Thursday, November 08, 2007

The Vision Thing

Commentators have been quick to criticize the Queen's Speech for not having a "vision". There wasn't any visionary rhetoric to be sure, but if you look closely at the content, vision looms large - the aim is no less than to secure the survival of the welfare state for the coming decades in the face of demographic stresses.

I've written before about demographic problems and some of the solutions such as getting older people to work, but the problem we face is best illustrated by looking at what can go wrong if the demographic "timebomb" is ignored. One country has already gone through this - Japan.

The graph left illustrates the distribution of Japan's population, and the bulges in the middle graph correlate to two baby booms, in 1947-49 and in 1971-74. Japan's overall population has already started to decline, and the shape of the "population pyramid" has also started to alter.

In 1950 most of their dependencies were under 14, now they are over 65. This has profound financial implications. The old are simply more expensive than children. They consume a huge amount of healthcare (as most serious expensive illnesses occur in the last decade of life). As adults, they also demand spending money in the form of pensions. Children by contrast simply need shelter, food and education (much cheaper than healthcare and pensions).

There are several solutions to this - getting the old to work longer, increasing the birth rate, increasing productivity per worker, curbing the size of the state and immigration.

Unfortunately, Japan refuses to consider immigration, their birth-rate per woman in 2006 was 1.36 up from 1.26 in 2005 (and way below Britain's 1.7). they haven't wanted to change the way their state is run, and their productivity has remained low (the lowest in the G-7 and not much improved over the last decade - Britain's productivity is 23% higher than Japan's).

Combined with financial mismanagement of their bubble economy in the late 1980's, this toxic combination has left them with recession for most of the 90's and weak growth this decade. Plus government debt of 164% of GDP, compared to 79.7% of GDP in 1994 (Britain's government debt including PFI is 43% of GDP, down from 50.8% in 1997 - see Eurostat).

Japan illustrates the perils of burying your head in the sand and saying "No" to every solution.

Which leads us to Britain. The point of the Queen's speech is that the Labour government is not burying it's head in the sand.

The education policy to the age of 18 is designed to improve the skill set of the population, and hence increase productivity in the future (we've increased productivity since 1997, see here, but need to do much more).

The family friendly policies - flexible working, increased maternity leave, introduction of paternity leave and child tax credits - have been about easing the stresses of parenthood so people arn't put off having children. The first increase in maternity leave happened in 2000, and has been extended since then, and the native birth-rate has increased since 2003. It's interesting to note that the Tories voted against all these things.

Legislation against Age Discrimination came into effect in December 2006, outlawing discrimination for the under 65's, and has given people the right to ask their employers if they can work beyond 65, with an obligation on the employer to seriously consider the request. The state pension age will rise to 65 by 2020. the idea behind this is to get older people to continue to work and pay tax.

The government continues to think about welfare-reform in particular as regards those claiming disability benefit.

And of course Labour wants us to remain in the EU and continue to attract migrants to work here in the short-term.

Essentially the Labour government is covering all solutions in a coherant program designed to secure the welfare state for the future. This is huge. The Tories by contrast simply say "No" to everything (immigration, family-friendly policies) Japanese-style, while claiming to support the NHS. They are being hypocritical - they know it would be unpopular to dismantle the welfare state, so they pay lip-service to it, which trying to block every policy that would keep it healthy. One can't help wondering whether their secret hope is for the welfare state to collapse under demographic stresses.

It amazes me that people can't see the Labour vision or the difference between the two parties. Labour's vision is to tackle the demographic problem head-on to secure the welfare state for the next fifty years. Tory policy is to block all solutions Japanese-style probably because their secret solution is to dismantle the welfare state.

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Hughes Views said...

Excellent analysis & the stuff about Japan is fascinating - I've long thought that much of their 'economic miracle' was down to the artificial rate at which their currency was maintained by the Americans for thirty or so years after WWII (because they were so scared of a resurrection of Japanese militarism). (About as false as Mrs Thatcher’s 'economic miracle' that was largely down to North Sea oil revenues and using capital receipts from privatisations to top-up the revenue account.)

As to why people don't 'get' Labour's vision, it may be to do with its comparative complexity - our media go for simplicity...

Sean said...

The rise in the native birth rate is largely driven by British-born women having children in their thirties, whereas 20 years ago, their counterparts were having children in their twenties. I'd say that the decline, from 1993 to2002, and the subsequent rise, in the native birthrate, is driven by this delay in having children until later in life, rather than government policies per se.

WRT productivity, rates of productivity growth have been poor since 1997.