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Arguing about justice

 | 
Axel Gosseries
, 
Philippe Vanderborght

The breeder's welfare state: a cautionary note

Robert E. Goodin

Résumé

Nombreux sont ceux qui voient dans un État providence généreux le moyen de contrer le déclin du taux de natalité. Pourtant, un tel déclin peut être une bonne chose, non seulement du point de vue environnemental mais aussi en termes de bien-être. La richesse par tête sera sans doute plus élevée, et sa distribution pourrait être plus égale. Des taux de natalité décroissants posent un problème pour les systèmes de retraite par répartition. Mais c’est un problème transitoire lie au passage vers un système par capitalisation. Il pourrait être résolu en y affectant les revenus de la prochaine grande aubaine sociale – pensons au pétrole de la Mer du Nord – ou en augmentant la contribution fiscale payée par une génération sur les héritages dont la gratifie la génération précédente.

Note de l’auteur

Note portant sur l’auteur1

Texte intégral

The demographic beat-up

1Progressive social policy arises in strange ways. Philosophers take it to be an analytic truth that the social democratic welfare state is the manifestation of a deep impulse toward social equality. Historians know otherwise.

  • 1 For an English gloss, see Myrdal 1940.
  • 2 Quoted in Myrdal 1944: 161.

2Across Scandinavia, its original home and natural habitat, the social democratic welfare state arose instead from a demographic panic. In their hard-hitting 1934 book, Gunnar and Alva Myrdal exposed the 'crisis in population policy'. Fertility rates had fallen persistently and deeply below replacement rate (Myrdal & Myrdal 1934).1 The Swedish Minister of Social Affairs proclaimed, 'No people with unimpaired energy and the will to live can ... fail to undertake strong measures to combat the situation.'2 A Commission was promptly appointed, recommending as remedies generous welfare state provisions to assist with the costs of raising children and to facilitate mothers working outside the home. 'So decidedly was [the Commission's] social program ... accepted and so free from opposition were the major reforms enacted that [that] session [of parliament] has been called the "Riksdag of Mothers and Children,"' Alva Myrdal subsequently boasted (1944: 166).

  • 3 As Myrdal (1940: 208) elaborated in his Harvard lectures at the time, 'the population argument has (...)

3Thus was born the Swedish welfare state. Elsewhere around Scandinavia it was much the same. Population Commissions reported in broadly similar terms, and with broadly similar effects, in both Finland and Denmark. Such was the way the case was made across Scandinavia at the time: not in high-minded terms of justice or equality, but rather in terms of 'equalizing ... the economic burden of breeding children' as a practical solution to declining birth rates (Myrdal 1940: 204).3

4Europe today is in the midst of a baby drought every bit as deep as interwar Scandinavia's. Put bluntly: 'the population of Europe is no longer reproducing itself.... West Germany stopped doing so in the 1960s, East Germany, France and the UK in the first half of the 1970s, and Italy in the second half of that decade.' (Therborn 1995: 38. See further Gauthier 1996).

  • 4 Esping-Andersen, 1999, ch. 4, esp. 67-70; 2002, chs 1-3; Sleebos 2003.
  • 5 Referring to Gauthier and Hatzius 1997: 302.

5In good Scandinavian fashion, today's preeminent theorist of the welfare state Gosta Esping-Andersen (along with many others) is once again attempting to appeal to that as an argument for progressive social policies.4 Philippe Van Parijs points to evidence suggesting 'that an increase in benefit levels for a two-child family by 1 percent of average earnings would boost the number of children by nearly 4 percent' (Van Parijs 1998: 317).5

6I am all in favour of progressive social policies, family-friendly workplaces and generous welfare provision – and I suppose we should be glad to get them any way we can. But truth told, I suspect that in various respects a shrinking population may be no bad thing, not just from an ecological point of view, but also from a welfare state perspective.

