Migrants for Growth

Old Europe is used to cure its economic pains by transfusing blood of working migrants. This clever lever has already reached its limits

„One very catastrophic mistake” named Donald Trump the decision of the German Chancellor Angela Merkel to invite in Europe “all of these illegals”. One week before his inauguration the new dweller of the White House declared in front of European journalists that “you wouldn’t have a Brexit” if the EU countries had not been forced (by Germany) to take over 1 million refugees with all their problems. He added: “I believe others will leave”.

A choir of protest echoed this rare frankness, starting with Merkel herself (“we Europeans hold our destiny in our own hands”) through to the former Secretary of State John Kerry and even Larry Fink, the CEO of BlackRock – the world’s biggest asset management fund. This financial shark defended the policy of the Chancellor praising her “moral leadership… in an increasingly discordant world”. In his words Germany demonstrated “ability to balance acts of humanity and economic and political challenges”.

Be aware when a man of money addresses morality. What if the “humanity” is only a shell of an entirely rational strategy of revitalizing the European economy and reviving its economic growth, coming at the cost of decreasing citizens’ living standards and surge of insecurity?

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We have done this before

The Second World War was a clash not only of soldiers and weapons but also of factories. The enormous demographic effort after waging two simultaneous fronts of war in Europe could not be offset even by the self-sacrifice of German women in the rear. The wartime economy found a solution by absorbing the labor of the prisoners of war, the population of the occupied territories in Eastern Europe, but also of millions Italians, French, and Dutch.

According to the award-winning monography of Adam Tooze “The Wages of Destruction: The Making and Breaking of the Nazi Economy”, in certain factories of Luftwaffe the share of foreign workers stood above 40 percent. In Munich there were 80 000 beds for foreign laborers. In 1943 the foreign labor force in German industry and agriculture amounted to 6.5 million people, including 5 million civilians (not prisoners). The total number of foreign workers peaked in the fall of 1944 with 7.9 million people – over one fifth of the German labor force.

It is interesting to point out that the sexual issues were high on the migrant agenda in these dark times. During the first years of war the Poles sent to work in Germany received capital punishment if caught committing fornication with Arians. Later brothels designated to foreign workers were established – supposedly in order to increase their productivity.

The mentioned above facts do not draw parallels between the Federal Republic and the regime of National Socialism. But they unambiguously prove that the labor of foreigners – so called immigrants, historically served as an important factor of production for the developed countries. It happened far not only in Europe – just to mention the African genocide and the infamous slave trade across Atlantic, which set the base of the American prosperity. After the American Civil War the economy of the United States has been greatly benefited by the crowds of talented and laborious European immigrants.

There is no need to seek for examples in so distant past. The “trente glorieuse” – the economic miracle of the post-war Europe which lasted up until the world crisis of the 1970s is explained by combination of factors, and among the central ones is the abundant and cheap labor of migrants.

Labor and capital on the balance

Starting from the middle of the 20th century around 5 million migrant workers with their families helped Europe to become what it is now – writes the American economist Barry Eichengreen in his volume „The European Economy Since 1945”. In the FRG the input of foreign workers has been continual. Firstly arrived the ethnic Germans which left – or were driven away – from Poland, Czechoslovakia, and USSR. Prior the erection of the Berlin Wall in 1961 hundreds of thousands of GDR citizens fled to the West. Thereafter came Yugoslavians and Turks.

The same in Netherlands: the countrymen returned from the colonies constituted 7 percent of the labor force, or 300 000 people. Switzerland had no colonies and from the very beginning had to import laborers from Southern Europe. France used migrants from Spain and Algeria. Italy as a whole exported workers – but in the same time the industrial North profited on the demography of the South. An eyewitness from Torino observed: “Southerners would arrive in rags, sleep on park benches or at the train station, and wait as long as it took to get a job in a Fiat plant”.

The United Kingdom imported 350 thousand Irish workers between 1946 and 1959, thereafter turned to India, Pakistan and the Caribbean, from whence accepted 540 thousand people until 1968. Over 1 million Poles and Germans migrated to the West with the establishment of Stalinist regimes in 1947. By 1970 there were over 12 million immigrants in Western Europe, summarizes Carl – Ulrik Schierup in his book published in 2006, “Migration, Citizenship, and the European Welfare State”. Already in 1989 a European migration crisis was declared.

