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By Tanja Kiziak, Reiner Klingholz, Vera Kreuter, Steffen Kröhnert, Stephan Sievert, Manuel Slupina, Franziska Woellert

 

 

Complete German Version

 

The demographic strategy of the German federal government excludes the most important issues of demographic policy. It also ends in 2030 – just at the point when German society will really start to age. In its discussion paper the Berlin Institute presents a counter proposal.


No factor will change our country more in the decades to come than the ageing and shrinking of the population. A long-term demographic policy that informs the country about the unavoidable consequences of demographic change, defines clear objectives, and explains how these objectives might be reached using the available resources and options is therefore of paramount importance.

 

Ageing and decline in population inevitable

Germany has already passed the demographic “point of no return”. Even if the annual migration surplus were to rise to 200,000 people by 2020 and the average fertility rate to 1.6 children per woman by 2025, the population would still continue to age and decline. Thus the number of people receiving transfers from the funds for pensions, health and nursing care will steadily increase in the decades to come. Simultaneously, the number of people generating wealth will decline considerably. Raising the retirement age to 67 or 69 can only attenuate this trend but not stop it.

Despite this situation, the German federal government has yet to come up with a proper “demographic strategy”. The collection of already existing programs and initiatives presented by the government under that name in 2011 must be regarded more as a wish list than a strategy, since the economic growth and tax revenues required to finance it are utopian under the current conditions of an ageing and declining population. Moreover, the government has consistently neglected to address the trickiest questions of demographic policy, such as how social security systems are to be paid for by an ageing society, how mothers’ or subsidized pensions are to be financed, how the unfunded multi-billion pension claims of civil servants are to be honoured without incurring new debt, how intergenerational equity can be maintained in the future and how depopulating and declining rural areas that still have an entitlement to “equivalent living conditions” should be treated.

In other respects, however, Germany has indeed begun to prepare itself for the changes that demographic transformation will bring. Society at large, the private sector and policymakers as well have all started to make some necessary adjustments. Labour market reforms have increased the country’s competitiveness; legislation has been passed to raise the future retirement age; the labour force participation rate of women and older persons has significantly increased; educational outcomes have improved since the Pisa Study shock at the advent of the millennium; and some policymakers, at least, have overcome their reservations about once again allowing immigration to fill gaps in the labour market, after years of “a foreign recruitment freeze”. However, given the extent of the demographic changes we face, the Berlin Institute still sees considerable room for improvement and reform of German demographic policy, first and foremost in the areas of family policy, securing skilled labour, social security systems and regional policy.

The Main Demographic Issues

Despite considerable efforts, family policy has so far not succeeded in reversing the decline in the number of young people – one of the main causes of our demographic problems. It is expensive, inefficient and without clear objectives. Currently there exist some 160 marriage- and family-related transfers, yet these can hardly convey to potential parents what the government actually wants. What is more, a number of family policy instruments contradict one another and do not fit into a holistic demographic strategy. For this reason, the Berlin Institute proposes in its own strategy that family policy should support only those who take on responsibility for child-rearing and childcare services – regardless of marital status or degree of kinship. In other words, the taxation system should replace the provision that treats married couples as a single economic unit with tax relief for carers. Simultaneously, the state must both provide both a reliable and high-quality childcare infrastructure for families and promote more flexible concepts for combining work and family that go beyond the classic part- and full-time model, thus enabling individuals to adjust their labour intensity to their particular life phase.

Another area requiring reform is securing skilled labour. In the federal government’s current concept, the mobilization of the “silent reserve” – the unemployed, women, and the elderly – still takes precedence over the recruitment of people from other countries. Demographic trends will, however, soon mean that the gaps in the labour market are so big that all options for securing skilled labour will have to be utilised simultaneously. Germany therefore needs to recruit qualified immigrants systematically through a points-based system. To do this it needs to make itself more attractive to immigrants, for example by offering language courses abroad or initial aid for recent arrivals.

Securing skilled labour is also important for maintaining functioning social security systems, which is the third main issue of demographic policy. Even the sustainability factor or retirement at 67 will not make social security systems demography-proof. Statutory pensions, pensions for civil servants and healthcare systems all contain large latent financial burdens which will be passed on to future generations. At the latest when the baby-boomers start to retire in about ten years time, the government will have to find a solution if it is to guarantee minimum benefits for the elderly while avoiding overburdening the younger generation. The Berlin Institute proposes that the retirement age be made contingent on life expectancy and that an additional private and occupational pension be made mandatory. Greater competition should serve to counteract the current inefficiency of the healthcare system.

The final issue addressed by the Berlin Institute’s demographic strategy is regional policy. Since population decline and ageing have an especially strong impact in rural areas, calling into question their sustainability, policymakers must abandon the primacy of equivalent living conditions everywhere. Instead, they should support those communities that manage to buck the trend and retain their population while helping those that, despite support and subsidies, have failed to get back on their feet to dismantle and retreat. The administration should therefore organise the shrinking process as well as setting up a framework for becoming smaller.

A demographic strategy should follow long-term goals, make use of available options, and where possible try to coordinate individual measures so that they have a mutually positive impact. In other words, the only way for the state to cope with the demographic shift is to target resources systematically. Such targeted resources should, however, in some cases be understood as investments, such as in education, the most important instrument for counteracting the effects of a declining population of young people and for maintaining human capital. Other resources serve to redistribute wealth more equally within society – for example, by supporting people who care for children or the elderly. But a demographic strategy must not shy away from unpleasant tasks either: if it is to adhere to the principle of intergenerational equity, it must cap the cost of ageing and it must free itself from the dogma of guaranteeing equivalent living conditions everywhere.

Becoming a Pioneer Requires Honesty

The Berlin Institute believes that a demographic strategy worthy of its name must also address unsolved or maybe even unsolvable problems. While it may not be possible to halt demographic change, it can be managed if governments engage in long-term planning and are honest towards their citizens. Because the fertility rate in Germany has reached a very low level sooner than elsewhere, the country finds itself at the forefront of a global trend. As German society ages sooner than elsewhere, it will lose its competitiveness to younger, emerging countries. That is why, as a pioneer of change, Germany should duly develop concepts for social well-being in times of demographic post-growth. If it succeeds in doing this, its demographic problems would soon become relative, for sooner or later most industrial countries and the first emerging countries too will be hit by the same changes.

 

 

 

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