Smaller populations are less poor, and potentially more equal

7The traditional core welfare state concerns are, of course, 'poverty' and 'equality'. Put positively: welfare state advocates are concerned firstly with the average level of living, and secondly with its distribution. Declining fertility can assist with both.

  • 6 Of course, that is only part of the story – albeit a very important part (certainly in the short ru (...)

8Insofar as average well-being is concerned, it is a matter of simple arithmetic. Having fewer children means that the same fixed stock of capital will be concentrated in fewer hands in the next generation. Therefore, on average, each member will have more.6

9If each couple have only one child, and that child inherits all that both parents have, then the wealth of two individuals comes to be concentrated in the hands of a single individual in the next generation. Just as each child will have more than it would have done had its parents had more children, likewise across the population as a whole. With below-replacement fertility, members of each subsequent generation will actually be richer, on average, than members of the previous one.

  • 7 In the sorts of scenarios used to argue for total utilitarianism, bringing one more happy person in (...)
  • 8 While 'optimal population size' cannot coherently be decided on the basis of average well-being (Da (...)

10True, a smaller population may produce less total output than a larger one would have done. But from the perspective of existing people, what matters is the average not the aggregate.7 Their welfare is a function of output per capita, not output in toto. With a declining population, the numerator may get smaller, but so too does the denominator.8

11Modeling economic growth is of course a tricky business, with many competing models on offer. All depict reductions in population size as having multiple effects – some positive, some negative – which substantially cancel one another. Depending on which model you use the overall effect of population decline on income per capita may be either slightly positive or slightly negative. But either way, the effect is typically small, at least for typical OECD economies (Brander and Dowrick 1994; Dasgupta 1995; Heijdra & Ligthart 2006).

12Thus, declining populations are arguably good news from the point of view of average well-being. People will on average have a larger share of the stock of fixed capital, without any substantial reduction in their income flows.

13But champions of the welfare state care about more than merely the average. They also care deeply about how that income and wealth is distributed across the population. There, a shrinking population might seem worrying in two respects. First, given assortative mating, the rich will marry the rich; and with below-replacement fertility, the rich will just get richer in the next generation, as two rich parents bequeath their holdings to a single offspring. A second well-established sociological generalization is that the poor tend to have more children; hence, while the holdings of the rich get concentrated in the hands of fewer children in the next generation, the holdings of the poor (smaller from the start) get divided more ways. In both respects, population shrinkage threatens to exacerbate inequalities in the distribution of wealth, even while increasing average wealth.

14Here is a more encouraging thought, however. Recall the main mechanism by which population shrinkage improves average welfare, via a fixed capital stock being transferred from more to fewer people in the next generation. And note that the mechanism of that transmission – probate courts – provides an excellent site for the state actually getting its hands on the wealth, in order to redistribute it.

  • 9 People can of course pass property to their children inter-vivos, thereby circumventing death dutie (...)

15Redistributive taxes on income and consumption can be evaded, more or less easily, through in-kind payment outside the cash economy. Such evasion is impossible when you are transferring legal title to property from one person to another, at the point of death or otherwise.9 Transfers of legal title by definition have to go through the legal system, and they can be subjected to redistributive taxation as they do.

16There may be some limits to the magnitude of death duties that can be imposed without undermining people's motive for amassing large capital stocks to pass to their heirs, rather than consuming it all themselves as they go along. Again, these are contentious issues, with economists divided. But one strand of evidence suggests that bequests mostly arise by accident rather than from any 'bequest motive' as such. The bequest just arises as the accidental by-product of people saving as a hedge against expensive (albeit unlikely) contingencies in their own old age that end up not eventuating (Dynan, Skinner and Zeldes 2002). That savings behaviour would remain unaffected even by confiscatory death duties.

The fly in the ointment: funding PAYG pensions

17Even if everything I have said so far is true, there remains one compelling reason for worrying about declining population size. That has to do with the funding structure of public pensions. They have traditionally operated on a 'pay as you go' (PAYG) basis. Instead of the public pension scheme being fully vested, with reserves sufficient to meet its current obligations, taxes collected from today's income-earners are used to pay today's pensioners.