But why Old Europe allowed such demographic flood? Certainly not only of humanitarian reasons. The key to understanding the West European migration policy is the price of labor. The post-war reconstruction of the thorn apart societies turned growth into a major objective and a measure of success. Achieving growth requires investments, and investments require corporate profits. In order to keep the share of capital big enough, the wages should be suppressed.

Immediately after the war the citizens were keen to accept self-sacrifices for the sake of reconstructing their homelands. But already in 1950 the pre-war levels of economic production were surpassed almost everywhere in Europe. The wage laborers now required a fair share in this new wealth. Then struck the hour of the tripartite collaboration of labor unions, capitalists, and governments. And of imported labor. The full employment corresponds with higher salaries, thus growth needs some unemployment: achieved through low-qualified and cheap migrants.

Eichengreen explains this strategy perfectly technically: „So long as refugees from GDR flooded into West Germany, there was a reserve army of labor standing at the ready. Unemployment remained in the high single digits until this influx was absorbed. Increases in labor costs were thereby limited even when the economy was expanding at breakneck speed. The same mechanism operated in the Netherlands… Italy and France”.

During the 1950s Old Europe still possessed an internal labor reservoir – the employed in agriculture with substantially lower incomes and productivity than in the industry and services. But the modern sectors soon utilized the domestic migration, including the women, and afterwards the import of migrants was imminent. In certain years up to a third of the employment growth in Europe was made up of migrants.

To underline, not the necessity of hiring someone to do the “dirty work”, but the need of a lever to push down the wages will explain the European hospitality towards foreign workers. The Europeans soon got aware of this unpleasant strategy and in the 1980s clearly showed that such labor tricks are unacceptable. Yet the governments continued to let in “enough” economic refugees by occasionally loosening the immigration control.

This pragmatic – or rather cynical policy of pushing wages lower is not a secret, albeit it is seldom scrutinized. Larry Fink himself while defending Merkel from the assaults of Trump underlined that migrants encourage growth. Who may know better than him? The financial and banking sector would be among the most severely damaged if due to some reason the annual increase of the gross domestic product would come to a halt. The world would explode if credits and interests will have to be covered without the current annual increase of the quantity of the economic production.

Impotent old recipes  

During the 1950s the United Kingdom stood with only one leg inside the European economic area – as it does now. And the United States dictated who to come in and who to go out. In only 60 years the economic history of Europe repeated itself – of course, this time as a farce. It is worth mentioning that Theresa May, the Prime Minister which will have to stir the British ship through the uncharted Sea of Brexit, came into the spotlight firstly with her… cleavage.

In addition to migrants growth needs liberalization. What are the free trade agreements if not “engines of growth”? Initially – before invoking geopolitics in justifying TTIP and CETA amidst the harsh discontent of the European citizens – the European Commission explained them namely with the need of growth. Brussels experts shared in private that after 1960s the European economy was incapable of achieving organic growth – based on innovations and higher efficiency. That is why Europe constantly sought to expand its markets.

It is beyond doubt that Angela Merkel and her EU partners were motivated also by humanitarian reasons when accepting over 1 million new immigrants from the burning south. Yet it is naïve to suggest that the politicians were not aware of the economic benefits of such generous gesture. Besides cheap labor, the migrants create an additional demand of food, shelter, healthcare, schools: they generate growth.

Something similar happened in 2004 and 2007 when the EU expanded with the former socialist countries of Eastern Europe. The benefits for the big business were evident from the very beginning. Because of the one-magnitude divergence in the salaries of Old and New Europe a seven year moratorium on old members’ labor markets was imposed. But the mere fact of political adoption of tens millions of low paid workers contained the rise of wages in the West.

Capital threatened the labor that it would migrate, and the East served as a scarecrow. In 2005 the workers in the BMW factories consented to work on Saturdays for regular salaries in order to retain their jobs. There are plenty of examples. For the citizens of the old member states the expansion of the EU has been just another wave of migration at their cost.

It is hard to imagine that the triumph of populism of 2016 would be duplicated on the coming elections in Germany, France and Netherlands in 2017. And it seems that the establishment has finally grasped the unwillingness of population to sacrifice its remuneration and security in the name of unspecified growth. The toleration of migrants is very low now even in a new country like the US. In Europe, the migration issue is part of a broader discontent referring also to the massive tax dodging and the disparities created by the common currency.

