible analyses typically find small and positive fiscal effects on average (see here). This is not the case in the UK: £ 20 billion paid in taxes by immigrants is not anywhere near small. It is 20 billion times more than what for example Amazon, Google, Apple or Vodafone, all taken together, pay.


Studies of refugees’ impact on native welfare are scant, but the existing literature shows mixed results (negative, positive and no significant effects on native welfare). Painting a negative picture is therefore fundamentally dishonest. It is especially dishonest in the case of the UK, which is the country in Europe which takes up the least refugees, although it is bombing Syria (see here).

Undocumented immigrants

Research on the economic effects of undocumented immigrants is even more scant, but studies suggest that the effects are positive for the native population. A 2015 American study argued that

“increasing deportation rates and tightening border control weakens low-skilled labour markets, increasing unemployment of native low-skilled workers. Legalisation, instead, decreases the unemployment rate of low-skilled natives and increases income per native” (see here).

Since we are now ready to evolve in such situations, this may be relevant – only as a fact, of course.

Benefit tourism

Claims of benefit tourism by EU citizens have been described as unfounded and misleading by research organisations (see here). A major study by the Centre for Research and Migration at University College London demonstrated that EU migrants to Britain from the new member countries were better educated, more likely to be in employment and much less likely to be claiming benefits than UK-born nationals. Scare stories of benefits tourism propagated by some media in the UK have been described as ‘baseless’ by the Migrants’ Rights Network (see here).

In 2013 the European Commission ordered an EU wide study on the impact of mobile EU citizens on national social security systems. This study confirmed that the vast majority of EU migrants move to find or take up employment. No evidence was found that the main motivation of EU citizens to migrate was benefit-related. On average immigrants receive less benefits than nationals of the Member State where they are residing (see here).

Another study, conducted in 2014, concentrated on the UK specifically. This study showed that from 2001 to 2011, EU migrants that recently arrived in the UK had paid £20 billion in taxes to the UK treasury, after deduction of the benefits they received in that same period. This includes direct and indirect public transfers, such as benefits, NHS healthcare and education.

Central and Eastern Europe immigrants

Central and Eastern Europe Immigrants from the eight Central and Eastern European countries that joined the European Union in May 2004 are less likely to be claiming welfare benefits and less likely to be living in social housing than people born in the UK (see here). This study deals with the so-called A8 countries – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, Slovenia and Poland. The research report, written by Professor Dustmann and Frattini and Halls from the Centre for Research and Analysis of Migration (CReAM) at the University of London, provides an analysis of the fiscal contribution of A8 immigrants in the four years after accession. It shows that:

  • A8 immigrants who arrived after EU enlargement in 2004, and who have at least one year of residence – and are therefore legally eligible to claim benefits – are about 60% less likely than natives to receive state benefits or tax credits, and to live in social housing.
  • Comparing the net fiscal contribution of A8 immigrants with that of individuals born in the UK, in each fiscal year since enlargement in 2004, A8 immigrants made a positive contribution to public finance.
  • In the latest fiscal year, 2008/09, A8 immigrants paid 37% more in direct or indirect taxes than was spent on public goods and services which they received (see here).

Umunna is wrong. He is just making it up, just because it sounds good. Reding, vice-president of the European commission in charge of justice, was right when she accused British ministers of telling untruths about the number of EU citizens claiming benefits in the UK. But this is now just another mere fact.

The study also shows that on average, A8 workers have a better educational background than UK-born workers, but receive lower wages – especially in the period immediately after coming to the UK. Despite this disparity, A8 immigrants are net contributors to the public finances. The main reason for this is that they have a higher rate of labour force participation, make less use of benefits and public services and experience rapid wage growth during their stay in the UK. For example, in 2008/09, A8 immigrants represented 0.91% of the total UK population, but contributed 0.96% of total tax receipts and accounted for only 0.6% of total expenditures (see here).

Data also show that only a small proportion of A8 nationals have claimed the benefits to which they are entitled – for example, child benefits and tax credits. Their claim levels are lower than the UK average. Anecdotal accounts from welfare agencies in fact indicate that the biggest problem is that A8 migrants are not taking up support to which they are entitled, when they need it (see here).

If facts – reality – would count for anything, the most rational course of action would be to welcome these immigrants, especially since the ‘UK is open to business.’ But what is the political talk about? It’s all about ‘benefits tourism’ and ‘abuse’ of calculating immigrants on their way to whatever country they can profit or steal from the most – a nice projection of the racists’ own views on community and society!

Labour has to change its position on immigration

Last Thursday, Labour voted with the Conservatives and UKIP in Wales to support a ‘hard Brexit’ which would pull Britain out of the single market. Plaid Assembly member Adam Price said that:

“For fairly opportunistic reasons, Labour is adopting a carbon copy of the UKIP position, or the hard Brexit position of the Tory party. For those of us on the left and centre left of politics it’s a tremendously depressing moment and worrying development. (…) The disparate events all suggest a tide of consensus building in Labour around rejecting membership of the single market. The vote means the Welsh legislature is now the first in the UK to come out against membership of the single market, an outcome which would have been considered unthinkable just months ago. It also puts Welsh Labour to the right of Downing Street on Brexit negotiations” (see here).

