Time inconsistency is a much-used term in economics and
describes a situation where a policymaker announces a policy option only to
renege on it later when it is evident that the costs of adhering to the
original policy are higher than the costs of cheating. It was originally
popularised in the macro literature in the context of monetary policy whereby a
central bank announces a target – a money supply growth rule for example – only
to find that the costs of maintaining it are too high because it requires implementing
a policy which is too tight (or loose) for overall economic conditions.
But it goes way beyond monetary policy and I was struck recently by how a couple of the big items on the UK government’s agenda can be described in terms of the time consistency problem. One is the decision to leave the EU. Given the closeness of the referendum vote and the degree of opposition to the decision, together with the fact that younger voters – tomorrow’s older generation – are generally in favour of remaining, it is possible to imagine a situation in which the UK either reneges on its commitment to leave or reapplies at some point in future. If that were to happen, it would render today’s shenanigans regarding Brexit negotiations a time inconsistent set of policies.
However, the time inconsistency issue particularly came to mind in the context of the recent scandal regarding the first generation of immigrants from the Caribbean in the late-1940s and 1950s. To recap, many thousands migrated to the UK seeking work – and let us not forget, this policy was welcomed as a way to alleviate post-1945 labour shortages. Crucially, they were entitled to come to the UK without having to give up their original nationality, thanks to the passing of the 1948 British Nationality Act, which granted UK citizenship to those from Commonwealth countries. Consequently, many people simply did not feel the need to formally apply for UK citizenship – it was conferred upon them. But the 1971 Immigration Act changed the law to grant only temporary residence to most people arriving from Commonwealth countries which came into force in 1973. However, people born in Commonwealth countries (and their dependents) who arrived before 1973 were given indefinite leave to remain.
So far, so uncontroversial. But the time inconsistent element of immigration policy can be dated to May 2012 when then-Home Secretary Theresa May declared: “the aim is to create here in Britain a really hostile environment for illegal migration.” She then steered the 2014 Immigration Act through parliament that gave new powers to help the Home Office and other government agencies make life difficult for illegal migrants. Amongst other things, this required people to have documentation to work, rent a property or access benefits. Just to complicate matters, the Home Office did not keep a record of those granted leave to remain under the 1971 legislation, or issue any paperwork confirming it. It also destroyed the landing cards (or registry slips) of first generation immigrants in 2010 as part of the drive to eliminate the huge pile of paper records in the archive.
Now you might say that this is simply incompetence on a massive scale, and I would not disagree. But what policy has done is to confer a set of legal rights on citizens only then to change the rules by insisting on a burden of proof which was never initially required. That is a classic example of time inconsistent policy. We find ourselves in this situation because of a change in the political climate – we can argue about whether government was responding to a change in voter preferences or whether it indeed fanned the flames. What we can say for certain is that government policy changed over the years, from welcoming immigrants as a source of labour to actively discouraging them.
Such time inconsistency issues are not confined to the UK. In France, for example, the Immigration Act of 2006 abolished the automatic right of immigrants to attain French nationality after having lived without authorisation in France for at least ten years (here for an overview of French immigration policy since 1945). This policy is officially designed to “restrict the immigration of unskilled workers and persons who would become a burden on the French State” but as in the UK, it is surely no coincidence that it followed a rise of popular discontent.
Whilst Germany has dealt relatively better with its Gastarbeiter policy introduced in the 1950s and 1960s, the longer term consequences of allowing in huge waves of migrants in 2015 have yet to unfold. There is no doubt that as a humanitarian gesture, it is without parallel in recent years. But the surge in support for the AfD in last September’s election suggests that not all voters share Angela Merkel’s view. The experience of the UK and France is that immigration policy – and indeed many other policy areas – can experience a 180 degree turn. Governments seeking re-election every 4-5 years may simply not be able to make promises that their successors are willing to keep and it is a reminder that nothing lasts forever – even what appear to be binding policy commitments.Jacob Rees-Mogg, Boris Johnson et al take note.
But it goes way beyond monetary policy and I was struck recently by how a couple of the big items on the UK government’s agenda can be described in terms of the time consistency problem. One is the decision to leave the EU. Given the closeness of the referendum vote and the degree of opposition to the decision, together with the fact that younger voters – tomorrow’s older generation – are generally in favour of remaining, it is possible to imagine a situation in which the UK either reneges on its commitment to leave or reapplies at some point in future. If that were to happen, it would render today’s shenanigans regarding Brexit negotiations a time inconsistent set of policies.
However, the time inconsistency issue particularly came to mind in the context of the recent scandal regarding the first generation of immigrants from the Caribbean in the late-1940s and 1950s. To recap, many thousands migrated to the UK seeking work – and let us not forget, this policy was welcomed as a way to alleviate post-1945 labour shortages. Crucially, they were entitled to come to the UK without having to give up their original nationality, thanks to the passing of the 1948 British Nationality Act, which granted UK citizenship to those from Commonwealth countries. Consequently, many people simply did not feel the need to formally apply for UK citizenship – it was conferred upon them. But the 1971 Immigration Act changed the law to grant only temporary residence to most people arriving from Commonwealth countries which came into force in 1973. However, people born in Commonwealth countries (and their dependents) who arrived before 1973 were given indefinite leave to remain.
So far, so uncontroversial. But the time inconsistent element of immigration policy can be dated to May 2012 when then-Home Secretary Theresa May declared: “the aim is to create here in Britain a really hostile environment for illegal migration.” She then steered the 2014 Immigration Act through parliament that gave new powers to help the Home Office and other government agencies make life difficult for illegal migrants. Amongst other things, this required people to have documentation to work, rent a property or access benefits. Just to complicate matters, the Home Office did not keep a record of those granted leave to remain under the 1971 legislation, or issue any paperwork confirming it. It also destroyed the landing cards (or registry slips) of first generation immigrants in 2010 as part of the drive to eliminate the huge pile of paper records in the archive.
Now you might say that this is simply incompetence on a massive scale, and I would not disagree. But what policy has done is to confer a set of legal rights on citizens only then to change the rules by insisting on a burden of proof which was never initially required. That is a classic example of time inconsistent policy. We find ourselves in this situation because of a change in the political climate – we can argue about whether government was responding to a change in voter preferences or whether it indeed fanned the flames. What we can say for certain is that government policy changed over the years, from welcoming immigrants as a source of labour to actively discouraging them.
Such time inconsistency issues are not confined to the UK. In France, for example, the Immigration Act of 2006 abolished the automatic right of immigrants to attain French nationality after having lived without authorisation in France for at least ten years (here for an overview of French immigration policy since 1945). This policy is officially designed to “restrict the immigration of unskilled workers and persons who would become a burden on the French State” but as in the UK, it is surely no coincidence that it followed a rise of popular discontent.
Whilst Germany has dealt relatively better with its Gastarbeiter policy introduced in the 1950s and 1960s, the longer term consequences of allowing in huge waves of migrants in 2015 have yet to unfold. There is no doubt that as a humanitarian gesture, it is without parallel in recent years. But the surge in support for the AfD in last September’s election suggests that not all voters share Angela Merkel’s view. The experience of the UK and France is that immigration policy – and indeed many other policy areas – can experience a 180 degree turn. Governments seeking re-election every 4-5 years may simply not be able to make promises that their successors are willing to keep and it is a reminder that nothing lasts forever – even what appear to be binding policy commitments.Jacob Rees-Mogg, Boris Johnson et al take note.
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