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Where Have All the Children Gone?
By Pavel Kohout Published 01/27/2005

http://techcentralstation.com/012705D.html

In the third century AD there was a prophet called Mani. He preached a doctrine of conflict between Good and Evil. He saw the material world as the devil's creation. Marriage and motherhood was a grave sin in his view, since by bearing children people multiply the works of Satan. The Manichean ideal was to move mankind to a superterrestrial realm of Good by way of gradual extinction.

In the course of history, Manichaeism was ruthlessly eradicated as an heretical, ungodly doctrine. When looking at demographic statistics, however, one might think that the populations in developed countries have converted en masse to Manichaeism and decided to become extinct. The birth rate in most western countries has fallen bellow replacement level.



In the so-called "New Europe", the situation is even gloomier. According to UN projections, Latvia will lose 44 percent of its population by 2050 as a result of demographic trends. In Estonia, the population is expected to shrink by 52 percent, in Bulgaria 36 percent, in Ukraine 35 percent, and in Russia 30 percent. In comparison with these figures, the projected population decline in Italy (22 percent), th[e Czech Republic (17 percent), Poland (15 percent) or Slovakia (8 percent) looks like a small decrease. France and Germany will lose relatively little population, and the population of the United Kingdom will even see a slight growth -- thanks to immigrants.



Why is the birth rate falling?



The question of why fertility has been falling so dramatically in continental Europe has been food for thought for both demographers and economists. The answer must be looked for in several important factors, which, to further complicate matters, do not simply add up in their impact. Nevertheless, it can be said with a fair amount of certainty that the existence of pay-as-you-go pension systems has had a very negative impact on birth rate. The National Report on Family published by the Czech Ministry of Labor and Social Affairs in August 2004 says:



"In terms of intergenerational solidarity, the importance of the child as an investment for material support in old age has been limited by the social security and pension insurance system, which has eliminated people's immediate dependence on children. The importance of the child's role in relation to its parents has transferred to the emotional sphere, which reduced the direct material indispensability of children in a family, while also allowing for them being replaced with certain substitutes bringing emotional satisfaction."



To put it straightforwardly, and perhaps a little cynically, in the past children used to be regarded as investments that provided their parents with means of subsistence in old age. In Czech the word "vejminek" (a place in a farmhouse reserved for the farmer's old parents) is actually derived from a verb meaning "to stipulate": in the deed of transfer, the old farmer stipulated the conditions on which the farm was to be transferred to his son. Instead of an "intergenerational" policy, there used to be direct dependence of parents on their children. This meant that people had immediate economic motivation to have a sufficiently numerous and well-bred offspring - whereas today's anonymous system makes all workers pay for the pensions of all retirees in an utterly depersonalized manner.



This system enables huge numbers of "free riders" to receive more than what would correspond to their overall contribution in their productive life. Those with incomes way above the average, on the contrary, are penalized, as the system gives them less money than they contributed to it. This is referred to as the "solidarity principle". In terms of birth rate, this arrangement is discouraging for both the low-income group and the high-income one. The latter feel that they are not going to need children in the old age, while the former believe that they can't afford to have them.



Today, children no longer represent investments; instead, they have become pets - objects of luxury consumption. However, the pet market segment is very competitive. It is characteristic that the birth rate decline in the 1980s, and especially in the 1990s, was accompanied by soaring numbers of dog-owners in cities. While in the past dog-owners were predominantly retirees, today there are many young couples that have consciously decided to have a dog instead of a baby. These are mainly young professionals who have come to a conclusion (whether right or wrong) that they lack either time or money to have a child. Thus, they invest their emotional surpluses into animals.



Taxes are pivotal



State pensions systems eliminated the natural economic incentive to have children. At the same time, the welfare state is an enormously costly luxury that has to be financed from taxes. High payroll-tax and social security contributions reduce the earning capacity of people in fertile age. Thus, they push down birth rates as well.



A reader of the Wall Street Journal wrote in a letter on the issue:



"I am the son of a Pittsburgh steelworks worker. I was born at the end of the Second World War. I have three sisters. Our mother never went to work. After the experience of the Great Depression, our parents were reluctant to borrow; yet they could afford to own a house, and our father used to buy a new car once every three or four years. My parents paid for my university education and bought me my first car when I was twenty. We were by all standards part of the middle class, and I was proud of my parents' achievement. (?) Today both my parents have to go to work in order to maintain a middle-class living standard, due to the increase in taxation that has occurred in the past half-century. (?) This has produced a generation of children carrying a key around their necks, city gangs, and aggressive brats brought up by after-school child-care centers."



