In neoclassical textbook economics, consumer preferences are ‘given’. People come to the market with a fixed set of preferences, expressible as a utility function, and satisfying those preferences then becomes a technical maximisation problem.

The Austrian School of Economics has long criticised this sterile way of thinking for ignoring the lifeblood of capitalist economic activity: entrepreneurship. Preferences are neither ‘given’ nor ‘fixed’. They are latent, and in constant flux, so they have to be discovered, and constantly rediscovered. Discovering them is a quintessentially entrepreneurial activity, which involves trial and error, leaps of faith, and educated guesses.

The Austrian way of thinking does not lend itself to the elegant modelling, with long formulas full of Greek letters, that mainstream economists are so fond of. But it is a vastly better way of describing what is actually going on in economic life. When the Beatles sent their first demo tapes to record studios, they were initially roundly rejected. There is no demand for that style of music, they were told, and you guys are not sufficiently talented anyway. In the early stages of his acting career, the same thing happened to Arnold Schwarzenegger. You are too big, you are too bulky, the movie studios told him, and besides, you have a funny accent which will irritate cinema audiences. Such stories are always amusing in hindsight, when it is obvious that these judgements could not have been more wrong, but misjudgement is the norm, not the exception, in economic life.

A similar critique could be made of points-based immigration systems, such as the one that the Leave campaign is advocating as a substitute for the EU’s free movement. The idea has had some appeal well before the referendum, because at first, it sounds like a no-brainer. Select immigrants on the basis of qualifications, not on the basis of the passport they happen to hold; make sure the skill profile of the immigrant population matches the skill requirements of the economy. What could be wrong with that?

On the free market side, some have criticised points-based systems as an attempt to pick winners, a form of industrial policy. Do you really trust the Home Office, or any other government agency, to correctly work out the ‘optimal’ skill mix the economy requires? That, however, is not my main problem with points-based systems, because I think in this case, picking winners might actually, in a sense, work. Suppose the government grossly overestimates the demand for people with postgraduate degrees in biochemistry, letting in hundreds of them when only a few dozen are required. What will the rest of them do? Will they resort to begging and stealing? No. They will find something else to do. The same attributes which enabled them to complete a postgraduate degree in biochemistry will also enable them to do many other useful things. So it does not actually matter all that much if the government gets the numbers wrong.

The problem is rather that points-based systems rely on the implicit assumption that immigrants’ skills, and the economy’s needs, are fixed, and ‘given’. In this way of thinking, people acquire skills X and Y in their home countries, and then arrive in Britain to apply them. This may be true in careers which require a lot of preparatory ‘dry training’, such as medicine. But most of the time, people do not start their careers with all the relevant skills already in place. They may start with a set of formal skills, but the more specific work-related skills are acquired on the job.

However, one of the main reasons why an economic migrant will want to come here in the first place is that the UK offers them better job prospects than their country of origin. This means that in order to build up skills in the workforce, they have to be here already. Building them up beforehand, and turning up later, is not the way to go. In this sense, a points-based system is the equivalent of a law which states that people are only allowed entry to a swimming pool when they have already demonstrated their swimming skills.

The most obvious example is language skills, which would surely be one of the main categories in any points-based system. Sure, if you have the discipline, you can probably learn English via online tutorials while living in Poland. But the most efficient way to learn English is to live and work in an English-speaking country, interacting with native English speakers on a day-to-day basis. If you know immigrants who speak perfect English, ask them what their English was like on the day they arrived here.

The implicit assumption that immigrants come here to fill vacancies, that is, to satisfy a demand which is already there, but currently unfulfilled, can also be challenged. There are countless examples of immigrant groups creating a demand which did not exist before they arrived. Indian food has become part of the staple diet in the UK, but in the 1950s, no points-based system would have detected an unfulfilled demand for Chicken Tikka Masala and Lamb Rogan Josh. More recently, Polish immigrants have set up their own ‘Polski Skleps’, and I am glad they have, because these are the only places where you can find bread and sausages that come close to proper – that is, German – bread and sausages. But again, demand for these shops did not exist before the first ones opened their doors, and people gave them a try.

I have also noticed that some – by no means all – supporters of points-based systems hold two mutually exclusive points of view. On the one hand, they argue that Britain is full. The health service, the schools, the infrastructure and the housing market cannot cope with anything like the current numbers of people coming in. At the same time, they argue that the purpose of a points-based system is not to curb immigration, but to filter it more intelligently: not necessarily less immigration, but better immigration.

Let’s assume that a points-based system achieves this. It only lets in role-model immigrants, the type of person even the most trenchant critics of immigration are comfortable with. Their qualifications are in high demand, they integrate effortlessly, their English is so good that they put most native speakers to shame, and they become fiscal net contributors from the day of their arrival. All is rosy.

But even those people need to live somewhere. Even they use roads, even they get sick and go to the doctor, and even their children attend schools. The Britain-is-full argument is about numbers, not individual characteristics.

But did you notice something about the sectors around which such concerns cluster? What do healthcare, infrastructure, education and housing have in common? It is the fact that these are sectors from which the above-mentioned entrepreneurial discovery process is banished, either because the government itself is a near-monopoly provider, or because the government controls the key input factor (land). These sectors are organised according to a predict-and-provide principle, under which the government estimates demand, and provides accordingly; a points-based system of sorts, if you will. And look at how well that has worked out.

Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

1 thought on “An Austrian critique of points-based immigration systems”

  1. Posted 22/06/2016 at 10:08 | Permalink

    In a world where similar countries each designed their own policies for migration and suchlike, we might be able to compare and improve our outcomes and designs. But, that world seems just a fanciful dream.

Comments are closed.