  • 10 Musgrave (1981) for example opts to hold the first and third constant and allow the pension level t (...)

18Were birth rates exactly at replacement rate, that would pose no problem. The ratio of pensioners to earners would be constant across time. With a below-replacement birth rate, however, the ratio of earners paying taxes to retirees drawing pensions will be ever-decreasing. Either earners will have to be taxed at higher rates, or the level of the pension will have to be reduced, or proportion of people receiving it will, in order to make ends meet. Those are the hard choices facing PAYG pension systems given below-replacement birth rates.10

19Of course we do not have to confront that particular problem for a quarter century or so after the birthrate first dips below replacement rate. It will be that long before the below-replacement generation enters the paid labour force and the previous generation goes onto the pension. Nonetheless, as demographers like to say, 'Demography is destiny'. Everyone who is going to be aged 25 in 25 years from now has already been born. Maybe there is a little uncertainty about how many will die along the way, or where they will end up living. But basically demographic projections are just that: projections, not mere predictions.

20Still, the decline in the birth rate today will not become a problem for the PAYG pension system for another quarter century. And while there is nothing we can now do to change how many 25-year-olds there will be in 25 years' time, all sorts of other things may still change in the meanwhile.

  • 11 To be sure, the size of the population might affect the rate of return on those pensionfund investm (...)

21Like what? Well, recall that the standard solution to the structural problem with the financing of PAYG pension systems is to get pension obligations fully funded. Then each person would live in retirement off funds she had herself paid into her own personal pension fund during her working years. If each generation took out of the pension scheme only what it put into it, then no matter if generations differ in size.11

  • 12 For the most noble of motives, I hasten to add: so that those who were already old and in need at t (...)
  • 13 So after the 'free lunch' for the first generation of non-contributing pensioners comes an 'expensi (...)

22The trick lies in getting from here to there. The 'here' in question is the situation in which the payments that a person makes into the pension fund during her working years are immediately eaten up paying the pensions of current pensioners.12 If we want to get from that to a situation in which the payments are preserved in that fund for her own retirement, so she draws out only what she paid in, there is only one way to do that. Some generation will simply have to 'pay twice' – once for the pensions of those currently drawing the pension, and once more to fully fund its own future pensions.13

23Thus stated, the problem seems far more tractable. It is not a matter of magicking up some additional people out of thin air. It is merely a matter of finding some extra money, somewhere, to help with the problem of 'paying twice' in the transition.

24Maybe the money can be found out of the proceeds of economic growth. Or maybe the money can be found in some sudden windfall, like the discovery of North Sea oil or the auctioning off of licenses to broadcast on wavebands not yet allocated for any other use. Those are just the sorts of things that might well occur sometime over the course of a quarter century.

  • 14 The Thatcher Government just squandered the North Sea oil windfall on unemployment benefits to thos (...)

25What is required, as a matter of settled public policy, is that we have a standing commitment to watch out for such windfalls, and to have a standing list of 'big ticket' plans for putting such a windfall to good use.14 Financing the shift from 'defined benefit' PAYG pensions to fully vested 'defined contribution' pension arrangements is one big-ticket item that should surely be on any such list, along no doubt with many other major infrastructural investments.

26But what if the Micawberish hope that 'something will come along' proves futile, and nothing does? Well, there is in principle another easy solution, push come to shove: just make 'one generation pay twice' through one-off surcharge on the tax on bequests.

  • 15 A tax on earned income, in contrast, deprives people of something that they arguably do deserve – t (...)

