Are Immigrants Really Such a Danger?
Senior Research Advisor
Research Institute of Economy, Trade and Industry
Japan has an extremely low ratio of foreigners. Other advanced countries are taking in a broad range of foreigners as a way of addressing population decline and labor shortfalls. The time has come for Japan too to relax the world’s most stringent immigrant and refugee policy.
An end to anti-EU sentiment?
Foreign economists and market analysts seem to be universally pessimistic about Japan’s future, for the simple reason that despite the extremely rapid inversion of Japan’s population pyramid, the government is making no effort to adopt effective policies for raising the birth rate and also continues to observe the world’s most insular immigration policy. At this rate, our population will drop to 65 million—half the current level—by the end of the century. To alter this bleak trajectory, Japan needs to look closely at the realities of immigrants in Europe.
There is deep-seated pessimism in Japan over Europe’s future. Concern about the euro as Europe’s common currency has continued to rise particularly since 2010 with the collapse of the Greek economy and the economic slowdown in southern Europe. Many believe that trying to link 19 different economies with a single currency was always impossible and that this grand experiment has failed. In addition, the flood of refugees pouring in from Islamic countries in the Middle East and Africa is increasing pressure around Europe to oust immigrants and refugees, with growing calls for border control and the exercise of sovereign authority to cut back on immigrant and refugee numbers. A national referendum held in the United Kingdom in the summer of 2016 saw the British people choose to leave the EU, and exit negotiations are underway now.
However, elections held subsequently in Austria and the Netherlands saw the defeat of extreme right candidates who had advocated their countries leaving the EU and deporting immigrants, while the extreme right candidate in the French presidential elections in May 2017 also lost. If the Merkel administration achieves a widely-expected victory in Germany’s general election in September, it will effectively signal the end of a domino-like European collapse. Why has anti-EU sentiment fizzled at this point? The answer lies in the economy.
A higher economic growth rate than Japan
On the economic front, Europe is doing surprisingly well. The EU’s GDP growth rate is far healthier than Japan’s, which stood at 1.0 percent in 2016 compared to 1.7 percent in the EU and 1.6 percent in the US. By country, Germany’s GDP growth rate was 1.8 percent and even France was higher than Japan at 1.1 percent. International organizations are predicting that this situation will continue over 2017 and 2018. Stock prices have been rising at virtually the same level as in the US since 2016, so market sentiment too would seem to be positive. The Purchasing Managers’ Index (PMI), a headline economic indicator, has been improving rapidly since the second half of last year.
On the dark side is the rising unemployment rate. The austerity budgets which Italy and Spain have been forced to adopt have caused high youth unemployment and, consequently, far fewer opportunities for young people to participate in society and hone their skills through work, which is casting a shadow over the future. However, these countries have good social support systems, with mechanisms in place that are soaking up dissatisfaction to some extent. Unemployment rates are also gradually beginning to fall, and the worst appears to be over.
In terms of price trends, like Japan, many European countries have long been battling with deflation. However, the EU seems to be making better progress in that regard, achieving a 1.8 percent inflation rate for the EU as a whole over the January-March period this year compared to 0.2 percent in Japan. If the EU does beat deflation, monetary policy will shift from easy to neutral, and the euro too is likely to start rising.
A strong current account balance
One key indicator of economic health is the current account balance, which is the difference between a national economy’s receipts from and payments to other countries. The EU as a whole has a massive surplus, and while Germany’s surplus might be particularly large, countries like the Netherlands and Denmark too are well into the black. While France is in the red, austerity budgets are returning Spain and Italy to surplus where just three years ago their prospects were looking very bleak. As a result, the current account balance as a percentage of GDP for the EU as a whole rose to 3.4 percent in 2016 (compared to 3.9 percent in Japan), with the US beginning to complain.
As a positive current account balance indicates competitiveness, the euro should appreciate. The reason that it has remained weak is that ongoing monetary easing is widening the interest gap with the US, causing capital to leave the euro zone in search of higher interest rates. However, there is no question of speculative investment flowing out of the euro zone indefinitely, and the tide will eventually turn—and sooner rather than later, too, if the US decides to bring down the value of the dollar.
