Lecture held on 22/12 in Vilnius, Lithuania. About the future trends and developments of the European welfare state, in particular about the pension systems and options that exist in the choice of these systems.

1. The future of the welfare state
Jacques Bazen
Lecturer International Economics
Towards a political vision

2. The future of the welfare state
Contents of the presentation
I. Current situation & trends related to demography of Europe
II. The future of the pension system
III. Political trends / vision about the welfare state

3. Part I Current situation & trends

4. Europe – The Netherlands
Demographic characteristics:
- The Netherlands has a slightly growing population
- Fertility rate more or less stable at 1.7 to 1.8 children per
woman.
- Stable birth rate with small fluctuations around 12 per 1000
- Low but slowly increasing death rate around 10 per 1000
- Ageing population

5. Total fertility rate per woman

6. -10
-5
0
5
10
15
20
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
per1000
Years
Long term population characteristics The Netherlands
Total population growth Birth surplus Migration surplusTotal population growth

7. Europe
• The grey continent

8. 0
10
20
30
40
50
60
70
80
90
100
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
Long term population characteristics of The Netherlands
Demographic pressure Green pressure Grey pressure Average age

9. Europe – population trends
Can this long term trend be changed?
Are there political measures to increase the birth rate?
Some options:
1. Increasing monthly child allowance
2. Longer maternity leave
3. Stimulating immigration
4. Pro-family campaigns

10. Influencing birth rates
1. Increasing monthly child allowance.
Can be a powerful tool to increase the financial stability of individual
families, and easy to implement.
Problem: expensive

11. Influencing birth rates
2. Increasing maternity leave periods.
Will help young mothers to take care of small children. Is
generally a very popular measure among the general population.
Problems:
- Expensive
- Young mothers are out of
the working life for a
considerable amount of time

12. Influencing birth rates

13. Influencing birth rates
3. Stimulating immigration.
Usually young people are rather mobile and are more likely to
migrate. This influx of young people will raise the birth rate of the
receiving country.
Problem:
People may feel threatened by mass immigration of foreigners.

14. Influencing birth rates –
Stimulating immigration

15. Influencing birth rates
4. Pro-family campaigns
Pro-family campaigns may create a more positive image of the
family, leading to a higher birthrate.
Problem:
How to measure the success of the campaign?

16. Consequences for now
Ageing population causes increases (among others) in the
costs of the following sectors:
1. Pensions
2. Health care
And…a decrease in:
3. People who can work

17. Part II. The future of the pension
system

18. Pension systems
There are three basic pension system models:
1. Bismarck model
2. Employment based systems (capital)
3. Private saving support systems

19. Pension systems – different models
1. Bismarck system – state pension system
Bismarck introduced the idea of “State
Socialism”, as a form of “practical Christianity”.
Critics suggested that it was only meant to
fight socialism as advocated by Marx and Engels.
1889: Old age and disability insurance law
Workers upon reaching 70 years would get
a pension that was to be paid by a tax on workers.

20. Pension systems – different models
Bismarck pension system does not involve the build-up of
reserves.
Requires strong solidarity among the people:
- Decreasing percentage of workers
causes tax increase
- Increasing life expectancy causes
tax increase
- Higher retirement age causes tax
decrease

21. Pension systems – different models
Bismarck system:
When too few people are working…

22. Pension systems – different models
Employment based pensions –
capitalization model
Workers receive a lower net wage
during their employment, the
money that is deducted is being
invested by private or semi-private
pension funds. These funds invest
over periods of 30 – 35 years,
before offering the pay-out.

23. Pension systems – different models
Save now for later – individual plan with tax reduction
Governments offer tax reductions
on special private saving plans
(life annuity) for people to save a
part of their income for their pensions.

24. Pensions in the Netherlands
Bismarck pension
model
Employment based
pension model
Fiscal tax cuts for
pension savings

25. Health care
Extra costs
because of
the ageing
population

26. Jobs
Who is going to do all the work?
Maybe we actually urgently need the refugees?

27. If enough people migrate, and a certain critical
mass is reached, then suddenly some mass
effects can occur (almost like some mass
psychosis)
Malcolm Gladwell described the phenomenon in
his book “The tipping point”, How little things
can make a big difference.
Critical mass

28. Reaching critical mass, then and now

29. Can we integrate refugees?
California?
or
Great
Migration
period?

30. Unemployment benefits

31. Part III – Political vision

32. Political consequences
Do we want to pay as a society these costs in future?
This is the main question: Is there enough solidarity among
the generations?

33. Differences throughout Europe
Importance of good governance
Fukuyama: Political Order and Political Decay
Acemoglu & Robinson: Why nations fail
Main reason for economic prosperity &
stability: quality of the institutions in society

34. Importance of Good Governance
Fukuyama: “Going
Denmark” 
Metaphoric country
for good government
Effectivity &
Effectiveness of
government on
maximum  no
corruption &
relations, real
meritocracy

35. Increasing pension age
Protests in society

36. Political vision

37. Passing on the reforms…

38. (Neo) Liberals in Europe
People should be encouraged to save for later, state should
be as much as possible be out of it.
Arguments:
Bismarck system of pensions is very vulnerable for
demographic changes.
If money if drying up: it becomes a sort of Ponzi-scheme.
Too much dependent on solidarity: can cause tensions in
society  possible rising taxes

39. Socialists in Europe
We should continue spending: it’s our duty and solidarity with
older generations. The Bismarck system is a well won victory
and liberation for the working class.
Arguments:
If people want to invest in private pensions, that is ok. Should
however not be government policy to encourage or force
people to take risk with pension money…
The poorly performing European economies have led to lower
pensions in recent years due to poor capitalization.

40. Christian Democracy in Europe
Christian democracy in most European countries stand for a
combination of systems: To spread risks for both society &
individuals.
Arguments:
If not enough income because of demographic change then
the investment part of the pension will be a more important
income source. And vice versa as well. The system is more
flexible.
Critics: Sounds nice…but could be the worst of both systems.

41. And for you?
Now the question is:
What kind of pension system do you prefer?
What do you think about the pro’s and contra’s of each
model?