Immigration Does NOT Increase Prosperity

(Image: Chart prepared by Darshan Maharaja. If you want to use this chart / image, please send a message via the Contact page of this website.)

It is an article of faith in Canadian politics that immigration is necessary – indeed, a pre-requisite – for increasing prosperity in Canada. But actual data proves this to be a complete myth.

DIFFERENT SHADES OF SAME COLOUR

It is often said by many Canadians that the differences between the Liberal and Conservative camps (or the political Left and Right, more generally) in Canada are largely of cosmetic nature. In my criticism of the Conservative Party of Canada, I am myself prone to saying that their way of wooing votes often consists of making claims that they would achieve the Liberals’ goals in a different manner – the goals themselves are implicitly acknowledged as being founded on correct premises. Specifically, the underlying assumptions in some Liberal policies are not challenged by Conservatives. This is especially true in the case of our policy on immigration. There is a popular – almost universal – belief across the political spectrum that if Canada is to preserve and increase its prosperity, then immigration is of vital importance; the only difference of opinion between the two camps is regarding the exact number of immigration quotas every year. For all their vociferous support for the immigration levels that they think is ‘right’, however, we do not see them offer any empirical evidence to support the claim that more immigration translates into higher prosperity.

This is disappointing, but not surprising; politicians are expected to talk and act in a self-serving manner. What is disappointing is that there doesn’t appear to have been an effort from anyone in the media or the academia to crunch some numbers so we can know, as definitively as possible, whether the built-in assumption about the correlation between immigration and rising prosperity is borne out by facts. After all, the raw data required for this exercise is publicly available. Or maybe this numbers-crunching has been done by someone, but it didn’t find traction on the public platform (including in the media) – in which case, it is still a shame.

This issue bothered me over the Christmas holidays, but owing to personal commitments, I couldn’t get around to finding and digging into the data. Then life returned to normal and what I found in the data confirmed my initial hunch that higher immigration is NOT correlated with higher prosperity for the individual Canadian. Let us see those numbers – but first, a word on the sources for the data.

SOURCES

• Data of Per Capita GDP in Canada from 1960 to 2021 is from this World Bank chart; the numbers are in nominal C$ (i.e., not adjusted for inflation),
• The inflation adjustment factors for the different periods that I have considered in this article are from the website officialdata.org (see this link); they have sourced the data from Statistics Canada,
• Calculations of Compounded Annual Growth Rate (CAGR) are done with the tool available on omnicalculator.com (see this link).

METHODOLOGY

• I have taken the Per Capita GDP (in nominal C$) of the last year of each period and adjusted it for the inflation that took place during that period, to make it comparable to the Per Capita GDP of the first year of that period.
• For the resulting number for the increase in the Real Per Capita GDP, I have calculated the CAGR based on the number of years in the period.
• The periods for which I have calculated the numbers are:
  • From 1961 to 1970 (a period of economic stability, before the tumult of the 1970’s began),
  • From 1971 to 2021 (to get an idea of the overall picture in the past half century),
  • From 1971 to 1995 (being the period when immigration was still modest by today’s standards; the ending phase also coincides with a period of economic hardships & this is the half-way mark for the half century),
  • From 1996 to 2021 (a period of high immigration levels & the second half of the 1970-2021 period), and
  • From 2012 to 2021 (being the most recent decade).
  • For each of these periods, the comparison of inflation-adjusted Per Capita GDP is with the year immediately preceding the period, e.g., for the period 1961-1970, the comparison is with 1960 and so on.

THE NUMBERS

This is how growth in Real Per Capita GDP has declined in Canada over the past half century:

CAUSALITY

I am perfectly aware of the danger that the above analysis poses; it has the potential to become grist for the anti-immigrant mill (sadly, it does exist in Canada & is rather vocal, especially on social media – which is why it is so difficult to say anything against immigration without being construed as being anti-immigrant). Apart from any other argument in the defence of immigrants, I should also point out that the steady decline in the growth of Real Per Capita GDP is the result of a highly complex interplay between a multitude of variables. As the cliché goes, ‘Correlation is not causation’. In fact, as new entrants to the workforce, immigrants bear more of the brunt of this corrosion of our prosperity than the people who have been around for a while do. Therefore, I request everyone to refrain from treating this article as an argument against immigrants. My point here is that the widely held belief that the best way to preserve or increase our prosperity is via the device of bringing millions of new people over to Canada is fundamentally a myth. There is steady and relentless erosion of our growth in prosperity going on, and all that we achieve by bringing more people over is subjecting them to the pain of bearing the brunt of it.

In fairness, I must acknowledge that over the past couple of decades, I have seen several published reports on how recent immigrants are doing less and less well financially compared to the Canadians who have been here for a longer period, including multi-generational Canadians. However, perhaps in keeping with the mood of our times, this disparity is seen / presented as a result of ‘systemic racism’. I believe that this conclusion is false, if not entirely then at least to a major degree. The more fundamental reality is that Canada has been losing economic vigour as a long-term trend; the fact that new entrants to the workforce are doing worse than their older counterparts is largely a function of the point in time when they entered the workforce. A corollary to this observation tells us that the reason why we haven’t been able to rid the society of this ‘systemic racism-generated’ inequality is precisely because our diagnosis is wrong, and therefore the ‘remedies’ that we have attempted are bound to ineffectual. If you will pardon this crude comparison, we have been trying to cure diarrhea with Tylenol.

