Demography and Retirement Provision

How to Secure Old-Age Provision in the Face of Rising Life Expectancy.

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

Click here for the list of all articles: Compendium
Click here for the German-language version: Demographie und Altersvorsorge

Table of Contents

  1. Abstract
  2. The Demographic Development as a Scapegoat
  3. The Effects of the Neoliberal Indoctrination
    3.1 Excursus on Potential Refugee Movements
  4. The Real Dangers and Challenges
    > The First Step
    > The Second Step
    > A Third Step
  5. Excursus on the Demographic Inability
  6. Conditions for a Sustainable Demographic Development

Abstract

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The inadequate retirement provision of today’s working population is not, as is alleged, a consequence of rising life expectancy, but is part of the social cutback caused by the neoliberal economic system. Whoever wants to prevent the threatening increase in poverty among the elderly needs to stand up for a regulated market economy based on decentralized self-determination and responsibility, for an economic order that generates social and ecological yields on the basis of full employment and environmental protection. Full employment is the essential prerequisite for ensuring a sustainable basic living wage for all, and here in particular for the elderly by means of an adjusted, flexible retirement age – even and especially when the average age of a population is rising. The illustration caricatures the selfishly destructive game of the global players in neoliberal »free trade«, which is also responsible for the social cutbacks, among other things.

2. The Demographic Development as a Scapegoat

It is a popular exercise for neoliberal protagonists to derive societal and economic horror scenarios from demographic developments in Western countries, here, as an example, specifically related to Germany. The trick is to stylize competitiveness on deregulated (»liberalized«) global markets as the guarantor of our future viability and to present it as being at risk because of the »ageing« of the population, i. e. because the number of workers as a proportion of the total population is declining. This establishes the argumentative basis for raising fears that an »ageing« society would basically lose its economic competitiveness and that people would therefore have to fear for their pension entitlements.

The horror scenarios are a constant topic in the media and discussion forums and serve the intended purpose of bringing the selfish interests of companies and corporations, which are exposed to absurd predatory competition in global markets, back into play again and again. The campaign pursues four unspokenly linked objectives:

  1. The labour supply of the working population is to be increased by immigration of young people in order to intensify wage competition among dependent workers.
  2. As a consequence of permanent wage competition, the decoupling of wage development from productivity growth is to be understood as inevitable and »normal«.
  3. At the same time, pressure is to be exerted on the level of social benefits in order to promote a general willingness and acceptance to gradually reduce employer contributions to the statutory pension scheme.
  4. Finally, as much as possible of the payment of contribution of the dependent employees is to be redirected from the statutory pay-as-you-go pension system into the private insurance industry and the globalized financial markets

The fact is that migrant young workers cannot contribute to the topping up of pension funds in the face of the prevailing unemployment and underemployment. This is because mainly low-skilled immigrants from underdeveloped countries are recruited, who then crowd out resident workers of the lower wage segments and trigger a wave of wage and social dumping. In total, even less money is actually flowing into the statutory pension funds. Therefore, the opposite of what the neoliberal protagonists would like to make us believe is achieved.

Highly qualified foreign experts who can fill vacancies in the export industry are a special case. The jobs concerned require extremely specialized qualifications as a consequence of the intensifying absurd competition in »liberalized« markets. Incidentally, the not very successful recruitment of this small group of internationally sought-after experts, which is conducted under the alarmist heading »skills shortage«, has virtually no influence on demographics and old-age provision, and can be neglected in this context.

A birth rate at a level that would result in steady population growth would have similar consequences under neoliberal conditions to that of actual immigration. The high youth unemployment rate demonstrates that there is already insufficient demand for young people on the labour market and that companies are exploiting competition among career starters entering the labour market to push up the proportion of temporary and precarious employment contracts. A situation that cannot be remedied by better school education, higher qualifications or further academization of professions. Those with above-average education and training increase their personal chances of finding a job, but constrain the opportunities of other applicants, so that the unemployment rate remains unchanged. At the end of the displacement cascade, mainly young people with practical and handicraft skills fall by the wayside. These young people could possibly be just as well suited for many jobs as the applicants with higher education and academic training, but against whom they have no chance under the illusion of comprehencive academization.