The tax burden in the United Stated has indeed grown significantly over the past 50 years. The birth rate has been falling proportionately, although not to the critical level that is now current in Europe. The birth rate in the US is nearing the replacement level -- about two children per woman. Even so, comparing to Europe, the United States still appears to be a confirmed and stable superpower.



"Even if we include immigration, the population of the original EU-12 will fall by 7.5 million over the next 45 years, according to the UN calculations. Since the times of the 'Black Death' epidemic in the fourteenth century, Europe has never seen such an extensive population decline," writes Niall Ferguson, a British historian. He also predicts that in 2000-2050, the US population will grow by 44 percent. It seems that the European Union will have to forget for good about its ambitious dreams of becoming a "counterbalance" to America.



The demographic trends in Europe are indeed worrying. In Italy, for instance, the birth rate has fallen to an average level of 1.2 children per woman. Why? A journalist from the Daily Telegraph describes the life of young Italians in the following terms:



"It is virtually impossible to make a living. Just take Rome. Life with a minimum of human dignity (a small rented apartment, occasional dinner in a restaurant) requires a monthly pay of 3,000 euros before taxation, which accounts for some 1,800 euros after tax. If in the Anglo-Saxon world a majority of adults is expected to live an independent life on their own salaries, in Italy this is often not the case. An incredible 70 percent of unmarried Italians aged between 25 and 29 live with their parents, where they benefit from subsidized housing and where their poor incomes amount to a handsome pocket money."



When a modern young European has to choose between setting up a family of his own and a comfortable life without children, he is very likely to pick the latter option -- unless he belongs to a social class which regards children chiefly as a source of social benefits. A high amount of taxation combined with ill-functioning labor and housing markets is a truly genocidal mix. That is the case of Italy, but also Bulgaria and the Czech Republic. Its impact cannot be corrected by all sorts of government subsidies paid out to young families. On the contrary, under certain circumstances the benefits for families may even lead to a drop in birth rate.



The traditional model, which exists especially in Spain and Italy, but to a large extent also in East and Central Europe, emphasizes the successive steps in setting up a family. First, a young man graduates from a college or vocational school; then he secures his living, which is followed by marriage; and only then children are born. This succession not only conforms to social conventions but is also based on a profound economic logic: it is simply foolish to start having children before getting a living. The taboo of sex in Western cultures has profound economic reasons.



The troubles start when one link of this chain breaks. In contemporary Europe, the main problem lies in the second link: making a living. Unemployment among young graduates tends to be much higher than the average of the working-age population as a whole. In countries such as France, Spain, Finland, Greece or Italy, 20 to 30 percent of young people are unemployed. What birth rate can we expect, if a fifth or even a third of young population is unable to make a living due to a distorted labor market?



But there is another problem. The payroll-tax and social security contributions are up, while investments in capital equipment are made tax-advantageous. The government support of the existing families comes at the cost of heavier tax burden for young people who have not yet founded a family. The so-called "support for families" thus hinders the creation of new families, and effectively reduces birth rate. If a young unmarried person is left with mere pocket money after his salary has been taxed, he will hardly be able to make sufficient savings to set up a family. The politicians of most European countries are living in a reality gap if they cannot see this trivial economic connection.



The pay-as-you-go system and its inevitable collapse



Some people believe that there is nothing wrong with a low birth rate, as the planet is at any rate overpopulated. Yes, one cannot set the "right" amount of population for a country or a continent by "scientific" means. What we can determine, however, is which age structure of population is favorable, and which is disastrous. In a few decades, a large part of Europe will be dominated by a very unfavorable age structure, typical with an enormous increase in the number of retirement-aged people.



To be accurate, it is not yet clear at what age today's young people and children will retire -- if they retire at all. The pay-as-you-go pension systems will inevitably undergo a long and severe crisis, the result of which can, to a certain extent, be reckoned today. There are several scenarios, the most likely of which suggests that retirement age will gradually have to be raised. The most recent Insurance-Mathematic Report on Social Insurance produced by the Ministry of Labor and Social Affairs in 2004 suggests that "the gradual raising of the age limit for the eligibility for old-age pension could substantially eliminate the impact of the expected ageing of the Czech population. It is also clear that a freezing of this age limit would lead to a sharp growth in the level of elderly dependency."



