personal investment blog

OVER TO YOU, KIDS

OVER TO YOU, KIDS

14 Sep 2018

“I DON’T WANT TO BE A BURDEN”

People are vaguely aware that the populations of many developed and relatively wealthy nations are on average ageing and that this is likely to become a financial problem. In the UK the median age (at which the same numbers are older and younger) hit 40 in 2014 having risen from 33.9 in 1974 (source: ONS). As things stand, the pensions and care of old people are paid for by the state and the state is funded by the taxes of younger people. Hence there are many cries of protest about inter-generational unfairness.    

Many of us will “blame” increased life expectancy due to rising GDP per head and advances in medical treatment. It is difficult to treat this as a problem because most people seem to assume that they would like to live as long as possible. Unless we distinctly harden our attitude, challenge the value of extending failing life and consider the idea of encouraging euthanasia, there seems little to be done that people are not already doing themselves by making poor diet and minimal exercise choices. 

LAY DOWN A LIFE FOR YOUR COUNTRY

 But while it is probably impractical to urge people to die, there is the better and less ethically troubling possibility of encouraging them to breed. The snag is that much of the general population sees fecund women as a potential menace – in short, a burden on the welfare state, as The Specials pointed out in 1979 (ironically a year of exceptionally low birth rate)

You’ve done too much, much too young

Now you’re married with a son when you should be having fun, with me

Ain’t he cute? No he ain’t.

He’s just another burden on the welfare state

(The most shocking thing about those lyrics today is that the mother is married. In 1979 it was banned from Top of the Pops because of the line “Ain’t you heard of contraception?”)

But the truth is that in most developed countries, the birth rate has been below the “replacement rate” (2.1 births per fertile woman) for decades. We have been here before, specifically in the early 1940s, when George Orwell wrote as follows:

There has been a small rise in the birthrate during the war years but that is probably of no significance, and the general curve is downwards. The position is not quite so desperate as it is sometimes said to be, but it can only be put right if the curve not only rises sharply, but does so within ten or at most twenty years. Otherwise the population will not only fall, but, what is worse, will consist predominantly of middle-aged people.

 

People should be better off for having children, just as they are in a peasant community, instead of being financially crippled, as they are in ours. Any government, by a few strokes of the pen, could make childlessness as unbearable an economic burden as a big family is now: but no government has chosen to do so because of the ignorant idea that a bigger population means more unemployment. Far more drastically than anyone has proposed hitherto, taxation will have to be graded so as to encourage child-bearing and to save women with young children from being obliged to work outside the home.

 

George Orwell   The English People 1943 

As it happened, George (Eric Blair) need not have worried. The baby boom years (1946-64) were about to begin. But of particular interest today is his proposal that child birth should be financially incentivised and that women should be saved from the obligation to work.

That sounds very old fashioned but hold that thought for now.

In 1946, the first of the baby boom years, child allowance was introduced in the UK for the second and all subsequent children. So Orwell’s wish was at least partly fulfilled and the scheme, on the face of it, might be said to have worked.

In 1991, the incentive element was turned on its head with a higher payment for the first child and lower allowances for subsequent children. From 2013, child benefit ceased to be universal and was scrapped altogether for higher income families, thereby effectively abandoning the incentive element entirely.

I BET YOU DIDN’T KNOW THIS

It is a strange fact that William Beveridge, on whose 1942 report the welfare state was largely based, was not only a Liberal (rather than a socialist) but also a leading member of the Eugenics Society. Beveridge wanted child benefit to be more generous for middle class parents than for those from the working classes, in order to promote child birth among the people whose offspring he thought would be more beneficial to society. Were that fact more widely known, I doubt if Beveridge would be lauded quite as much as a progressive social reformer, and Balliol College library, which contains his bust, might be considered an unsafe space. Who knows?   

SHOULD THE STATE HELP US TO MATE?

But Beveridge’s story offers a clue as to why people might be uncomfortable with the idea that the state interferes with what is arguably the most personal choice that individuals ever make. We think of China’s one child policy (1979-2016) which resulted in a sinister bias of 117:100 in favour of male births. We even think of Brave New World in which babies are deliberately designed to belong to castes and grown in “hatcheries”. We want childbirth to be natural and beautiful and free of public policy.

We also want peace, love and understanding not to mention health and prosperity. Unfortunately, the state constantly has to intervene, however ineptly, to try to deliver these desirables and we just need to get over our idealism. As individuals, we can defend the right of every woman to be mistress of her own body and to decline maternity but the state needs to look responsibly at the bigger picture.  

The political consensus at present is mesmerised by the fallacy that it is the obligation of the state to build more houses. If you need to understand why this is nonsense please see here and here and here. From the purely financial question of how my children are going to pay for your ultimate care, we need them to earn and invest as productively as possible. We don’t need them to tie up all their assets and a significant part of their income in servicing the needless ownership of property on the grounds that it was a good idea in 1975. 

But that’s far from the extent of the challenges. Somehow my offspring must try to incorporate parenthood into their busy schedule. The last time that the UK fertility rate was above the replacement rate of 2.1 was 1972. Shortly after that I reached puberty and the era of celibacy began (well, that’s how it felt at the time). More to the point perhaps, in 1967 unmarried woman were allowed the pill on the NHS, in 1968 the Abortion Act was implemented and a few years after that it began to be less of a novelty to see women choosing to have serious careers.

A few people don’t like the pill, abortion or female workplace equality but most of us will say that all three make our immediate world a better place. Unfortunately, all three are slowly and gently killing the nation. Bummer.

In 2017, the UK fertility rate was 1.76. (When Orwell wrote in 1943 it was 2.02). This is not good, in as much as it is the forty fifth successive year in which the replacement rate has been missed, but it is much worse elsewhere. Here are the 2016 numbers for the EU.