But how are all the excluded young people supposed to finance their old-age provision? And what improvement could they expect from a higher immigration or birth rate under the prevailing economic doctrine?

3. The Effects of the Neoliberal Indoctrination

The horror scenarios have a devastating influence on the formation of public opinion and political decisions because they turn the cause-and-effect relationships between demography and the economy upside down. First of all, they create the impression that the demographic development is partly responsible for mass unemployment and poverty, because few top performers among young and middle-aged people are up against too many people of advanced age who are not prepared for the demands of a globally competitive economy. And therefore the dwindling national competitiveness and the resulting social hardship would call for immediate financial relief for businesses as well as policies aimed at population growth.

Conversely, the demographic issues of importance to society are excluded against the background of industrial interests. Firstly, the question of how long we can afford continued population growth with an already ecologically excessive population density (in Germany at present 230 people per square kilometre), and when and at what level we must, at the latest, stabilize and possibly reduce the population in order to ensure a sustainable balance between the human demands on natural resources and their ability to regenerate. And secondly, there is the question of how we can achieve a sustainable balance in the long term by means of autonomous family policy, i. e. without damaging other economic areas by unilaterally enticing away well-trained workers. The meaningful and enriching exchange of workers with other economic areas remains unaffected thereby as long as bilateral migration is balanced in the medium term.

One thing seems certain: There is hardly a more disastrous horror scenario to be imagined than a combination of the neoliberal economic doctrine and unlimited population growth.

The extent of ignorance regarding the fact that our future depends on the careful use of the limited natural resources on the one hand, and on an economic policy promoting decentralized structures on the other, is shown by a statement of the former UN Population Director Joseph Chamie: In 2003, he warned Germany that immigration must lead to at least an annual net increase in its population of 480,000 people, equivalent to a growth rate of 0.59 percent, to keep the ratio of employed to retired people stable. Net increase means that gross immigration must be high enough to compensate for both the migration outflow and the average annual excess of deaths over births of around 150,000 in Germany at present. The reason why Director Chamie restricted his appeal to immigration and ignored other options such as family, labour market and social policy remains his secret.

Under the realistic assumption that the birth rate and life expectancy of immigrants would adapt to German conditions within a short period of time, the desired objective – of keeping the ratio of employed to retired people stable – could only be achieved by perpetuating the net increase in the population for ever. The consequences of the UN Director’s demand would be disastrous: The German population would double to about 160 million in 150 years!

In addition, two other initiatives should be mentioned which reflect the economic confusion surrounding retirement age:

Firstly, the »retirement at 67« initiated by the former »red-green« federal government, which relieves the pension fund, but at the same time increases old-age poverty by giving most people affected additional periods of unemployment at the end of their working life or, alternatively, if they apply for an earlier retirement, cutbacks in their pensions.

Secondly, the »Riester pension«, which was also introduced by the »red-green« government and offers compulsorily insured employees incentives to increase their inadequate basic statutory pension provision by means of fullyfunded private insurance. This initiative is also futile because precisely those employees who face old-age poverty are unable to raise funds for additional insurance premiums given their stagnating real wages. In addition, the premiums are invested in the globalized financial markets and are irresponsibly at risk for a secure pension provision.

A deeper insight into the neoliberal doctrine is provided by the articles Neoliberal Vicious Circle and Neoliberal Economic Doctrine.

3.1 Excursus on Potential Refugee Movements

The concern and intent of this compendium is to point out the endangering of the social and environmental well-being arising from the neoliberal economic deregulation, including appropriate measures to avert these dangers. The overpopulation of our planet is at the center of this article because it fuels the cascade of subsequent dangers, such as cultural, social, environmental, economic and security-related incompatibilities, distortions and costs. The latter are only mentioned here in so far as they relate to the issue of old-age provision.

As a highly developed region, Europe has a duty to put an end to the trend towards overpopulation, initially on its own territory, and, if possible, to reverse it in an exemplary manner, also in order to be legitimized for globally effective countermeasures, so that the world can embark on a path to safeguard the integrity of societies and the environment.

