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Address by Lord Cairns, Director of CDC

Article by Lord Cairns

September 15, 2006

In most respects, I am under qualified to speak on Managing Migration. I have two slender claims to any insight on this issue. The first is particularly apt since this event is taking place in Canada House. In the late 1950s, at the age of 18, I set off from Liverpool in the Empress of something, bound for Montreal, clutching an immigration card and with £50 in my pocket. Before returning to university two years later, I probably learnt a great deal more than in the following three. I learnt of the fear of being out of work and of being cold and hungry, but I also learnt of the value of the hospitality and kindness that so many people showed to me when there was no family support to fall back on. I look back on this period with great pleasure, in that it formed many of the values that I have found helpful thereafter. It also has left me with a particular regard for that wonderful country. This is therefore an occasion where I can offer a very belated thank you to Canada.

The second credential is that for much of my working life, I was employed with the banking institution S.G. Warburg, started by two Jewish refugees who came to England just before the war. Within 50 years of the founding of this firm, it had become one of the most important international investment banks in the City, playing a major role to establish the City as the pre-eminent centre of international finance. The international vision of these two founders shook the attitudes of what had been a rather cosy inward-looking clique into a world class competitive force which has created huge value for this country – I have to add that the cosy clique was formed of names like Schroder, Hambro, Lazard, Kleinwort and Rothschild, all themselves immigrants in previous eras. Some of these families came willingly to this country as economic migrants and others came reluctantly as refugees, fleeing from conflict or persecution.

After the Second World War, the United Nations High Commission for Refugees was established as a temporary measure to respond to the consequences of a continent in conflict. It was hard to feel that the 50th anniversary of the UNHCR, last year, was a cause for celebration. If we are going to manage migration effectively, we must consider both the humanitarian and the economic – asylum and immigration.

I now spend much of my life, as it were, looking down the other end of the telescope, as Chairman of CDC, whose job is to provide capital for the developing world.

It will, I imagine, be common ground for everyone here today that for a more prosperous world, capital, labour and technology must move to the point where each can be employed most effectively. This is the factor that has been the catalyst for better living standards as far back as we know. In theory, capital and technology flows should be more mobile than labour, but frustratingly, while capital flows to the developing world, where labour is cheaper, have increased, they have not grown enough to make any real impact on the inequalities of income between rich and poor countries. Capital flows have also been concentrated into a few countries, bypassing Africa, for instance, almost entirely.

With income differentials rising and the cost of travel reducing, it is hardly surprising that labour has become more internationally mobile. Since the number of those living in absolute poverty is huge, the scale of potential migration is vast and the developed world will want to continue to regulate the movement of people. The gap between rich and poor countries cannot be bridged by mass migration – but poverty and conflict are pressures which cause people to want to move. This is, therefore, an issue which will remain vital for the foreseeable future.

Demographic forecasts have to be taken with a certain level of scepticism, but the following influences my own thinking.

The OECD forecasts that the ratio of those over 65 will double relative to those of a working age during the next 50 years, from 25% to 60%. This means that 40% of the adult population will have to create sufficient value to maintain the welfare standards of the aged in the UK, let alone pay for the education and upbringing of the young. If the EU is to stabilise the old age dependency ratio, it needs in-flows of 20 million each year between now and 2050, and I suspect many of us reaching retirement age will have to work much longer.

As an employer, I can only conclude that it’s going to be increasingly difficult to find people born and educated in the UK to perform the tasks that need doing to make UK plc succeed, especially in a world of increasing competition. Levels of immigration to offset our ageing populations raise substantial issues about the willingness of people in advanced countries to share the stock of privileged access to the physical, human and social capital that they enjoy. Such a level of immigration would undermine the current advantages enjoyed by a large proportion of the current population which has skill levels similar to those in abundant supply elsewhere in the world. We have to recognise, therefore, that it will be politically and socially vital to manage migration intelligently and effectively so that we can achieve economic growth and maintain social cohesion.

From an employer’s perspective, whose interest is to provide highly competitive goods and services to a growing range of consumers, it is desirable that we should attract immigrants with relevant skills. It is therefore particularly desirable that we are able to welcome migrants in areas where we have skill or labour shortages. We must recognise the competition between the skills of those who are available and the skills of those who are willing to relocate. We only have to travel to the United States, to universities and businesses, to wonder at the skills of the Chinese community in that country. In our own country, we have countless examples of beneficial consequences from the various waves of immigration to the UK. The Jewish influx over many generations and the more recent Ugandan and Asian inflow spring to mind.

