Dominos pizza, free markets and immigration

The chief executive of Domino’s Pizza, Lance Batchelor, has set a few hares running with his comments about immigration and low paid work, specifically the number of unfilled jobs in his own pizza delivery chain.  Batchelor said that the government should open up immigration because British people are unwilling to take the near minimum wage jobs that form the backbone of Dominos workforce.  Immigration minister Mark Harper MP said that Dominos works in a free market economy and if they want to fill empty posts they should pay a little more.

Both men are relying on free market principles to underpin their arguments.  So which one is right?

As a Conservative I believe in the generally positive effects of free markets.  They tend to drive better quality and lower prices and history has shown us that protectionist policies tend to be unsustainable in the medium to long term.  This view has driven western governments to move to a free market in goods, services and capital over the post war decades, but all have stopped short of implementing the complete free market movement of people.

Batchelor is advocating a big step towards free market movement and on one level his plea is completely logical and consistent.  It is also rather simplistic.  Immigration minister, Mark Harper, reminded Batchelor that in a free labour market the obvious response to his surplus demand for labour (unfilled positions) is a price correction (increased wages), clearly in economics terms he is right.  But once again it over simplifies the situation.

Dominos pizza provides very convenient, low price food and their business model relies on a large workforce.  The simple maths of this labour intensive low cost product is that wages need to be relatively low to be sustainable, paying a high enough wage to trigger a significant behavioural change in the domestic labour market might push the company’s costs above their profitability threshold.  If we are unwilling to support a business model which depends on comparatively low paid labour we don’t have to, we can simply buy higher priced alternatives, but as a society we are clearly happy with their business model as demand for the company’s product is growing.

Batchelor is also right to highlight the unwillingness of many British people to take low paid positions even though they may be unqualified to seek higher paid work and the effect this has on his and other similar business models, it is therefore completely fair for him look at immigration controls as a market distortion, they are. But as a society we are currently unwilling to live with the implications of complete free market movement of labour.  We set a minimum wage so insulate people from the downward pressure on wages that full international price competition of labour would create and we financially support people who cannot find work. These are market distortions but they exist for sound moral and societal reasons.  In many parts of the world an unwillingness or inability to take low paid work simply means you and your family starve, no one in the UK is willing to use that as a motivator.

But we must also accept that a degree of labour migration is a good thing, highly motivated, entrepreneurial immigrants have been a huge part of this country’s economic vibrancy for centuries.  Many of our most loved national brands and successful companies were started by immigrants.

If we permanently prevent hard working people from around the world coming to the UK to work we run the risk of increasingly mobile and international businesses simply moving to where those people are.  We lost thousands of jobs in our ship building industry because of cheaper international labour competition and it didn’t need Asian shipwrights or welders coming to Tyneside to do it.  Well educated, well motivated, hard working people from abroad will always compete with the UK workforce, if not here in the UK they will do it from overseas.

At some point in the future we will look back at our current (fairly) protectionist policies on free market labour movements with the same disbelief that we look back on the corn laws.  But we must also understand that a sudden influx of cheap labour competition would create massive and painful social upheaval.

As a Conservative I believe in the positive impact of free markets but I also believe in evolutionary change rather than revolutionary change. More human movement is inevitable in the future and we must not be King Canute about it but we must also recognise that there is an optimum rate of change and all at once isn’t it.

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