The worldwide migrant and refugee movements are, as will be shown, a major cause of the continued growth of the world’s population. Among the motivations that encourage people to migrate or flee, the push factors in the countries of origin and the pull factors in the destination countries must be distinguished:

Firstly, the push factors: A Gallup survey carried out in 2009 provided sobering statistical data: 38% of the inhabitants of black Africa and 23% of the population of Arab countries at that time declared that they envisaged emigration, primarily to Europe, should living conditions not improve or even deteriorate as a result of war, persecution, lack of prospects or climate change. Assuming these percentages are unchanged, 380 million of the current (2017) sub-saharan African population of 1 billion, and 87 million of the current 380 million people in Arab countries would consider emigration.

Due to the continuing high but likely declining birth rates, populations in black Africa and Arab countries are expected to rise to 2.2 billion and 620 million respectively by 2050. Accordingly, assuming again the percentages mentioned would not change, 830 and 143 million people respectively are expected to consider emigration in 2050, adding up to a total of 970 million people. It should be noted however that this is a static analysis which – while pointing to an extremely high demographic threat to Europe and the urgent need for action on the part of Europe – cannot predict the future dynamics of possible mass migration and mass flight.

Secondly, the pull factors: As discussed here, the export industries of the competitive countries in particular are guilty of demanding and promoting migration, essentially by arguing that there is a shortage of young workers, endangering both their competitiveness and the retirement provision. What remains unspoken is that immigrants trigger wage dumping, which is certainly in the interest of industries, but also places a burden on the social security funds if immigration of individuals is not beforehand subject to qualifications that are in demand on the labour market. By stylizing the arguments of the export industries into an irrefutable socio-economic truth, the political mainstream not only creates incentives and freedoms for workers to migrate to more competitive countries within Europe, but the arguments are also seen by people in underdeveloped countries as a signal, if not an invitation, to set off for a – usually supposedly – better future.

The pull generated by the competitive countries does not in any way lead to a shrinking population in the countries of origin, nor does it diminish the desire to emigrate. On the contrary, these countries lose the motivation to limit their population increase because they speculate on the financial support of their emigrants and risk becoming dependent on it. At the same time, there is no longer any incentive to set up self-reliant, self-sustaining economic structures – with the risk of increasing poverty.

The fefugee wave that started in 2015 has given a first taste of the readiness of people from sub-saharan Africa and Arab countries to emigrate or flee. All migration movements included, the influx in 2015 led to a net increase of 1.14 million people in Germany and a further net increase of 750,000 in 2016. Further burdens could arise in the years to come due to possible family reunifications of refugees. If no countermeasures are taken, chaotic conditions would have to be feared in view of the potential described above.

As countermeasures, there are only two possible courses of action: Firstly, the European countries would have to urgently eliminate all incentives in the short term, so that people in the countries of origin would not even embark on the dangerous journey to Europe; this includes the complete control of external European borders. Secondly, Europe should provide sustainable and effective financial and human resources assistance in the regions of origin, sustainable in the sense that, on the one hand, Europe can maintain its willingness and capacity to help, and, on the other, the countries of origin are put in a position, in the medium term, to offer their young people attractive prospects for the future.

The danger posed by the refugee wave that started in 2015 is still very real, especially for Germany, because neither the guarding of Europe’s external borders as agreed in the Schengen agreements has been effectively implemented, nor has the asylum regime as laid down in the Dublin agreements currently been applied in full by Germany. Therefore Germany’s external borders are in fact open to everyone worldwide who manages to advance to them.

Not to control national borders, especially without a parliamentary or grassroots democratic decision, as being practised in Germany, is not only a threat to internal security, it is also unfair in two ways: firstly, to the national population, whose constitutional sovereign rights are undermined and to whom the follow-up costs are imposed, and secondly, to those refugees who need immediate and temporary protection.

An immigration law that strictly follows the needs of the labour market is, notwithstanding the above, an independent political task.

