Intergenerational Justice in the OECD
Demography Is No Destiny
A country’s age distribution isn’t the best predictor of intergenerational justice. What matters is good policy. A new SGI study analyses how 29 OECD countries deal with the environmental, social and economic aspects of fairness between the young and the old.
When economies fail to keep up with the demands of their societies, questions of fairness in the allocation of public resources force their way to the top of the agenda. The impact of the American subprime fiasco and the European sovereign debt crisis, as well as the suffocating impact of the austerity that followed the latter, has prompted reflection on aging societies and the legacies they leave. The return of intergenerational justice as a central theme in the global policy discourse is therefore apt.
Workers in several Southern European states have in recent years seen their pension benefits slashed and their pensionable ages increased. Record high youth unemployment has dampened hopes that young qualified graduates would achieve living standards similar to their parents. Will their futures be as dim as opinion polling of this population segment suggests? Will they carry the burden of the profligate generations that preceded them? Are there policy interventions that would ensure a more favorable equilibrium between the young and the old?
Bertelsmann Foundation recently released a study on Intergenerational Justice in Aging Societies as part of its project on Sustainable Governance Indicators (SGI). This cross-national comparison of 29 OECD countries takes a first stab at developing an Intergenerational Justice Index (IJI) that can provide answers to some of these questions.
The intention of the index is twofold. Firstly, it aims to measure outcomes that either leave a legacy to, or constitute discrimination against, future generations in three dimensions: social, economic-fiscal, and environmental. Child poverty is used as a proxy for the social realm; debt per child for the economic-fiscal; and the size of a country’s ecological footprint for the state of the environment. Secondly, the IJI aims to quantify the degree of bias toward older generations, and it plots the status of the 29 OECD states accordingly.
Estonia, South Korea, Israel, and New Zealand come out on top in the rankings, followed by Hungary and the four Scandinavian countries: Norway, Denmark, Sweden and Finland. On the other end of the spectrum, the United States, Japan, Italy, Greece, and Canada are singled out as the biggest transgressors.
Probably one of the most important insights of this SGI study is that demography is not necessarily destiny, as the oft repeated motto goes. There are economic and political interventions that can shape and alter outcomes. Let us look at key findings from each of the three dimensions.
Child poverty: Scandinavian countries have the lowest rates
The IJI uses two child poverty yardsticks. The first compares child poverty as a percentage of children in a specific country, while the second measures equity by looking at the child-to-elderly poverty ratios. In terms of absolute child poverty, the four Scandinavian countries score the highest, led by Denmark, while the United States, Israel, and the southern European states are the worst performers.
However, on the child-to-elderly poverty ratio, the Netherlands shows the highest disparity, with far more poor children than adults, followed by Hungary and the Czech Republic. In comparison to many other states with lower ratios, these three countries, however, have low child poverty rates of below 10 percent.
Debt per child: Estonia puts the lowest burden on its young
Public debt reduces the ability of states to provide public goods or invest in the well-being of future generations. While current generations consume, future generations will be saddled with the cost. The European sovereign debt crisis served as a stark warning of the consequences of such ill-considered spending. While countries like Greece and Italy feature prominently at the bad end of the scale, Japan, with a per capita child debt of $794,000 in 2011, stands head and shoulders above other OECD states. At the other end of the scale, Estonia ranks as the country with the lowest debt burden on its young ($6,500 per child), followed by South Korea, Poland, and Slovakia.
Ecological footprint: All countries could do better in protecting the environment
Ecological footprint is an indicator of the scale of land mass and water required for a country’s economic production, and to absorb the waste it creates in the process. Environmental sustainability depends on whether a country’s resources can offset its ecological footprint. The IJI shows that while Hungary may have the smallest ecological footprint, its insufficient absorption capacity leaves it with a net ecological deficit. The absorption capacity of large countries with substantial ecological footprints, like Canada and Australia, allows them to have net ecological surpluses. Denmark, the country with the highest ecological footprint, also holds a significant deficit.
The Effect of Policy
Through the Bertelsmann report it becomes evident that a country’s age distribution is not necessarily the sole (or even the best) predictor of intergenerational justice. What really matters, according to the IJI, is good policy: existing welfare initiatives, such as those that provide state support to young parents; labor market interventions that enable better job access for young workers; and environmental policies that promote intergenerational justice by ring-fencing returns for younger generations.
The report also encourages greater emphasis on early childhood education, given its proven returns in terms of alleviating child poverty.
Overcoming the Gravity of Age
To sustain and expand on these policies, political support is imperative. In aging societies, however, the preferences of older voters can dominate at the expense of younger and future generations. It is in this regard that the report makes one of its most inventive, though untested, proposals: the allocation of a proxy (partial) vote for children, to be exercised by their parents. This idea offers parents greater representation and ability to shape the society that their children will inherit. While some may argue that the age composition of many OECD countries is already too skewed for such policies to have more than a negligible effect, the authors contend that the sense of responsibility vested in such a vote would encourage greater voter participation by parents.
Looking to the Future
The authors are explicit about the fact that the IJI at this stage provides a snapshot rather than a longitudinal vista of intergenerational justice. We do not know, for example, whether the current rankings represent improvement or deterioration over time. Moreover, the data available for the present study could not yet fully account for the impact of the global economic crisis.
Future versions of the Intergenerational Justice Index will allow us to trace a trajectory and thus become instrumental in understanding these social dynamics and how they can best be addressed through appropriate policies.