Intergenerational Justice in Scandinavia: Super Model?

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Click to download the report

Today’s post is by Mi Ah Schoyen of NOVA Norwegian Social Research and Bjorn Hvinden  Professor and Head of Research at NOVA and the University of Tromso, and director of the Nordic Centre of Excellence ‘Reassessing the Nordic Welfare Model’ (REASSESS). It is published in collaboration with Bertelsmann Stiftung’s Sustainable Governance Indicators (SGI) Network

When it comes to balancing the needs of current and future generations, the Nordic welfare states have done fairly well: reforms of the pension system, low child poverty levels and public debt, and work-friendly family policies. Yet, environmental considerations remain neglected – in the Nordic countries and elsewhere in the OECD.

Few would disagree that intergenerational justice is a goal that all governments and societies should adhere to. Beyond this general consensus, the issue undoubtedly raises a number of dilemmas, which are notoriously hard to solve. The Nordic societies are far from immune to these challenges. However, there are a number of indications that this region has developed public policies which are more balanced with respect to both age and generation than in most other OECD countries.

In advanced democracies, intergenerational justice is only one of the objectives public policies are expected to meet. There are also aims such as intra-generational solidarity and fairness, gender equity, and the creation of a competitive economy combined with macroeconomic soundness. For intergenerational justice to be achieved, a simple theory suggests that successive generations (birth cohorts) – also future ones – should be treated the same. “Makes good sense!” you may think. So why are issues of intergenerational justice so hard to resolve?

First, it is difficult to account for the unborn and consequently controversy surrounds the debates about what we need to do today to achieve justice for the future. Second, the concept of intergenerational justice is typically applied in an ambiguous manner. It sometimes refers to age groups; at other times, the point of reference is to the treatment and position of successive generations or cohorts. This blurs the important distinction between age groups and generations. While you pass from one age group to another as you move through the life course, you remain part of the same generation (or birth cohort) from the day you are born until you die. Therefore, differential treatment of age groups does not necessarily violate principles of intergenerational justice. Think, for instance, of a contributory old-age pension system which by design transfers money from the working age population to the elderly. As long as current workers receive a similar level of transfers when they reach retirement, this kind of redistribution will be neutral with respect to generations. In fact, this mechanism is sometimes referred to as an implicit intergenerational contract and has until now been the most common way of organising public old age pensions.

Finally, matters are further complicated if successive cohorts differ in size. Unfortunately, this represents the rule rather than the exception. The current situation in most of the OECD world is that larger generations are followed by smaller ones, creating problems especially for old age social protection systems, which were created under the assumption of steadily growing populations. With modest fertility rates and steadily increasing life expectancy, the tax base does not grow fast enough to continue to finance public pensions in the way that was done in the past. This is the basic reason why we have seen large pension reforms in a number of OECD countries.

Pension reform has been an important policy issue also for Nordic governments. Sweden (in 1999) and Norway (in 2011) implemented comprehensive reforms of their old age pension systems. However, setting public pensions on a financially sustainable path is only part of the story of how Nordic societies seem to balance the distribution between generations and across age in a sensible way.

As the findings of the SGI Study on Intergenerational Justice in Aging Societies show, from a comparative perspective, children in the Nordic countries are doing well. Child poverty levels are relatively low and government debt is well below the OECD average (which was equal to just over 50 per cent of GDP in 2010). Note also that in the peculiar case of Norway, government debt indicators – also as they are represented in the SGI Study – are less meaningful. The country has built up a massive public fund from petroleum revenues with a market value currently approaching €600 billion!

Moreover, work-friendly family policies (including an emphasis on providing affordable care services for dependent children and elderly) have long been a priority in the Nordic countries. As a result, even though they – with the exception of Iceland – do not quite reach the replacement fertility rate of 2.1, generally, more babies are born in the Nordic countries than further south on the European continent. At the same time, female employment is high, providing a broad tax base that helps in meeting the costs of population ageing.

The Intergenerational Justice Index (IJI) includes environmental, social, economic and fiscal dimensions, as well as a measure of pro-elderly bias. Estonia ranks highest of the 29 OECD countries included in the study, the US is bottom.

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Overall, while not seeing it as a super model – like the Economist actually did earlier this year – it seems fair to say that the Nordic social and economic model has managed to strike a sound balance between intra-generational and inter-generational concerns. This has been achieved by combining policies which contribute to the equalisation of life chances (e.g., free access to education, active labour market measures for the whole adult population, and a comprehensive system of social protection) with policies to foster economic competitiveness and efficiency.