A further reference seems appropriate: The right of asylum under Article 16a, paragraph 1 of the German Grundgesetz (Constitution) can be restricted by federal law in accordance with Article 73, paragraph 1 / 10b »for the protection of the free democratic order, the existence and security of the Federal Republic or one of the Federal States…”. Democratic order and national security are thus the supreme assets to be protected by the Grundgesetz and, in case of emergency, also superior to the right of asylum. The German Bundestag (parliament) is therefore obliged to act in good time in view of the beginning mass migration to achieve justice and to preserve the democratic order and security of the country. This must not rule out an amendment to Article 16a of the Grundgesetz.

4. The Real Dangers and Challenges

On closer inspection, however, the demographic dangers are very much different from what they appear to be in the distorted mirror of neoliberal interests. It is therefore necessary to reconcile the interdependencies between ecology, demography and economy. This requires several steps of rethinking:

The first step concerns the interdependence between ecology and demography, which sets strict limits on the absorption capacity of each settlement area and must be the basis of any policy aimed at sustainable development. Determining the specific ecologically tolerable load limit of a settlement area provides the quantitative framework for the optimal cycles of non-renewable resources, for the sustainable use of renewable resources and, accordingly, for the maximum possible population density in the long term. These natural limitations, which seem to stand in the way of man’s quest for progress, become less of an apparent threat when progress is no longer equated with the growth of production volume, but with qualitative improvement in production conditions and production results.

Under the ideal conditions of an ecologically compatible population density and qualitative economic growth, only subsidiary, employment-friendly economic structures are then required in order to grant all citizens a self-determined participation in economic activity and a fair share of the economic outturn for a decent living, which enables them to contribute to solidary old-age provision and, in addition, to pay premiums for supplementary provision adapted to their individual needs. See also the article Economic Subsidiarity.

Back to the interdependence between ecology and demography: As soon as the quantitative framework for the use of resources and the population density of a settlement area is defined, the population can initially be adjusted to an ecologically compatible level and subsequently be permanently stabilized. The best way of achieving and stabilizing a certain population is by family policy. Inward or outward migration is unsuitable in the long term, because it externalizes the political responsibility. Finally, in a steady state, stabilization of the population depends on both a suitable family policy and a balanced flow of immigration and emigration.

The prerequisites for the interaction of sustainable demographic policy and child-friendly family policy are dealt with in the last two sections Excursus on the Demographic Inability and Conditions for a Sustainable Demographic Development.

In today’s political debate, the notion of a lasting stagnation of the population is still met with incomprehension. Alone the loud reflection on the need to reduce the far too high population density to an ecologically acceptable level triggers fear and horror and is dismissed as completely insane with reference to the economic and social decline to be expected in the event of stagnation. This proves how difficult it is for the scientific facts, which actually leave no doubt about the anthropogenic burden on the biosphere, and how irrational and influenced by neoliberal interests the political debate takes its course. The fact that the population density in Germany is already well above the barely tolerable threshold and that we would not need unlimited positive but temporarily negative population growth can be demonstrated by means of a simple rough calculation based on two decisive criteria for a sustainable development: (1) the potential for an independent supply of the population by environmentally-friendly agriculture and (2) the preservation of biodiversity.

I call the potential for an independent supply of the population structural self-sufficiency. In other words, while the structures and capacities for self-sufficiency exist, they are not used for market foreclosure, but serve as a precondition for autonomously conducted multilateral foreign trade, which increases the diversity of supply and prevents blackmail by trading partners.

For a deeper understanding, here is a very realistic thought experiment:
Almost half of Germany’s land area, equivalent to 17 million hectares, is used for agriculture and is intensively (conventionally) farmed. Under these conditions, one hectare feeds four inhabitants, i. e. 68 million people of the total population of around 82 million. This means that one-sixth of the demand for foodstuff must be imported. If, as a first step, self-sufficiency were introduced in order not to live at the expense of external resources, the population would have to be reduced to the 68 million mentioned above. If, as a second step, farming would be shifted from intensive to sustainable, envoronment-friendly cultivation to maintain the regenerative capacity of soils and waters, one hectare could only feed three inhabitants and the population would have to be reduced to 51 million. Finally, if the biotopes were to be interlinked to preserve biodiversity, agricultural land would have to be halved and the population be limited to 26 million.