OBSERVATIONS

Firstly, as I am sure you noticed, the value of CAGR dropped from a robust 4.22% a year during 1961-1970 to a measly 0.67% during 2012-2021. This represents over 84% erosion in the individual’s ability to grow economically. Put differently, the prospects for real economic growth for the individual (sans inflation) have all but vanished. As a society, we have dealt with this via the instrumentality of reckless lending that, for all its ills, has helped many people to keep their noses above the water. As that era of easy money is coming to an end, the situation will get very dire for a lot of people. I don’t want to sound alarmist, but we could be looking at an extended period of economic stagnation for a very large section of the population.

Secondly, the total inflation between 1970 & 2021 was 596% (thus yielding the inflation adjustment factor of 6.96). This represents 83.22% decline in the purchasing power of the Canadian currency over half a century, which is almost the same as the erosion in the growth of Per Capita GDP in the same period. I wonder if the two are related, but will leave the exploration of this aspect to people who are more qualified in the subject than I.

Lastly, let us look at the growth in Canada’s population in this half century. In 1970, it was 21.43 million (see this link), while in 2021, it was 38.25 million (see this link). This increase of 16.82 million people over 51 years amounts to a 78.49% increase over the 1970 figure. The conclusion is clear, at least in my mind: increasing Canada’s population by nearly 80% over 51 years has not helped in preventing the inexorable decline in the REAL (= inflation-adjusted) economic growth at the level of the individual. In fact, the increased demand on infrastructure and other ‘social goods’ almost certainly had a deleterious impact on this increasingly more anaemic growth.

If we define insanity as ‘Doing the same thing over & over again, and expecting different results’, the conversely, the sane thing to do here (at the very least) would be to disabuse ourselves of the notion that immigration and increased prosperity are positively related.

FUTURE CONCERNS

What does this analysis portend for our future? The first question that comes to my mind (as I am sure it has to your mind as well) is: How long will it take before this vanishingly small positive growth actually turns negative? It is necessary to take a medium-term view rather than a short-term one, because the impact of sharp but temporary factors would get smoothened out over time. So, I am avoiding the temptation to consider the current downturn in the real estate sector of the economy, as well as the increased interest rates and the recession that is expected later in 2023. Rather, in order to attempt to answer the question, we have to look at what we are doing to make Canada more competitive in the global marketplace. Unfortunately, that picture is not very promising. We have lost the desire to benefit from our natural resources (that the world needs desperately). In pursuit of ideological imperatives, we are letting our competitors thrive at the expense of the Canadian economy. Perhaps as a chain reaction to this, we are also losing our spirit of innovation. For the longest time, Canada has regularly come up with innovation that the world valued and was willing to pay handsomely for. With these two ‘drivers of prosperity’ gone, we came to rely on ever-rising housing prices to bask in the glow of (illusory) ‘wealth effect’. That is now gone, too. As a ballpark estimate, I would guess that some time in the next 10 years, the CAGR for Real Per Capita GDP is likely to go negative – unless we take drastic remedial measures fast enough to earn the description ‘war-footing’.

On another front, one may be forgiven for assuming that the dwindling prospects for personal financial growth would lead to a decline in the number of people who would want to immigrate to Canada. Unfortunately, I don’t see it working that way. In a perverse way, diminishing potential for personal economic growth is likely to INCREASE the appeal for immigration to Canada. This is because the worsening financial troubles of Canadians would prompt government(s) to announce more policies to ‘help’ them (in colloquial terms, ‘freebies’). I have often spoken about the ‘well-oiled marketing machine’ that operates overseas to make immigration to Canada more attractive. I am sure they present these ‘freebies’ as yet more reasons to choose Canada as a destination. In effect, therefore, a perfect feedback loop comes into being: worsening finances of individual Canadians bring about more ‘freebies’, which are used to lure more people to immigrate to Canada as a great place to live, which further worsens their personal economic front. Again, it is important not to lay the blame for this on the immigrant; they lack first-hand experience of the reality on the ground and may be (at least partially) blinded by ambition. By the time they know that they have been suckered, it is usually too late – and this brings us to the final concern that I have on this.

The worsening woes on the economic front, and other pieces of legislation that many find intolerable, are already causing many Canadians to go looking for greener pastures elsewhere. The population of newly arrived immigrants would have people who fall in this category. I have explored this issue in my earlier article ‘Two-Way Exodus’. As I have concluded in that article, the net result of all this churning would be a metamorphosis of the Canadian society. If we apply the Roman concept of ‘saeculum’ (the period of time when every single person who was alive at the start is no longer alive at the end, roughly 80 to 100 years) to this analysis with our starting point at 1960, then it would be safe to say that by the end of this saeculum, Canada will likely not remain a First World country anymore, unless we come out of our collective stupor.

***

Independent voices are more important than ever in today’s Canada. I am happy to add my voice to the public discussions on current issues & policy, and grateful for all the encouraging response from my listeners & readers. I do not believe in a Paywall model, so will not make access to my content subject to a payment.

To help me bring more content to you, please consider donating a small amount via this PayPal link on my website: https://darshanmaharaja.ca/donate/