We can also note that that great guru, Alan Greenspan, claimed that one of the key factors helping the United States sustain its economic boom through the ‘90s was the influx of migrants. As an employer, therefore, I welcome the Home Secretary’s announcement of a new highly skilled migrant programme, which has been described as the biggest relaxation in immigration policy for 30 years.

The growing needs of business for both skilled and unskilled labour is clear. All the evidence shows that immigrants (whether economic migrants or refugees) have a positive impact in a successfully growing advanced country, provided that they achieve integration and, more particularly, employment. The needs of business, the needs of immigrants and the needs of the wider community seem therefore to be aligned. However, this apparent win-win is only possible if certain obstacles can be removed. In the UK there are considerable doubts about how successful we have been at removing them.

Why is this? My sense is that other countries have been better at using immigration to their advantage. The UK is a relatively small country. It has a recent history of imperialism and emigration, not of integration and immigration. Our preconceptions about immigration may be different from those in Canada and Australia, but the practical problems remain the same.

Initiatives to improve the bureaucracy associated with employment of migrants could be helpful to business. Language and more general cultural barriers are real and need to be addressed through training and awareness for both migrants and hosts if successful integration is to be achieved. Basic requirements for successful interviews include proper clothing and contributions to out-of-pocket expenses. More effective systems could usefully be put in place to assess the nature and quality of qualifications from abroad. The obstacle presented by racism is probably the most difficult to address: the public perception that immigrants have a negative effect on economic and social welfare is a primary obstacle to Government initiatives to change immigration policy. Discrimination by employers against immigrants is, I regret, almost certainly an issue. While my own organisation is not typical, I take some satisfaction in the fact that only 40% of our employees are white Britons.

Many employers may place dealing with the employment of refugees in the “too difficult” box because of the practical paperwork, language and cultural difficulties, and it may not be easy to distinguish this from racism or indeed concern about potential accusations of exploitation.

I have some concern that when we seek to import skilled workers from other parts of the world, we will deprive countries whose need for skills is desperate if they are to develop successfully. We have worried about the ‘brain drain’ from our own country and these concerns are raised again in the development field. (I have read several works on this issue and remain uncertain about any ability to generalise) The Scots always hold that when some of them came south across the border, the average skill levels of both England and Scotland improved. I am less confident that we can expect such a certain ‘win/win’ in every case.

Undoubtedly, the value of remittances of foreign exchange offset an initial loss of skills. The importance of non-resident Indians in both investing in Indian technology companies and understanding the full international market applications of that technology, has been of huge benefit to the booming businesses of Bangalore and Hyderabad. I am told that 50 million non-resident Chinese, who have an income equal to 66% of the PRC or $700 billion, provide 70% of inward investment to that country. Nonetheless, as my own organisation, CDC, tries to invest in the poorest countries of the world, it is the management and professional skills, not finance which are so often the key constraint. It may well be helpful for local managers to hone their skills in the developed world, but the need for them to be applied back in their home industries is a critical one.

As employers, what do we wish to see? Firstly – on grounds of competition, we would hope that the most skilled potential immigrants would see the UK as a particularly attractive destination. This is a vital competitive issue and one where the accident of English as a much used language can give us an advantage over many other countries. Secondly, we need a system which deals efficiently with those who apply to enter the UK. (I hear of concerns that we are not very good at this at the moment. I am personally aware of cases which have taken an inordinate amount of time to be processed, but I have too little experience to generalise). Thirdly, out of this process we need to have clear guidelines on who may apply for employment with us, and who has the unequivocal right to work, whether for a limited period or longer. But, above all, we need a much greater acceptance, from all parts of society, that a carefully controlled but substantial level of immigration is to be warmly welcomed; that the benefits to our society and, in particular, to our future economic well-being, are such that we make every effort to facilitate their successful involvement in our affairs. I believe only 3% of our population is foreign born. This is a comparatively low figure. There are good reasons to favour its increase but a lot of work is required to create the right climate for immigrants to contribute to their full potential.

In conclusion, as an employer I want the maximum level of inward migration that our society can absorb without fundamental adverse social consequences. I want the choice of immigrants most appropriate to our skill shortfalls, and the recognition that this is a competition with other countries. I am aware that even more will knock on our door, and that more will try to enter without knocking first, (for what they consider highly compelling reasons). The challenge for us is twofold.

1. To meet our requirements for a successful economy by allowing a judicious inflow – subject to all the social pressures that are a legitimate constraint.

2. To help stem the unwelcome excess flow by promoting the economic development of poor countries so that the incentive for economic migration is reduced. It is only if we improve prospects for those in the poorest countries, that we can develop the kind of long term equilibrium that is surely in everyone’s interest.

I have little doubt that business will want to play its part in meeting both these challenges.

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