Big business must take some blame for Brexit
Firms have used cheap foreign labour as a lazy substitute for investment in training and productivity
How naive can you get? Downing Street’s attempt to strong arm big business into signing a letter of support for the nation’s still confused Brexit strategy was almost bound to backfire, and so it has. Large numbers of corporate bosses have angrily refused to sign, and many have expressed astonishment that they were even asked in the first place.
Had no-one at Number 10 noticed that global business was vehemently opposed to Brexit, and indeed continues to regard it as a historic mistake, for which Britain will pay a high economic cost? Still bruised and resentful over the electorate’s decision, global CEOS are in no mood to cheerlead the endeavour.
They might nevertheless try a little self reflection. In no small measure, it was their own behaviour that led directly to today’s state of affairs. I say this as someone who is both generally sympathetic to the interests of business and the City, and who supported Remain; if the vote for Brexit was, at least in part, a backlash against globalisation and mass immigration, then these lobbies have much to answer for.
Companies have been only too happy to avail themselves of the benefits of cheap foreign labour and goods. In so doing, many of them have shamefully neglected their wider social responsibilities. Why recruit and train locally when it is possible to hire the necessary skills at a fraction of the cost from overseas?
One answer to this question, I suppose, is that with the economy beginning to run up against acute labour shortages, we need the migrant supplement. Despite the surge in European migrants, unemployment is close to a record low and the number of jobs at a record high. As a percentage of the unemployed, vacancies have also never been higher. Even with mass migration, and even with the displacement effects of automation and artificial intelligence, it’s proving hard to get the staff.
Yet despite these shortages, the labour market is not behaving as it should. Though technology is probably the greater cause of this malfunction, mass migration has undoubtedly played some part. Too often, firms have used cheap foreign workers as a lazy substitute for investment in training and productivity.
The effect has been distinctly unhealthy. For almost a decade now, growth per capita has been at a virtual standstill. Real wage growth has been similarly non-existent.
As I say, this cannot all be blamed on immigration. Lack of significant wage inflation is common to nearly all advanced economies, even those without much immigration. Take Japan, which has a shrinking workforce, little immigration to speak of, exceptionally low unemployment, and a prime minister who routinely urges his business leaders to pay their workers more. Yet still it has virtually no nominal wage growth.
In any case, the traditional yardsticks by which governments judge their economic success – low unemployment and sustained growth in overall gross domestic product – don’t mean a lot if people don’t feel any better off.
Brexit supporters would not be having their “independence day” but for these wider social frustrations. But business leaders would not be facing the challenge of Brexit had they been a little more responsive to the socially unsettling downsides of globalisation and mass migration.
Whether displaced by a migrant or a machine, workers need help in adapting and reskilling for alternative, higher-paid work. The best companies offer that progression; too many don’t.
One of the first rules of business is that you try not to kill the goose that lays the golden egg. By embracing free movement and borderless trade so enthusiastically, many firms have done precisely that, and thereby brought Brexit on themselves.
Few issues speak more loudly to the contradictions at the heart of Brexit than free movement. Both Liam Fox and David Davis come over all misty eyed when extolling the supposed benefits of free trade; their ambition, once unchained from the EU, is for a global, free-trading Britain. Yet the intellectual justification for free trade is almost exactly the same as for the repudiated free movement. Both rest on the idea of “comparative advantage” – that if a country or individual can supply something more cheaply than we can, it is economically more advantageous to buy from them, keep the savings and focus on what we do better. A virtuous circle of economic enhancement is thereby established.
In some respects, free movement is an extension of the same principle. Yet it is pointless telling people that immigration is good for them if they cannot feel it in their pockets.
Assuming effective border controls are eventually introduced, we face an interesting economic experiment. Will restrictions on immigration make us poorer, as some companies believe? Or will they act much like the Black Death in the 14th century, creating an extreme shortage of labour that kickstarts decent levels of wage inflation. If the latter, many will think it a pretty good outcome.