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

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?