It’s per capita, stupid
Last night on BBC Newsnight, Mehreen Khan, the economics editor of The Times, told the nation that ‘the economy grows because the population grows’, effectively arguing that economic growth without migration is impossible.
Leaving aside the thorny issue of just how much migration is good for an economy, Ms Khan has clearly forgotten the meaning of the phrase per capita. As a New Zealander, those two words are very dear to my heart – especially during the Olympics and when sheep are involved – so I am eager for this opportunity to remind her.
It is, of course, true that – all else being equal – more people means a bigger economy. But, for the most part, the size of the overall economy is utterly irrelevant to the day-to-day lives of citizens. China’s GDP is roughly 9 times larger than Canada’s, but no-one would argue that Canadians are poorer than the Chinese. The fact that roughly 30,000 Chinese people move to Canada each year and almost no Canadians move in the opposite direction proves as much.
For the government’s finances too, a larger total GDP is only somewhat helpful. Naturally, migration means more taxpayers, but it also means more spending, not just on day-to-day services like healthcare, but also on infrastructure and future benefits. If most migrants are fiscal contributors (and that is far from certain), then additional migration might help to share the burden of Britain’s pre-existing debt. It can also kick the ageing population can down the road, but only temporarily: Immigrants age too. Sadly, Britain cannot immigrate her way to surplus.
What matters to human welfare – of course – is GDP per capita. Almost every statistic that a reasonable policymaker should care about – the incomes of the very poor, life expectancy, life satisfaction, even environmental quality – is strongly correlated with it. That’s no surprise: After all, GDP per capita effectively measures the economic value produced in a nation each year, divided by those between whom it must be shared.
Unfortunately, GDP per capita cannot be inflated at will by simply lifting migration. To grow GDP per capita either requires a bigger share of the population working, existing workers working longer hours, or higher labour productivity.
On this point, Ms Khan got something right. Since the Global Financial Crisis, labour productivity growth in this country has been abysmal. But we cannot simply declare defeat – as Ms Khan urged the Chancellor to do in her interview. Doing so would condemn Britain to yet another lost decade in a row – and drive even more ambitious young Britons away. Instead, Britain has got to get growing, but per capita this time.
Mitchell Palmer