Do aging societies reduce intergenerational justice and increase pro-elderly policy bias?

The increase of the share of elderly voters may have manifold implications for policy; not all of them straightforward or intuitive. Some researchers now claim that we live in a gerontocracy, in which the elderly rule the roost. But the latest evidence shows such strong claims to be either empirically incomplete or altogether wrong (Vanhuysse 2012). What is clear, however, is that population aging has very significantly changed electoral and policy dynamics (Goerres and Vanhuysse 2012). For instance, Tepe and Vanhuysse (2010, 2012) argue that, far from leading to more generous pensions as ‘gerontocratists’ expect, aging populations simultaneously lead to delays in large pension generosity cuts and to the acceleration of medium-size cuts. Aging populations today function as powerful ‘alarm bell signals.’ They put policymakers in a ‘loss frame,’ urging them to muddle through by implementing incremental cuts sooner rather than later – but perhaps only to be better able to delay electorally riskier large cuts. Politicians may thus jump to bite relatively small cutback bullets early to postpone biting larger bullets. Below, I focus on two momentous potential effects of population aging on public policy: intergenerational justice and pro-elderly bias.

Many people ask whether policies in aging democracies treat young citizens as fairly as elderly voters (Sabbagh and Vanhuysse, 2010, 2014). At the request of the Bertelsmann Stiftung in Germany, I have developed a simple four-dimensional snapshot indicator for 29 rich Western democracies: the Intergenerational Justice Index, henceforth IJI (Vanhuysse 2013). Sustainability is the moral starting point. ‘Enough and as good’ should be left by each generation for the next. So the equity question is really whether current policy patterns towards different age groups appear sustainable.

The first IJI dimension, ecological footprint, is a measure of the total pressure put on the environment by all generations alive today and left for the next generations to tackle. Poland and Portugal are among the best performers on this measure; Denmark, the USA, Belgium, Australia, Canada and the Netherlands among the worst ones. Belgium and the Netherlands are even two worst performers with the largest net ecological deficit in the entire sample, once this ecological footprint pressure is compared with the capacity of countries’ natural environment to absorb that pressure. The second IJI dimension captures the total central government debt weighing on the shoulders of each child aged 0-14; a fiscal burden left for this next generation to cope with. Here, Estonia and South Korea perform best, and Italy Greece and Belgium very badly, while Japan is literally off the scale with by far the highest levels of debt per child. The Netherlands rank in the middle of the sample here.

A third IJI dimension measures early-life starting conditions as measured by child poverty levels. Child poverty matters morally. Not just because children cannot be blamed for being born into poor families, but also because such poverty has powerful scarring effects all through their later adolescent and adult lives (Vanhuysse 2015). While Belgium and the Netherlands record an average performance, the best countries in the sample on this dimension are the Nordic countries, but also Slovenia and Austria. Austria, along with Nordic countries, also has one of Europe’s lowest rates of severe material deprivation among very young children (7.5 percent among 0-6 year olds in recent years). And nowhere else in Europe are there fewer NEETs - young adults who are not in employment, education and training (7 percent among 15- 24 year olds).

The fourth IJI dimension is an overall measure of the welfare state’s pro-elderly spending ratio. It is calculated by comparing spending on a whole range of elderly-oriented social programs such as old age and disability pensions and elderly care, to spending on a whole range of nonelderly-oriented programs such as family benefits, active labor market spending, and unemployment benefits (Vanhuysse 2013). The least pro-elderly biased welfare states are New Zealand, Canada, and Ireland, but also demographically older countries such as South Korea, Denmark, Belgium and the Netherlands. These countries all spend on average less than two and a half times more per each elderly as per each nonelderly person. On the other side of the spectrum, in addition to the aging societies of Japan and Southern Europe, it is the (still) demographically younger Central and Eastern Europe that turns out to be highly pro-elderly tilting.

Pairwise comparisons are illuminating on the particular unsustainability issues of pro-elderly welfare states in Central and Eastern Europe. The welfare state in ‘middle-aged’ Hungary (around 4 working-age persons per elderly) spent on average 4.8 times more on every elderly as on every non-elderly citizen in the late 2000s. But slightly older Estonia (with a lower old age support ratio, 3.6) spent only 2.9 times more. The still ‘young-to-middle- aged’ Czech Republic (old age support ratio 4.5) spent on average 5.9 times more on every elderly as on every non-elderly citizen, but equally young-to-middle-aged Australia spent just 3.7 times more.

