Fertility free-fall – does it make any sort of sense?

A total fertility rate of 1.5 is about two-thirds that required for population replacement. Australia’s current rate of 1.75 (and falling) is not far above that critical point. Debate about these trends is overdue, both here and elsewhere.

Many countries have fallen below this figure. Demographically speaking, Japan, Russia, Germany, Greece, Italy, Spain and most of Eastern Europe are in deep trouble. Some well past the point of no return.

Governments and intellectuals – so long focussed on the problem of world overpopulation – have been slow to come to terms with these trends. Now that they are starting to do so, we lack good theories to guide future policy. Policy inaction is clearly no solution. We are having to scramble to make sense theoretically of something that was never expected to happen.

Why should so many countries be heading towards demographic self-destruction? We can understand war, economic depression, and political repression cutting into reproduction. But all of these countries are at peace, and in many cases living standards (especially in health) have been rising, while civil and political liberties are expanding. Socio-economic and socio-political explanations thus seem wide of the mark.

The most commonly-heard account today is that fertility falls with modernisation, as women are freed from religious imperatives, as they get better educated, as work takes precedence over family, and as the Pill makes childbearing optional.

On this view women today are having the number of children they always wanted to have. Falling fertility is simply the exercise of reproductive free choice, for the first time in history, and if this means risking depopulation then so be it, since there is no turning back. Pro-family financial incentives – baby bribes – simply won’t work because better-educated modern women won’t be bribed. For convenience, let’s call this the modernisation model.

This is a widely held view, but how well does it fit the evidence? Start with the cross-national comparisons. We tend to focus on societies like our own, but in fact the English-speaking societies – Australia, the UK, the US, Canada and New Zealand – are all above the 1.5 mark (though barely so, in Canada’s case), so they are not yet in crisis mode.

These societies have also been relatively migrant-friendly, which has boosted their fertility and rejuvenated their age structures somewhat. So migration policy has to be an integral part of this debate.

But it is only part of the story. Migration is unable to solve the problem of fertility rates that have fallen below the 1.5 mark. As demographer Peter McDonald observes: "Replacement migration and increases in labour force participation rates can be successful ways to avoid hyper-ageing, but only if fertility is in the range of about 1.6 to 2.0 births per woman."

The worst cases of fertility free-fall are not in Western Europe, but in East Asia, in southern Europe, and in the ex-Communist states of Eastern Europe – in most cases societies still close to their agricultural pasts.

What about the trends across time? Does the modernisation theory fit the facts diachronically? Take the Australian case. The twentieth century saw three phases in fertility: a steady fall from four children per family in 1910 to two in 1935; then an upswing from two to 3.5 in 1965 (the baby boom); and since that time another and deeper fall, from 3.5 in 1965 to 1.75 today. That is: bust, boom, bust.

Any good explanation will fit all three phases. The Pill came onto the market around 1965, and so perfectly matches the post-1965 fall. This neat fit may be deceptive. The contraceptive story in no way explains the previous two phases of bust and boom. Some better account is at least worth seeking.

The modernisation story also supposes that contemporary families regard current fertility rates as close to optimum, but the survey evidence is against this. Women today say they would prefer to have more children than in fact they do have.

On three counts, then, the standard story is implausible. Is there an alternative? No credible account can leave out the pervasively destructive contribution of the ageing welfare state.

The European welfare states long ago ceased to be family-friendly havens. Today their first priority is very clear. In Italy, 14 per cent of GDP goes to old age pensions. Incredibly, post-Communist Poland goes even further, giving 21 per cent.

Poland and Italy lead the way: the OECD average is around 10 per cent. By way of comparison, the Australian figure is a mere 3-4 per cent. In Greece, age pensions are worth more than 100 per cent of wages. Other countries are not far behind.

These systems are indeed "generous" – for some. That is to say, they are seriously inequitable. In southern Europe, families with children get very little public support, and those northern European states such as Sweden that do support children also run very high tax rates to pay for this support, so that most of this is of little or no net real benefit to the recipients.

Everywhere there is upwards redistribution, from the poorer young to the richer elderly. It is a practice that makes no sense, either economically or in equity terms, but it is too deeply entrenched politically to be open to effective challenge.

This inequity has to be seen in a generational perspective. The modern welfare state’s first generation – those born in the 1920s and 1930s – has been the only generation to make real gains from the welfare bargain. Economist Lester Thurow notes that "In Sweden the generation that retired in the 1960s got six times as much as they paid into the system but the generations that will retire after 2010 are expected to get less than 80 per cent of what they paid in."

This is far from atypical. Pioneering generational analysis by David Thomson shows that New Zealand couples born in the 1930s will get a four- or five-fold "return" on their lifetime taxes from public expenditure, whereas those born in the 1950s will get something less than a one-for-one return, and those born later still will get less still.

I estimate that the comparable disparities in Australia are less marked but still not inconsiderable. Australia, with its lean and mean approach to age support, is possibly the most equitable, in intergenerational terms, of all modern states – but this is not to say that it is at all equitable.

The European welfare systems are also unwise and unsustainable. Thurow has observed that unfunded pension liabilities are around 200 per cent of GDP in many OECD countries. He adds that "In Western Europe today’s programs for the elderly will take 50 per cent of the GDP by 2030. In Eastern Europe the problems are even worse, since the Communists were even more generous with their promises to the elderly." We can safely say that this 50 per cent mark will never be reached, since no society could function with such a burden.

The present intergenerational imbalances, most strikingly in Europe, cause about as much dysfunction as any society can tolerate. The dysfunction is evident most of all in the lives of young families, now required to support the elderly through taxation while raising children without public assistance. The implications are simple and stark: they must either work much more, or cut back on childbearing, or both. And so they do. As Thomson puts it, "Many of the changes in early adult life which account for this decline [in fertility] – staying at home with parents longer, not marrying, putting off having children, having fewer children once married – can be viewed as ‘rational’ adaptations by young adults to declining circumstances." When fertility rates fall below replacement, children become "public goods", but they are goods whose scarcity is brought about by incentive structures that militate against child-rearing.

It was not always like this, of course. In the first few decades after 1945 welfare states everywhere were child-friendly, incredibly so by today’s standards. Indeed, that was their reason for being. Parents paid little or no tax, and often child deductions put them into negative tax territory. Family subsidies were widespread for health, education, and housing. And fertility trends were just as would be expected. Welfare policy may not explain all of the rise and fall of modern fertility but it explains a whole lot more than the standard modernisation model.

The collapse of European fertility rates shows the force of present-day welfare state pressures. Whether the European trends can be reversed is entirely unknown. In English-speaking societies the prospects are a little better but far from bright. Australia has not yet reached the 1.5 benchmark. Nevertheless, Paul Kelly’s conclusion is apt: "A population policy for Australia should recognise that having children constitutes a social good different from buying a new car and should be sustained by a new social contract. The core aims of such a policy should be to reverse the fertility decline, to devise a strategy of long-term population growth and to support women in integrating family and job."

Kelly’s "new social contract" is not exactly new: it is the old post-war contract renewed, and modified only to incorporate women’s employment. Desirable though such a policy is, it is deeply counter to the ideals of today’s welfare state. How can families and children be supported without reversing the flow of upwards redistribution? And what sort of political leadership is there that will negotiate such a re-redistribution?