Birth rate (2016)

France

2.0

Sweden

1.9

Ireland

1.9

UK

1.8

Norway

1.7

Netherlands

1.7

Denmark

1.7

Belgium

1.7

Romania

1.6

Finland

1.6

Estonia

1.6

Czech Republic

1.6

EU

1.6

Switzerland

1.5

Germany

1.5

Bulgaria

1.5

Austria

1.5

Malta

1.4

Italy

1.4

Hungary

1.4

Croatia

1.4

Bosnia Herzegovina

1.4

Spain

1.3

Portugal

1.3

Poland

1.3

Greece

1.3

Moldova

1.2

There are a couple of points that strike me about this list. One is that many of the EU countries whose nationals contribute most to UK immigration numbers can ill afford to lose productive people. I’m thinking of Poland (1.3), Portugal (1.3), Romania (1.6) and even Italy (1.4) and Spain (1.3). Another is that all of those nations are, as far as I’m aware, thought of as Catholic and it seems surprising that their birth rates are so low given that Catholicism was historically supposedly keener on conception than contraception.

Given that EU countries are, to varying degrees, keen to promote freedom of residency between themselves but, mostly, less open to immigrants from the other 93% of the world’s population, one has to wonder how their low birth rates are to be tackled. It seems improbable that they will welcome sufficient numbers from countries, mostly African, where high birth rates are normal.

JAPAN & SOUTH KOREA – VERY SENIOR NATIONS

There are two highly developed and wealthy nations that are further down this road to terminal seniority: Japan and South Korea. Japan is the most indebted solvent country in the world. Public debt is 235% of GDP, yet the government can borrow, largely from its own people, at zero or negative interest rates. Japanese savers are typically old, old fashioned and highly cautious. Last year it was reported that sales of home safes were rising and that half of total savings are held in cash.

Japan’s population is 127 million and has been declining gently for ten years. With a birth rate of 1.4 and very few Japanese marrying foreigners, there is a forecast that the population will decline materially, to below 100 million before 2060.

A BBC World Service documentary called “No Babies in Japan” explains how the Japanese government is actively funding matchmaking to try to encourage marriage and reproduction. It seems to be hard work. According to the programme, there is a thriving sex industry in Japan but very little sex. Women pay for romantic men to share drinks on pretend dates and men score with sex dolls. Yuk.

The lack of real personal relationships aside, the economic result is that both men and women behave as if they will need to be financially self-sufficient and prioritise careers over marriage.

This appears to be even more the case in South Korea which holds the unwanted record of the world’s lowest birth rate with the truly catastrophic figure of 1.05. Another BBC documentary is called “Not making babies in South Korea”. It paints a disturbing picture which it largely blames on male attitudes. It seems that male employers pressurise female employees not to have children. And this discouragement of reproduction becomes self-fulfilling as women respond by working harder and demonstrating their commitment to their careers.

Japan and South Korea are perhaps the extreme examples of a developed world phenomenon. The BBC is not making such programmes about the EU as far as I have noticed but it could and perhaps should be.

WHAT DO YOU CALL IT WHEN SOMEONE IS PAID TO HAVE SEX?

The low birth rates in Japan, Korea and elsewhere are treated as social phenomena ; whether it be education, workplace equality, sexual choice, feminism, property prices, online dating or just the creeping redundancy of the male sex, states’ attempts to reverse the downward trend seem to be, well, impotent.

Very few people seem to be addressing the issue as Orwell (and, to an extent, Beveridge) did. As an economic problem that demands financial solutions.

In France it is different. France has the highest birth rate in the EU (2.0). In France, bigger families are encouraged by the tax system. The quotient familial offers income tax relief for every child under 18. This means that 50% of French income earners pay 0% income tax.

In Iceland, where the birth rate is 1.8, also high relative to the rest of Europe, the state also intervenes by awarding child support that is the right and property of the child up to the age of 18. Iceland is something of a special case in that, due to its isolated geographical position, women were historically encouraged to have children by different fathers, presumably to minimise inbreeding. (This explains the interesting rules about surnames). Another interesting fact: 67% of Iceland’s babies are born to unmarried mothers, the highest percentage in the world.

There is no law that says that nations should grow their populations or their economies. Many people in western nations will say that they fear overcrowding and doubtless this is a useful justification for what otherwise might look like xenophobia or racism. Perhaps Japan will be a happier country with 25% fewer people?

In the UK, public policy has officially but rather ineffectively been against immigration and unofficially but rather successfully against childbirth. The winding down of child benefit is an example of the latter. Today’s typical politician would not dare to say that women should be encouraged to have babies. Of course we all believe in a woman’s right to choose but the blatantly obvious fact that two or three maternity leaves can delay career growth is said publicly only by the brave.

THE UNBORN TO PAY FOR THE UNDEAD

It is a shame that this is such a delicate subject because the financial implications are pretty horrifying. Our political parties have all given up talking about lower taxation. If they have done the sums they know that the bill for caring for our ageing population is going to rise and rise and that most of it is going to have to be paid for the workers of the future, notably those yet unborn.

This is a financial problem and it deserves a financial solution. “People should be better off for having children” wrote Orwell. Unfortunately, for too long we have approved of the Specials line that”he’s just another burden on the welfare state”. I would now like to restate it as “he’s another investment by the welfare state”. To those who despair of headlines about unemployed welfare scroungers with nine kids, I would suggest that the state gets its act together regarding the education of children with hapless parents. But that’s another story.

We rarely say that the French have got something right unless we are waving a glass of chilled rosé by the side of a swimming pool but a financial incentive to have children is something that we must seriously consider before it’s too late. The UK birth rate has fallen for each of the last five years. Too late is not far off.  

 

 

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