Nevertheless the European politicians have not so many options these days. They could kill at last the fat old Europe of security, leisure and welfare – or submit to the popular demands while impeding interests of banks and multinational corporations. By the way, it is not clear whether the second option is at hand at all. Honestly speaking, both alternatives are not in favor of the wretched trying to find in Europe refuge from war and famine. Maybe there is a third way?

The New Crusade 

Indigenous are only the people of Africa – according to the modern genetics the world has been populated by migrants, and waves of newcomers piled on even in the most remote islands. The most successful nations in human history have had the best methods of attracting foreigners to their own culture. The empires building walls on their borders were just proclaiming the beginning of their demise.

To take Bulgaria as an example: it is truly a land of migrants. More than 13 centuries ago Bulgarians “migrated” on the territory of the Byzantine Empire, meeting there Slavs who were migrating south of the Danube for centuries. Thereafter followed Cumans, Pechenegs, Seljuqs, and Sachs. After the Ottoman invasion there came Cherkasy and Tatars, along with different Shia tribes and the Jews. In the first half of the 20th century there came probably 20 thousand Armenians and 35 thousand Russians – and hundreds of thousands of displaced Bulgarian families from Thrace, Macedonia and Dobrudja after the failed wars for national unification. Modern Bulgarians may be second- or third-generation exiles – and still they regard the “refugees” as a threat and vote for parties that promise them “protection against” migrants.

Still the current wave of migration is truly peculiar. The Muslim refugees do not intend to accept the values and the ways of life of their hosts. Even after decades abroad the Turks in Germany live in enclaves: there are streets in Berlin where one feels just like in Istanbul. One quarter of the population of Brussels are Muslims. The children of migrants are often trapped in the vacuum between the family traditions and the Western postmodernism. This encourages crime and facilitates terrorism.

It is hard to forecast whether Europe will be capable to absorb these migrant islands. But it certainly has a moral obligation toward the millions distressed people at its doors. This does not imply inviting them into its labor market – rather, European efforts are needed to stabilize the Mediterranean belt after the ill-fated Arab spring. This excludes, of course, the infamous collaboration with Erdogan’s regime in Turkey. The time has come for new crusades, not with weapons or holy texts, but with benign credits, joint infrastructure projects, science, teachers, medicines, and culture. The policy of growth should migrate from saturated Europe to its poor surroundings, otherwise the new European fascism will arise from the state of total terrorism.

The official EC data speak of over 1.3 million refugees arrived in Europe in 2015. Germany alone attracted 420 thousand of them. The most important refugee route lies across Mediterranean (Eastern Route through Greece and Central Route through Italy). Over 1 million people, 38 percent of them Syrians, crossed the sea trying to reach Europe. The migrant crisis of 2015 was even more severe since the reports of Frontex – the agency of external EU borders, informed of over 1.8 million illegal attempts to cross the EU border, of them almost 600 000 of Syrians. Around 60% of migrants were men in their active age.

The crisis receded somewhat in 2016 and the number of refugees decreased threefold on an annual basis. Yet the number of victims which drowned while trying to reach the shores of Greece and Italy scored a dark record of 5000 people.

We should agree with the Federal Chancellor when she announced in 2015 that the migrant crisis is a “historical test for Europe”. But the trial is not only moral but also economic. The bad habit of cooling the labor markets with immigrants may have killed the precious spark of solidarity in Europe. Now the doors are almost shut – but the political vultures have already crept in.

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About Dimitar Sabev

I am economist and journalist, interested in “ecohomics”: the interaction between economy, nature, and culture. I have been working as economic editor, chief editor, columnist, and investigative journalist at different Bulgarian media (“Tema” weekly magazine, DarikFinance.bg, webcafe.bg, money.bg, evromegdan.bg etc.), and have publications at many more. I also develop a kind of "terrain economics", doing research and preparing reports for different projects concerning the social and environmental impacts of mining, monetary assessment of ecosystem services, fiscal justice issues of foreign investments, development of quantitative indices for regional development, sustainable forest management, feasibility of trans-border biosphere reserves, etc.
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