27That may seem unfair ('why my generation?'), in a way that devoting windfalls to the task does not. While the windfall arose during some particular generation, the windfall was not 'its' in any morally important respect. By definition, a windfall is not something that anyone deserves.15

28But an inheritance is much the same. It is not something the beneficiary has done anything to deserve. Furthermore, it is not the sort of thing that anyone should (or typically does) count on. You never know how expensively your parents will die. You never know how much of their savings and investments will be left, by the time you come to inherit them. You cannot sensibly arrange your life around the assumption that you will inherit anything in particular, or perhaps even anything at all.

29So, in a pinch, we can solve the structural problem in financing PAYG pensions by making one generation pay twice, through a surcharge on its inheritance. If we are prepared to accept that as a viable solution, push come to shove, then the last reason for worrying about declining populations from a welfare-state perspective evaporates.

Conclusion

30There is of course considerable truth in Esping-Andersen's remark that 'the ability of citizens... to form families according to their true aspirations must be regarded as the' – well, let's not get carried away, but at least 'one important' – 'bottom-line measure of any society's welfare performance.' (Esping-Andersen 2002: 63). Certainly the fact that people across Europe persistently fail to have as many children as they say they want is in itself a genuine cause for moral concern. (It is, anyway, assuming those are true statements of their preferences rather than just a response given because it is thought to be socially appropriate.)

  • 16 Too few children, too few arms, too few allies' was Marshall Petain's explanation for why he petiti (...)

31There may be various other reasons, principled or pragmatic, for being concerned with population decline (e.g., not having enough young people to fight your wars16). There are other reasons for being glad of it, such as a smaller ecological footprint. How all of those other considerations balance out I will not attempt to say.

32But from the narrowly perspective of the traditional core concerns of the welfare state, at least, there seems nothing to fear and something to celebrate about declining birth rates. If generous welfare provision does have the effect of promoting population growth, that should perhaps be seen from a welfare perspective as an unfortunate rather than sought-after effect of policies best justified on other grounds.

Bibliographie

References

BRANDER, J. A. & DOWRICK S. (1994), 'The role of fertility and population in economic growth: empirical results from aggregate cross-national data', Journal of Population Economics, 7: 1-25.

COX, D. & RANK M. R. (1992), 'Inter-vivos transfers and intergenerational exchange', Review of Economics and Statistics, 74: 305-314.

DASGUPTA, P. (1995), 'The population problem: theory and evidence', Journal of Economic Literature, 33: 1879-1902.

DASGUPTA, P. (2001), Human Well-being and the Natural Environment, Oxford: Oxford University Press.

DYNAN, K. E., SKINNER J. & ZELDES S. P. (2002), 'The importance of bequests and life-cycle saving in capital accumulation: a new answer', American Economic Review, Papers and Proceedings, 92: 274-8.

ESPING-ANDERSEN, G. (1999), Social Foundations of Post-industrial Economics, Oxford: Oxford University Press.

ESPING-ANDERSEN, G. & al. (2002), Why We Need a New Welfare State, Oxford: Oxford University Press.

GAUTHIER, A.-H. (1996), The State and the Family: A Comparative Analysis of Family Policies in Industrialized Countries, Oxford: Clarendon Press.

GAUTHIER, A.-H. & HATZIUS, Jan (1997), 'Family benefits and fertility: an econometric analysis', Population Studies, 51: 295-307.

GOLDSTONE, J. A. (2010), 'The new population bomb', Foreign Affairs, 89 (1: Jan/Feb): 31-43.

HEIJDRA, B.J. & LIGTHART J.E. (2006), 'The macroeconomic dnyamics of demographic shocks', Macroeconomic Dynamics, 10: 349-370.

LENOIR, R. (1991), 'Family policy in France since 1938', in J.S. Ambler (ed.), The French Welfare State, New York: New York University Press, 144-186

MUSGRAVE, R. A (1981), 'A reappraisal of financing social security' in Felicity Skidmore (ed.), Social Security Financing, Cambridge, MA: MIT Press, 89-125.

MYRDAL, A. (1944), Nation and Family: The Swedish Experiment in Democratic Family and Population Policy, London: Kegan Paul, Trench, Trubner.