In the same vein, the welfare state in ‘young’ Slovakia (old age support ratio 5.5) spent 6.6 times more on every elderly citizen, but in the equally young Ireland it spent only 2.7 times more. And Poland occupied pole position within the entire 29-country sample. This ‘young-to-middle-aged’ society (old age support ratio 4.8) spent 8.6 times as much on every elderly Pole as on every non-elderly Pole in the late 2000s. Yet in the equally young New Zealand, the state spent only 2.7 times as much.

These findings can be explained largely as a result of legacies of early post-communist transition, including policy-induced, historically unprecedented exit into early and disability pensions. As I have shown in my 2006 book Divide and Pacify, Hungarian and Polish governments in the early 1990s reduced the threat of large-scale anti-reform protests by splitting up groups of at-risk workers by sending literally hundreds of thousands of working-age Hungarians and Poles into early and disability pensions by means of more generous and better protected pension benefits relative to ‘younger’ programs such as unemployment and family benefits. Such policies, and the pro-elderly political-electoral logics they have set in place, have prepared Central Europe badly for the coming three decades, as this region is today entering a period of accelerated demographic aging. The lack of preparedness of Central Europe is also evident in our four-domain, 22-dimensional Active Aging Index for Europe (Zaidi et al. 2013). Slovakia, Hungary and Poland occupy the bottom three positions in the 27-country sample, whereas the Czech Republic ranks in 11^th and Slovenia in 21^st position.

In other words, when it comes to age group spending patterns, demography quite simply is not destiny (Vanhuysse 2012). Two of the demographically oldest societies in the world, Italy and Japan, have high pro-elderly spending ratios. But another old society, Sweden, shows much more age group spending balance. This is because Sweden, like other Nordic countries, also invests massively in young programs such as early childhood, education, and family and active labor market programs. And it has the tax resources to do so, because labor market participation rates, including those of women and of elderly workers, are much higher than in continental or Southern Europe.

When put together, the four IJI dimensions combine into an overall IJI value. Here I show that among the most intergenerationally equitable OECD countries were Estonia, South Korea, New Zealand and all of Nordic Europe (Vanhuysse 2013). Among the least intergenerationally just countries were the USA, Japan, Italy, Greece and Canada. In a complementary study specifically on the material circumstances of young adults and very young children and educational outcomes (such as PISA results in mathematics, reading, writing and problem solving), I furthermore find that the years since the 2008 crisis have seen the emergence of a new ‘North-East to core’ good gradient in Europe (Vanhuysse 2015). This good gradient now ranges from Finland over Poland, Germany, the Czech Republic, and Slovenia to France. Outside of it, the new periphery regarding young Europeans’ opportunities now includes the UK and Ireland, again all of Southern Europe, and Eastern but no longer Central Europe.

So, what to conclude? Clearly, an aging society need not be morally blamed for lower fertility; still less so for longer life expectancy. Living longer lives (of quality) is actually a yardstick of social progress. And moderately low levels of fertility may even be desirable – not least from an environmental point of view. But crucially, the way in which a society’s public policies react to population aging is morally important. This is where the IJI results matter. Unless low-IJI countries such as the USA, Japan, Italy, Greece, and Canada can somehow, miraculously yet credibly, guarantee fast and sustainable productivity growth and rapid technological (including environmental technology) progress in the near future, not reforming current policy patterns would simply perpetuate a bad current deal for young and future generations (Vanhuysse 2013).

The demographic alarm bells currently tolling in many OECD countries indicate the need for urgent policy rethinks. And they appear to be imprisoning politicians in many countries in ever-tighter electoral and fiscal straitjackets. But they need not provide grounds for alarmism (Goerres and Vanhuysse 2012). Good policies make all the difference in the nexus between aging populations and generational politics. Investing in early human capital is probably a key ingredient in safeguarding the fiscal foundations of welfare states in aging societies (Vanhuysse 2015). In addition, it is an efficient and effective way of boosting the opportunities and capabilities of young citizens, while simultaneously leveling the playing field especially for children born in disadvantaged circumstances.