The second step of rethinking relates to the specific age structure that inevitably evolves in technologically advanced industrial societies. The obstacles to a realistic assessment of this specific characteristic are rooted in the false notion that the age distribution must be forced back into a demographic pyramid with a broad base of young and a narrow tip of old people, just as pre-industrial societies possess and as Germany still showed at the beginning of the 20th century. The scientific and technological progress, which has fortunately more than doubled our average life expectancy since then, will eventually cause an almost even age distribution and, as the illustration suggests, will resemble more a cylinder with a mounted saddle roof than a pyramid.

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Changes in the German age distribution: Review 1910 and 1996, Projection 2030 and 2050

Birth rates, which would once again lead to a pre-industrial age pyramid, would imply a population explosion and would make the earth uninhabitable after a few generations if they were to be envisaged worldwide. The rather cylindrical distribution, on the other hand, does not in any way represent a threat, but is in fact a pleasant consequence of progress and proof of a long and healthy life for most people. We cannot wish for a better age distribution! So why should we regard it as threatening?

A third step of rethinking is needed to adapt the economy to the ecologically given demographics. This step can be worked through on the basis of pension financing, which is presented as demographically endangered in neoliberal horror scenarios. The risk that pension contributions and pension payments will no longer be raised to the necessary extent is proving to be a fictitious problem under the conditions of a market economy that is regulated autonomously by economic policy:

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For example: Flexible retirement between 60 and 70 years of age!

Assuming a stabilized population density, increasing life expectancy, full employment and a solidary pension insurance obligation for all dependent employees and self-employed persons, basic pensions providing a decent living can be guaranteed by a single and very simple mechanism:
a flexible retirement age.

Under these conditions, and only under these, the retirement age can individually vary within a range that has to be fixed on a regular basis subject to overall economic productivity – and with the aim to guarantee overall cost neutrality – leaving it up to each citizen to determine the duration of his or her working life and, depending on that, the amount of his or her pension. Those who retire earlier will receive less, those who retire later will receive more. This means double social progress when tasks that require great experience, independent judgment and vision can be assigned to people of an advanced age, even beyond 65 years of age, and when all citizens are given the choice of making themselves useful for as long as their capabilities and life planning allow.

Additional financial margin is created for a solidary pension insurance scheme when it is designed as a citizen’s insurance, meaning that all citizens pay the same fixed percentage of their total income as premiums, but will receive upon retirement a pension amount independent of their earned total income. The individual pension amount is then not measured by the amount of contributions made, but by the number of months in which payments were made. In other words, the so-called contribution equivalence in a solidarity-based system relates exclusively to the months of active employment. On the one hand, this creates incentives for employment and, on the other, it improves income distribution and welfare.

In addition, every citizen would be entitled to take out additional private old-age insurance. Under the economic policy conditions described above, supplemented by a flexible retirement age, even today’s fifty-year-olds, who belong to the baby boomer generation and whos retirements will begin in 2030, could be relaxed in face of a combination of their old-age provision from citizen’s insurance and possible voluntary private insurance. It is therefore all the more important that the peers of this generation fight to ensure that the necessary economic policy conditions, particularly with regard to full employment, are created as quickly as possible, namely:

  1. decentralized (subsidiarized) economic structures,
  2. decentralized (subsidiary) responsibility for society and the environment,
  3. decentralized (subsidiary), democratically legitimized decisions,
  4. as well as external economic relations based on the foundation of well-functioning domestic economic cycles and contractually regulated exchange rates to neutralize differences in productivity and prices, in order to enable mutually profitable foreign trade.
  5. For more details see the articles Future-Proof Foreign Trade und Comparative Advantage – Upgraded.

5. Excursus on the Demographic Inability

For ecologists, the fact that the population explosion is making a major contribution to the current ecological crisis is a truism, but at the same time it is a taboo topic in the political debate. The taboo is primarily a manifestation of economic interests, especially with regard to unlimited access to export markets and workers from low-wage countries. At best, the debate in industrialized countries is about the overpopulation in developing countries. However, without political awareness of the need for regionally adapted population densities worldwide, the ecological crisis will not be overcome and its effects on the economic and general social spheres will not be prevented.