If Labour goes on like this, the Blairites no longer need to launch another coup or smear campaign. No need to destroy Labour. They can do it all by themselves.

Price went on: “We’re now in an incredible position where the Welsh government is actively supporting a policy which is clearly not in the national interest from a Welsh perspective. (…) We have a healthy export surplus in terms of goods but that could be put in danger if we do not get the type of access that can only come currently through membership of the single market” (see here).

This, it seems, is the price that Labour is willing to pay for restrictions on immigration which will only have negative effects. It will not change ‘perceptions’ either, because if the economy gets worse, more scapegoats will be found. And why would the economy improve?

It is not that the problem is not understandable, but that the solution is unacceptable. Labour is trying to win the vote of the unskilled and manual workers in the old industrial relics. But the party is not doing well in these deprived areas. BMG Research polling for The Independent reveals almost half of the unskilled workers and manual labourers that Corbyn needs in order to become Prime Minister believe him to be ‘out of touch’ and an ‘election loser.’ Of the C2DE class voters, those likely to have been hit hardest by austerity policies, 46% say Corbyn is an ‘election loser,’ just 19% believed him a winner. Very worryingly, just 22% of working-class people think that Corbyn is ‘in touch with voters’ (see here for the latest YouGov poll).


Figure 2: Voting intentions in the UK, September 19-21, 2016. Labour is gaining members, but it is losing voters. (Source: YouGov). 

This does not necessarily mean that a calamity is in the making, it means that Corbyn has an enormous amount of complicated work to do. He needs to win back part of the old labour vote which New Labour lost and he has to maintain his support of young, well-educated, multicultural, urban voters, which are pro EU (not pro EU economic governance – pro EU). If instead Labour chooses to play into the xenophobia and racism on the basis of ‘perceptions,’ it will grandiosely fail.

Labour’s social democratic opposition

Thankfully, many within Labour also see it like this.

As Richard Corbett, MP for Yorkshire and Humber explained, Labour’s position is tantamount to saying “we know immigration is broadly positive, but because people mistakenly believe it isn’t (and this is exploited by racists), we should formulate a policy based on those mistaken beliefs rather than on the evidence” (see here  – and here for a case – the NHS, which cannot do without immigrants).

Corbett makes another point: even if you are – wrongly – convinced of the need to limit migration, doing so as a knee-jerk response to the EU referendum result falls into precisely the trap set by the Leave campaign, which was to blame the problem entirely on European agreements, because most migrants in Britain come from outside the EU, entirely under British rules. If ending free movement cuts even by half the net numbers coming to Britain, this would mean just 0.14 per cent of the population, as recently pointed out in a blog post entitled ‘Is 0.14 per cent of the population really more important than the economy?’ (see here).

Corbett asks, “Are we really going to damage our manufacturing sector, lose inward investment, erode our tax base (…), lose a big chunk of the City, and make life more difficult for many Brits living abroad —all to pander to a few prejudices that we fully admit are unfounded?” (see here).

Julie Ward, Labour MEP for the North West of England makes the case that fighting the Brexit is democratic and social democratic and it would be an electoral catastrophe to not stand up against it (see here).

The Brexit campaign was amongst the ugliest electorate campaigns in Europe since the 1930s. I have posted examples of the British press in earlier articles. As I also said, the UK has an institution for look into this. During the campaign, no politician pressed any charge against any “journalist,” “editor” or “newspaper.” The reason is simple: electoral gain before principles. The result is also clear. Apart from blatant racism and hatred, day in day out, there were blatant lies by Farage and Johnson about the £350 million a week for the NHS if we should leave. It is absolutely not so that politicians are not responsible for the ‘perceptions’ that they now consider their democratic duty to support, against all reason. Given this context, it is much too easy to say that ‘the people have spoken and that their decision needs to be respected’ (see here).

Second, there is a fundamental misunderstanding about ‘accepting the result.’ As Julie Ward writes, In both the 2010 and 2015 general elections, the electorate voted for an agenda of austerity and cuts. Corbyn and McDonnell did not respond then by saying “as much as we regret it, we must accept the outcome and support austerity.” They proceeded to argue, across the country, that austerity is wrong, unworkable, and unjust (see here).

Third, the strategy will lead to political defeat. If Labour accepts that immigration is a problem and must be stopped, UKIP has won. Instead, it has to offer people hope and a plan, based on reason, insight, leftist principles and political courage. Voters are not going to trust Labour if it reverses its position at any opportunity. The Labour party stood for Remain and now it must represent the 48% who voted for it. Those interested in inclusion, openness, tolerance, fairness, solidarity and diversity will not vote Labour if the party does not represent these ‘values’ (see here). The racists will eventually end up with UKIP anyway. So Corbyn has no choice. Let’s hope he is up to it.