Translated into a simple and straightforward language, this means that retirement age will have to be constantly raised: at first to 65 years, then (sometime in the early 2030s) to 67, and so on. To stop this growth would drag the system relatively quickly into a crisis. In other words: a pay-as-you-go system may work for another few decades, before being gradually marginalized by the rise in retirement age. The pay-as-you-go system was a huge political and economic experiment; and the generation of today's children will witness its failure.



But perhaps people will just return to the 1880s, when in Bismarck's Germany the retirement age was 70 years -- with an average life expectancy of less than 50 years. If in 2050, for instance, the official retirement age becomes 90, with an average life expectancy around 80, then the pay-as-you-go system can be sustainable in the long term. But a good social security at an age of around 60 will be completely out of the question for those who are now children.



On the other hand, if the retirement age remains unchanged, the tax burden could eventually rise up to 70-75 percent of gross wages. In such a case, however, the younger and more educated portion of working-age population would undoubtedly migrate to countries with lower taxes: particularly to Britain, Ireland, or the United States. These countries also have much less trouble with their demographic structure. Over the next 50 years, the United States may hugely benefit from accepting a wave of emigrants who will have been chased out of Europe by high taxes -- and maybe not only high taxes.



The end of democracy in Europe?



The prophet Mani is dead. But another prophet's teaching is still very much alive. In 2002 the most common first name given to newborn babies was Mohamed. The name Osama finished at a handsome 12th position.



In the 1960s there were only about 350,000 North-African Muslims living in France, with some 1.25 million French living in North Africa. Since then, the notion of "colonialism" has completely reversed. There are almost no French living in North Africa, but the number of Muslims of African or Middle-Eastern origin in France is estimated at 4 to 10 million. The exact number of legal and illegal immigrants is unknown, for the sole reason that French statisticians are not allowed to collect information on ethnic and religious patterns of population.



Nevertheless, some estimates suggest that one in three births in France occurs in a Muslim family. That would explain, among other things, why France has a much higher birth rate (about 1.7 children per woman) than Spain or Italy. Stripped of this influence, the French birth rate would be around 1.2 children per woman, which is a figure similar to those in the countries of South and East Europe.



A Russian-Israeli journalist Shlomo Groman writes:



"Go to any child-care store in Vienna. Its clients will be predominantly Arabic, Iranian, Pakistani, Turkish, Japanese, Korean, and Black African. Viennese women never bear children -- they cherish their figures and careers instead. The Western-European pension systems made the bringing up of children less advantageous than social climbing and maximization of income."



Culture seems to play an even more crucial role than taxes or pension systems. The countries of the former Soviet Union are an interesting "demographic laboratory" in this respect. We have already mentioned Ukraine, Baltic States, and Russia. The situation in the Muslim republics -- Azerbaijan, Tajikistan, Uzbekistan, and Turkmenistan -- is completely different: almost all of them are living a population explosion. The living standard in these countries is close to that of Georgia or Armenia, i.e. poor. But Georgia and Armenia suffer from the same demographic shock as, for instance, the Baltic States. The difference lies in the traditionally Christian character of the latter countries. The position of women in society is perhaps a little different from that of the rich European countries, but comparing to Muslim countries these differences do not count much. In terms of birth rate, they are almost negligible. Armenia will lose a quarter of its population by 2050, while the population of the neighboring Azerbaijan will surge by a third.



The international demographic context will see huge changes: in 2050, Yemen will have more population than, for example, Germany. These people will quite understandably long for the standard of living that currently prevails in Europe. The immigration pressure on Europe will be immense. Given the European liberal laws on family reunification, the exodus from Middle East and North Africa will have enormous dimensions.



Instead of integration of immigrants from the Middle East and North Africa into a majority European society, the opposite will occur: the immigrants will integrate the existing European culture into their own civilization. After some time, it will be their civilization that will become dominant. One does not have to be a supporter of Jean-Marie Le Pen to feel a little anxious about that. It is not a problem of ethnics and their mingling. It is a matter of society, its values, and democracy as such. European tolerance competes with Islam, which is not always a religion of peace, as many Europeans would like to believe. Radical Islamic preachers openly condemn democracy. They interpret it not as a social system but as a pagan cult, which prefers the voices of people to the voice of God. This and other theories of Sheikh Yusuf al-Qaradawi and his conservative fellow-believers are proclaimed in many mosques throughout Europe.



If as a result of demographic trends a large part of future Europeans will have dark skin and go to mosque, why not? But if they become a threat to the European tradition of democracy and tolerance, it will be a tragedy.



The author is an associate of the Center for Economics and Politics (CEP), Prague.


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