There are no examples of politically successfully controlled population densities. The one-child policy introduced at the end of the 1970s to alleviate the famine in China failed due to rural traditions and work requirements, only in the cities did it have a dampening effect on the birth rate. The goal of stabilizing the total population at one billion people has been missed. However, China’s birth rate has meanwhile dropped to 1.55 children per woman, and that, although the rules of the one-child policy have been increasingly watered down in recent years. This birth rate, that is low compared to other countries, is therefore only partly due to political control, but is a »natural« consequence of the country’s incredibly rapid industrialization and urbanization. If this rate were to be politically accepted and sustained, the Chinese population could shrink in the long term as a result of the constraints of the neoliberal economic globalization alone – without a one-child policy.

In Germany, the birth rate fluctuated around the value of 1.4 between 1990 and 2014 (average number of children per woman with regard to all women aged 15 to 49). The rate rose to 1.5 in 2015, mainly due to the higher birth rate of immigrants. This value, which is still low in international comparison, is also a consequence of industrialization, widespread prosperity and the neoliberal constraints that have prevailed since the 1980s.

The German birth rate is far below the rate of 2.08 children per woman, at which a medically well-supplied population would remain at a stable level. That is, the current rate would be best suited to allow the German population to shrink to an ecologically acceptable level over a period of decades – according to the above rough calculation. But, as I have said, shrinkage is not (yet) accepted, and so a desperate attempt is being made to push up the population, in the long term via a higher birth rate and, in the short term, through higher immigration.

The graph shows that the birth rate fell from 2.5 to 1.5 during the years of the late economic miracle of the Federal Republic of Germany from 1966 to 1973, i. e. within only 7 years. The number of German residents even dropped from 82.5 to 82.0 million between 2005 and 2009. In other words, the positive migration balance could not compensate for the loss of death and low birth rate during this period. By 2016, however, the resident population has risen again to around 82.5 million as a result of increased immigration.

In short, the German family and migration policy does currently neither meet the demands of the neoliberal economic doctrine for steady population growth, nor does it meet the ecological necessity of proceeding full steam ahead towards a lower population density. This means that there is no effective demographic policy, neither in the neoliberal nor in the ecological and future-oriented direction.

6. Conditions for a Sustainable Demographic Development

Despite or because of the low birth rate, Germany lacks a child- and family-friendly climate. The mental social state creates conditions in which children are no longer given a place and parenthood degenerates into an idealistic niche existence – these conditions are also a consequence of the economic constraints caused by neoliberal predatory competition.

An indispensable prerequisite for sustainable demographic development is to overcome the neoliberal understanding of the economy and economic competition. Only under a post-neoliberal, social-ecological economic order can a socially and ecologically sound formation of opinion be achieved, which can lead to a child- and family-friendly policy as well as to a policy of temporary shrinkage and final stabilization of the population density at an acceptable level. In the shrinking phase, population density can and should be reduced both by a low birth rate (e. g. the current rate of around 1.5) and by a temporarily negative migration balance. During the subsequent permanent stabilization, the birth rate must be adjusted to the value of 2.08 and the inflow and outflow of migration balanced out to zero. Only in this combination can a shift of political responsibility to the outside world be avoided and national self-determination maintained.

Under post-neoliberal conditions, there must be no contradiction between a necessarily low or stabilized birth rate and a child- and family-friendly climate. For example, family policy can offer individuals and couples, who raise children, institutions that allow them to reconcile their family and professional lives, and it can provide them with tax and social security benefits to reward their educational work for society. Conversely, however, this also means that domestic partnerships and individuals who do not raise children must not be granted such benefits. A child-friendly family policy should therefore not offer splitting income taxation between partners as well as non-contributory co-insurance for partners of childless couples.

Essential elements of the interplay between sustainable population policy and child-friendly family policy are…

  1. a politically controlled and finally well-balanced migration,
  2. tax and social security benefits for the first child of each woman, tax and insurance neutrality for the second and each additional child of each woman,
  3. entitlement to daycare service for each child in the first year of life, as well as
  4. entitlement to a place in an all-day school for each child.

For a deeper introduction to the economic conditions I recommend the articles Full Employment, Market and Market Economy and Economic Competition.

Click here for the German-language version: Demographie und Altersvorsorge

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