Immigrants and refugees as a means of securing human resources
I believe that the anti-euro and anti-EU sentiment that has emerged over the last several years is due to the swift rise in the number of immigrants and refugees from the Middle East since the Arab Spring in 2010. With so many immigrants crowding into Europe, and more than a few dangerous Islamic extremists among them, it’s hardly surprising that thoughts should turn to regulation. The EU is under pressure to absorb and allocate immigrants among member countries, but increasing public opposition is fueling moves to exit the EU.
However, those countries with high immigrant percentages (as seen in Graph 1) are actually doing better economically. While immigrants and refugees tend to be regarded as poor and uneducated, many of them are in fact highly educated and economically affluent. People who leave their countries need money not only for transport but also to set themselves up in their new lives. When internal turmoil makes a country dangerous, the rich are apparently the first to leave. Germany’s willingness to accept refugees may well be more than an humanitarian impulse. The acquisition of outstanding human resources is critical to economic advance, and taking in refugees for that purpose is a very rational choice. When peace eventually returns to Syria and Iraq, the least-skilled can be returned home, keeping only the best and most skilled.
A large percentage of top students in Japan’s graduate schools of science and engineering are from China and other countries. Japan’s problem lies in not taking full advantage of these global human resources. Foreign labor has become crucial to farming, construction, hospitality and other sectors. Conversely, the United States has always laid down the welcome mat for foreign talent. The Trump administration is trying to change that policy, but its efforts have been stymied for the meantime by the courts. IT firms and other areas of US industry are opposed to a harsher immigration regime.
Illegal migrants apparently make up half of farm labor in California, the largest food-producing area in the United States. Since the 1960s, Germany has proactively embraced immigrants from Southern Europe and Turkey. One in 10 Germans is now foreign-born, rising to one in five when second- and third-generation migrants are included. Without them, the economy would not simply have failed to grow but indeed shrunk.
Growing economic disparities the real problem
Expelling immigrants and refugees is not the needed course of action for EU member countries—not only would it be impossible when one in five EU citizens is now either an immigrant or descended from an immigrant, but there is no evidence that they are impacting negatively on the economy. The Middle Eastern immigrants and refugees that enter Europe via Turkey and Greece and the boat people from Africa that we often see on TV are in fact only a tiny portion of the whole immigrant population. Mass murderers are mostly the descendants of immigrants with legitimate nationality.
The reason that immigrants and their descendants gravitate toward extremism is the social ostracism and various economic disadvantages they face, causing them to lose hope for the future. Social discontent is emerging even among naturalized citizens, endangering liberal democracy. Rather than shutting down immigrant flows, countries need to close the growing gap between rich and poor and increase citizens’ sense of social equitability.
Economists have a variety of explanations as to why economic disparities are growing, but the main reason seems to be IT and other technological innovations leading unskilled labor to be replaced by machinery. The advance of artificial intelligence is expected to yield even intellectual jobs in fields such as law and medicine to machines in the coming years. Only a very few high-end knowledge workers will have the chance to work, and everyone else will have their jobs taken away. The incomes of the remaining handful of high-end workers will naturally continue to rise, while everyone else will lose their jobs and sink into poverty, leading to social instability. The only way to avoid this scenario will be to redistribute income from the rich to the poor.
Graph 2: Income Disparities in the OECD (Gini coefficient; 2014) (480KB)
Graph 2 reveals that Japan is among those developed countries with a sizeable income disparity. The conception of all Japanese as middle class now belongs to the distant past. In Europe, better child-raising support and poverty alleviation measures have shrunk economic disparities below the Japanese level. Americans have tended to reject the idea of income redistribution as socialist, but Bernie Sanders’ strong showing in the 2016 presidential elections indicates increasing acceptance even in the US these days.
That even the Abe administration in Japan has put aside its inherent conservatism to ask companies to raise wages and to propose a higher minimum wage, tighter overtime regulations, the same wage for the same work, and more job workplace opportunities for women highlights the fact that reducing economic disparities has become a worldwide policy challenge. Yet Japan’s doors remain tightly closed to immigrants and refugees. The Trump administration’s policy of deporting undocumented immigrants has been roundly criticized in Japan as with elsewhere in the world, but it’s time we looked seriously at our own immigration policy.