Australia should not auction off migrant places to highest bidders

The great Australian success story of Frank Lowy and many others like him would not have happened had Australia not accepted penniless refugees. AAP/Dean Lewins

Should Australia auction scarce immigration places to the highest bidder as canvassed by the Australian Productivity Commission’s current review of immigration policy? In per capita terms, Australia is arguably the world’s greatest immigration nation, so it’s sensible to regularly review the immigration experience and policy. The problem with a suggestion to auction immigration places is that it puts the focus on short-term revenue-raising, rather than immigration’s more important medium- to long-term nation-building role.

The proposal also reflects a misplaced belief that the free market is the most efficient and effective solution to all areas of Australia society.

How does immigration work now?

Australia sets annual targets for the permanent immigration program and within it targets for skilled, family and business visas. It separately sets an annual humanitarian immigration quota for the refugee intake. As the Productivity Commission’s Issues Paper notes, the 2014-15 migration program is for 190,00 people: 128,500 skilled, 7,260 business and investment, 60,855 family, 565 special eligibility and 13,750 humanitarian.

Since the 1970s, Australia has followed Canada in allocating these places by merit, with non-humanitarian merit decided by a points test. Points are allocated for an applicant’s education qualifications, skills and employment history, age, English language ability and other factors.

A “skilled occupations list” already gives priority to those applicants with skills in demand. These are revised over time.

Temporary immigrants to Australia outnumber permanent arrivals by almost four to one. AAP/Julian Smith

In contrast the temporary immigration program is demand-driven and hence uncapped. It depends mainly on international student demand for Australian university degrees, the number of 457 skilled temporary worker visas that employers demand because they claim that they can’t fill job vacancies and the number of working holidaymakers who decide to spend a year or two travelling and working in Australia.

According to Immigration Department data, over 700,000 immigrants entered under the temporary program in 2012-13. They vastly outnumbered the permanent program of 190,000 in that year.

How would the market decide intakes?

Economic rationalists believe that the market is an infallible and efficient way of allocating all goods and services. Milton Friedman, father of the Chicago school of monetarism and champion of the free market, favoured the auction as the best way to allocate public goods such as education.

More recently, Gary Becker, a Nobel laureate in economics who coined the term “human capital”, argued that the US immigration places set by targets or quotas should be allocated by auction to those most willing to pay. Becker argued that charging US$50,000 per visa would attract those who would gain the most by migration. Assuming that the current annual quota of 1 million immigrants was maintained, that would raise US$50 billion. This revenue could be used to improve US public finances and hence garner more public support for immigration.

Not surprisingly, the Centre for Independent Studies in Australia has embraced these free-market immigration ideas. In this instance the good in the market is a visa to enter Australia as a permanent residence. Certainly this is a scarce good: some million people or more inquire each year about getting a permanent residence visa. Many more would come if they could.

The assumption is that those who are willing to pay the most will be the best migrants. Following Kasper (2002), Kirchner (2011) argues for Australian immigration places, including humanitarian or refugee places, to be auctioned. Kirchner is in favour of larger immigration intakes and also argues that the auction may increase popular support for immigration.

To some extent, this system operates at present. Since the late 1970s, Australia has set targets for business migrants – millionaires who want to set up a business in Australia. The government recently introduced an “investor visa” with looser age and residency requirements to attract more “rich” people. But these business migrant targets are always under-subscribed: everyone wants rich migrants and Australia competes with the United States, Canada and European countries for them.

Why the auction model is wrong

This auction immigration model presents many problems.

The first is that it derives from the economic rationalist’s fervent belief in the efficient and rational free market in the national and international context. It is quickly forgotten how the folly of the free market in practice, not in theory, led inexorably to the global financial crisis. Free-market economics simply doesn’t appeal as a solution for such an interdisciplinary phenomenon as contemporary immigration.

Second, excluding all but the richest applicants raises serious ethical questions. One possibility raised by Becker is that employers will lend immigrants the money to be repaid over time. This smacks of indentured labour in a modern form. It is even more unethical when applied to choosing which refugees enter Australia.

Third, the richest do not necessarily make the best migrants. Australia has a long history of “rags to riches” immigration stories. Frank Lowy, for example, arrived in Australia as a penniless refugee.

Most immigrants don’t become billionaires, but if the experience of the past is anything to go by many relatively impoverished refugees and immigrants – and their subsequent second, third and fourth-generation Australian families - make a great contribution to Australia society. Immigrants from southern Europe or Britain who arrived with little capital in the decades after the Second World War could not have afforded to come under an auction model.

Fourth, immigration policy is not about short-term revenue-raising. It should instead promote medium- to long-term nation-building. Immigration has economic, social, political, religious and cultural impacts and dimensions.

Neoclassical economics always reduces things to material-maximising decision-making of individuals. It has never been able to predict or explain contemporary patterns of global migration. It can’t handle unmeasurable, multi-faceted social costs or externalities.

It is for this reason that economic rationalists and their econometric analyses of the impact of immigration on the Australian economy have been incapable of measuring its true impact. They have underestimated the positive economic and social impacts of immigration, concluding that it is “benign” – neither strongly positive or negative. Because immigration and immigrants have changed every dimension of life in Australia it is simply not possible to quantify and simplify these dimensions into a “market price”.

Immigrants become neighbours as well as workers, a point made by these migrants wearing national costumes to greet Princess Alexandra in Wangaratta in 1959. National Museum of Australia, CC BY-NC

Fifth, immigrants not only become workers but also neighbours. Social cohesion is as important a measure of the success of an immigration policy as is economic growth, standard of living or productivity.

Racism is a key barrier to immigration. This is one reason that freeing up international labour markets has not been as successful as freeing up flows of capital and trade under the neo-liberal globalisation agenda.

Sixth, immigration is controversial politically. As a consequence, racism and political opportunism influence immigration policy, whatever free-market purists might desire. John Howard’s “Children overboard” election of 2001 or Tony Abbott’s “Stop the boats” election of 2013 are examples of this, as is the rise of far-right anti-immigration parties across Europe today.

Economic rationalists attempt to treat labour as a commodity no different from goods and services or capital. Their view of immigration is a narrow market-oriented one with a fixation on price and a blindness to the social and political realities of contemporary cosmopolitan Australian and global society.

The current policy of a points-test selection for permanent immigrants – tried successfully over the past four decades of Australia immigration policy - may not be perfect, but it is meritocratic, ethical and efficient.