MYRDAL, A. & MYRDAL G. (1934), Kris i befolkningsfrågan, Stockholm: Bonniers.

MYRDAL, G. (1940), Population: A Problem for Democracy, Cambridge, MA: Harvard University Press.

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SLEEBOS, J. (2003), 'Low fertility rates in OECD countries: facts and policy responses', OECD Social, Employment and Migration Working Papers, 15, Paris: OECD.

THERBORN, G. (1995), European Modernity and Beyond, London: Sage.

VAN PARIJS, P. (1998), 'The disfranchisement of the elderly, and other attempts to secure intergenerational justice', Philosophy and Public Affairs, 27: 292-333.

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Notes

1 For an English gloss, see Myrdal 1940.

2 Quoted in Myrdal 1944: 161.

3 As Myrdal (1940: 208) elaborated in his Harvard lectures at the time, 'the population argument has been the most potent force behind the speeding up of this important transition in social policy ... from the aid of the needy to broad cooperation among all the people' – which is to say, from the residual Poor Law-style concerns of the liberal welfare state to the progressive agenda of the social democratic welfare state.

4 Esping-Andersen, 1999, ch. 4, esp. 67-70; 2002, chs 1-3; Sleebos 2003.

5 Referring to Gauthier and Hatzius 1997: 302.

6 Of course, that is only part of the story – albeit a very important part (certainly in the short run, in which people's lives are actually led). In the longer run, there are complicated feedback loops to be modeled insofar as the rate of capital accumulation is a function of investment decisions that are themselves a function of population size.

7 In the sorts of scenarios used to argue for total utilitarianism, bringing one more happy person into the world would be good for that person, and hence for total utility for society as a whole – but it does nothing for the welfare of any of the previously existing people.

8 While 'optimal population size' cannot coherently be decided on the basis of average well-being (Dasgupta 2001: 212-4), at least the average well-being standard clearly identifies which is the direction in which it is better to move – which is what policymakers need to know (Sen 2006).

9 People can of course pass property to their children inter-vivos, thereby circumventing death duties (Cox & Rank 1992) – but we can of course tax transfers of title inter-vivos as well.

10 Musgrave (1981) for example opts to hold the first and third constant and allow the pension level to vary. The problem is exacerbated if (as is also the case) people live longer, thus further increasing the number of non-earners still alive and drawing the pension (World Bank 1994). While I focus here on the birth rates alone, the solutions I offer would apply equally well to both aspects.

11 To be sure, the size of the population might affect the rate of return on those pensionfund investments. But insofar as most of those effects on the portfolio of any given cohort will be amassed during the working life of that cohort, the size of previous or future cohorts will not matter much to that.

12 For the most noble of motives, I hasten to add: so that those who were already old and in need at the time the pension was first enacted could benefit from the policy, even though they had not themselves paid into the pension fund during their own working years.

13 So after the 'free lunch' for the first generation of non-contributing pensioners comes an 'expensive lunch' for some subsequent generation of double-contributing ones.

14 The Thatcher Government just squandered the North Sea oil windfall on unemployment benefits to those driven out of work by its ideologically-driven economic agenda.

15 A tax on earned income, in contrast, deprives people of something that they arguably do deserve – the fruits of their labour efforts. The deprivation may be defensible, but any defence has to overcome that desert claim with a tax on earned income in a way it does not in the case of a windfall.

16 Too few children, too few arms, too few allies' was Marshall Petain's explanation for why he petitioned for an armistice to the Franco-German War (Lenoir 1991: 150). For a lightly encoded contemporary version of this concern, see Goldstone (2010).

Notes de fin

1 I am grateful to Frank Castles, Steve Dowrick, Heiner Gansmann, Diane Gibson, Axel Gosseries, Peter Macdonald, Axel West Pedersen and John Stephens for discussion of these ideas – for which, of course, none of them are to blame.

© Presses universitaires de Louvain, 2011

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