The most innovative feature of the SGI Study is the inclusion of an environmental impact indicator in the assessment of intergenerational justice across countries. While a common dimension in discussions of environmental policy and sustainable development, ecological concerns rarely enter assessments of the welfare state and social justice more broadly.

The environmental impact of human activities reported in the SGI Study on the basis of countries’ Ecological Footprint, gives a rather mixed result for the Nordic countries. We get an intergenerational picture which is less positive than when considering only the welfare state more narrowly. It is important to note that several kinds of indicators have been defined for measuring different aspects of environmental performance. Country rankings are sensitive to the choice of indicator. For instance, if we instead rank countries according to the Environmental Performance Index, the Nordic countries all appear in the top quintile. We are not in a position to judge which indicator is superior, since that probably depends on your specific purpose. However, we strongly encourage further debates and research on the linkages between social and environmental policy and their outcomes. In this regard the SGI Study offers a welcome contribution.

Useful links

Paying for the Past, Providing For the Future: Intergenerational Solidarity OECD Ministerial Meeting on Social Policy, May 2011

For United Generations

Click to go to to the OECD Long-Term Care homepage

Today, the OECD publishes Help Wanted? Providing and Paying for Long-Term Care. In this post, Maxime Ladaique, Manager of statistical resources in the OECD Directorate of Employment, Labour and Social Affairs looks at the question of intergenerational solidarity. Promoting Solidarity is the theme of a panel discussion on 24 May at the OECD Forum session on “Life After the Babyboomers”.

A couple of weeks ago OECD Social Affairs Ministers discussed the importance of maintaining generations united, as populations age rapidly across the OECD area.

It’s an issue most of us will have to deal with sooner or later, if we’re not doing so already – as parents, grandparents or children of ageing parents.

First, I’d like to define what we mean by “intergenerational solidarity”, before looking at the actual extent our populations are ageing, and what the consequences might be regarding the demographic and social challenges looming ahead of us in the coming decades, and of the solutions for policy makers, so that all generations live together, as united as possible.

Intergenerational solidarity can refer to help across generations, either via cash transfers within a family – between parents and children for example, or via time spent to care for children, grandchildren, or for parents.

But intergenerational solidarity can also mean that generations have a positive view of one another, or that there is consensus across generations on the way forward.

Measuring such a broadly-defined concept isn’t easy. Nevertheless, relations between generations today appear to be positive, according to attitudinal surveys. For example, the Eurobarometer conducted in 2009, asked the provocative question “Are older people a burden on society?”. In 21 European countries that are members of the OECD, 62% of people strongly disagree that older people are a burden, with a further 23% somewhat disagreeing. Only 14% agree with the statement to either degree.

The problem is that this exchange across generations works well in times of demographic balance, but less so in the current context of population ageing.

You can see one change due to ageing in the fact that nowadays, families are often made up of four generations: children, parents, grandparents and great grandparents. This is thanks to what is first and foremost good news: we live longer. In 1961 when the OECD was created, citizens of OECD countries lived until 69 years of age on average. Today, that has risen to 79.

A second reason for population ageing is what many regard as not so good news: fewer children are being born. Fifty years ago, women had on average just over 3 children in OECD countries. Today, they have on average just under 2.

Some people fear that this demographic imbalance has set a social time bomb ticking.  

First, because of pensions. Did you know that in 1961 there were 7 persons of working age per person of retirement age on average across OECD countries? This ratio is currently 4, and it drop to 2 in 2050.

Without reforms, spending on public pensions will double in the next 40 years. Governments will not be able to cope. We know the solutions, but they are not easy to put in place. Governments could postpone retirement age, so we’d have to work longer. Or give financial incentives to employers to keep older employees at work so that they contribute longer. Or introduce greater diversification of sources of retirement income, giving a greater role to private arrangements.

Caring could also pose problems. The share of those aged 80 and over will more than double in the next 40 years, from 4% to 10% of the population. And today, most care for older people is informal. Typically, between 70% and 90% of people providing care for older people are family members. But as populations get older and more and more people need care, families are not going to be able to cope any longer. Governments need to help them by providing either financial subsidies to help them to get some professional care at home, or by investing in the creation of retirement homes, which are already desperately needed in many countries.

I’m sure we all agree that there is an urgent need for governments to react to population ageing in order to keep our generations united, but whether you’re from my generation or not (I’m 41), I’d be interested to hear your ideas.

Useful links

Paying for the Past, Providing for the Future: Intergenerational Solidarity, see session 3

Pensions at a Glance

Doing Better for Families

Society at a Glance

Health at a Glance