By Philip Booth*
The rise of the gilets jaunes rioters in France took many people by surprise. President Emmanuel Macron has caved in to the rioters’ demands and offered other policy concessions to try to mollify them. In doing so he is exacerbating the problems that led to people taking to the streets. His actions will certainly not resolve France’s underlying economic problems.
In the week of December 10, an estimated 130,000 people took part in the riots. The police arrested more than 1,700 people. Officials said that 264 people were injured, including 39 police and gendarmes and several journalists. These riots are serious events and the concern must be that they are the beginning of a trend. High fuel costs, high taxes and the high cost of living were the main factors that led people to take to the streets. However, high levels of unemployment (in part caused by extraordinarily high taxes on low-paid labour) will have been to blame, too.
Arguably, we are beginning to see the results of the disastrous decisions to set up “pay-as-you-go” pension and healthcare systems after the Second World War. Instead of each generation building up savings to provide for the expenses of old age, it is the taxes of the working generation that pay for the pensions and healthcare of the retired generation in these unsustainable systems.
As people live longer and birth rates have fallen, there are relatively fewer workers to pay the taxes to fund the benefits paid to older people. As a result, Western nations are finding that taxes and government spending are increasing, but services and welfare provision are deteriorating. Spending is being stretched across larger numbers of older people. Taxpayers are poorer and the recipients of benefits are poorer, as well. Everybody is dissatisfied, but Macron can only make concessions to the rioters by loading burdens onto other groups within society.
State pension schemes run on a pay-as-you-go basis are often known as “social solidarity” schemes, especially in France. This is a terrible misnomer. The mechanism by which a given generation of workers votes themselves pension and health benefits, expecting the next generation to pay for them, seems designed to create social conflict.
A number of authors pointed out the instability of these pension and healthcare systems in the 1990s, when there was still time to do something about it. We also predicted the conflict that was then two decades away. Unfortunately, it was easier for politicians to do nothing. Writing in the journal Economic Affairs in 1998, I commented:
Kessler (1996) suggests that social solidarity could, in fact, dissolve into social conflict. He asks what will happen if today’s young people decide that they do not wish their standard of living to fall as a result of pension promises made to future generations? They could express dissatisfaction through the ballot box. However, if this fails, because of the growing number of pension voters, the young might express their dissatisfaction about higher taxes or the lowering of the standards of public services provided to the young by non-political means. Essentially, the socialised systems can lead to inherent conflicts within society.
As it happens, D. Kessler is French.
As predictions go, this was quite a good one, and the gilets jaunes are a manifestation of this problem that was identified by many people over 20 years ago. Almost certainly, though, other widespread expressions of dissatisfaction within political systems are caused by the same phenomenon.
In fact, Kessler and I were not the first to comment on this issue. A highly prescient statement was made by an American actuary, Edward Marshall, soon after the war at a meeting in the UK he said:
There was at the existing time great political pressure from Governments to adopt or maintain ambitious programmes of so-called social security, with perhaps too little understanding of their ultimate effect on the social and economic structure. A sound social insurance and superannuation programme could sustain and strengthen a nation; on the other hand, a sufficiently unsound one could ultimately destroy it. Furthermore, once such a programme was put into effect, it became politically impossible to discard it or to reduce the benefit scales which it was beyond the ability of the nation’s economy to support.
All these things are true. If we measure the value of the pension promises that have been made by governments to current and future generations of older people, they are of the order of 400 per cent of national income. In other words, they dwarf by a factor of four the already extraordinary level of explicit government debt accumulated by nations such as the U.S., the UK, and France. What a legacy we are leaving to our children.
But what has this got to do with Christians? Should we care? We certainly should.
There are few Christians who do not worry about climate change. Pope Francis’ document on the environment, Laudato si, relates the problem to matters of justice. Laudato si mentions justice on 32 occasions and has a specific section on intergenerational justice. Intergenerational justice can be thought of as a subset of distributive justice. Climate change is regarded as a matter of intergenerational justice, because today’s generations are benefiting at the expense of future generations. This is also true of pay-as-you-go health and pensions systems. The young people of past generations voted themselves benefits expecting the following generation to pick up the cost. Unlike with funded schemes, the generation that expected the benefits in the future did not make a financial sacrifice by saving for the future.
Another lesson for Christians is that they should rein in their tendency for “welfare worship.” There is a tendency amongst Christian leaders to criticise any cut in welfare provision. It is precisely this tendency that has led us to where we are today – the imposition of a totally unjust burden of taxation on the younger generation: a burden that is destroying employment and lowering their living standards. Every dollar, pound, or euro of borrowing to fund welfare represents a transfer of resources away from today’s young people, as their taxes will have to rise in the coming years to service the increased debt.
Things would not be so bad, of course, if today’s Baby Boomers had more children. Indeed, pay-as-you-go pensions systems can be sustainable as long as the age distribution of the population remains stable. Catholic moral theologians in particular might have something to say about the declining birth rate. Indeed, traditionally Catholic countries will have the biggest problems over the next 30 years because of the very sharp decline in their birth rates.
There are two sustainable ways to look after older people. One is through extended families. The other is through saving, funding, and investment. Christians should speak out against the injustice of generations promising themselves benefits to be paid for by other future generations – indeed, they should have spoken out 30 years ago. The systems of welfare provision that we have set up are unsustainable, unjust, and may well lead to the breakdown of civil society and an increased tendency of young people to turn to violence to get what they regard as just restitution.
*About the author: Philip Booth is Professor of Finance, Public Policy and Ethics, St. Mary’s University, Twickenham, which is the UK’s largest Catholic university. He is also a senior academic fellow at the Institute of Economic Affairs (IEA).
Source: This article was published by the Acton Institute
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