Notebook > Money

Disappearing act

Money | World's third largest economy facing demographic nightmare

Issue: "Rita: After the storms," Oct. 8, 2005

It's being called Florida 2000 without the hanging chads. The German political class is frantically trying to sort out what to do after an election in which Social Democratic Chancellor Gerhard Schroeder received 34.2 percent of the vote and Christian Democratic challenger Angela Merkel received 35.2 percent.

The parties have until Oct. 18 to try to scrabble together some sort of governing coalition, either with each other or with some of the smaller parties. "The voters have spoken," editorialized the Berliner Zeitung, "but what they have said is not easy to understand."

One thing seems certain, though: Ms. Merkel's agenda of sweeping tax and labor reform is in trouble. The German economy, the world's third largest, has been stuck in sluggish growth, high deficits, and high unemployment rates (now around 12 percent) for several years, and many analysts were hoping Ms. Merkel would be able to set the country back on track.

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But a look beyond the headlines shows that the German situation is even worse than meets the eye. The German economy desperately needs reform, but it needs something else even more, something that neither Ms. Merkel nor any other politician can deliver: It needs more babies.

Germany, along with the rest of the industrialized world, is facing a demographic nightmare that no one really knows how to address. The fertility rate (or total number of babies per woman) in Germany is 1.4, according to the U.S. Census Bureau. This means, according to the Census, that Germany's population will actually shrink in coming decades, from 82.4 million in 2004 to a projected 73.6 million in 2050. (The rest of Europe faces a similar problem, as does Japan, the world's second-largest economy. Japan's population is projected to shrink from 127.3 million in 2004 to 99.9 million in 2050.)

Never before have so many countries gone through voluntary mass depopulation at the same time, so we don't have any test case for economic effects. But economists say the challenges of such a phenomenon are enormous.

The most obvious challenge is in the area of pensions. President Bush and many economists have noted that the United States faces a severe Social Security (and a less discussed Medicare) crisis, but that crisis is a mere cold compared to the flu epidemic that Europe and Japan face. U.S. population is aging quickly, but with a birthrate at the replacement level-2.1-and a friendlier attitude toward immigration, at least our population is growing. Europe and Japan, on the other hand, are on the way to becoming large but declining geriatric wards. All of those childless people are expecting support in old age, but it isn't clear who will be there to give it to them.

The challenge to business is just as great. Economists note that younger people tend to be the ones to start businesses. "At least at a high level," says economist Sylvester Schieber, "there seems to be some relationship between entrepreneurialism and the age structure of society." The reason: Starting a business is a risky gambit, and one that seniors are less likely to take. Many do not even invest in startups, shifting their portfolios in a conservative direction as they approach their golden years. This may be rational at a personal level, but economies need entrepreneurs if they are to grow and produce wealth. Where will tomorrow's entrepreneurial class in Europe and Japan come from?

Why are so many countries producing so few children? Experts give many reasons, from increased availability of contraception to increased prosperity. But the United States has just as much contraception and even more prosperity, yet manages to have more (though still not a lot of) children. Something else seems to be at work, and some Europeans are beginning to detect a worldview dimension to the coming depopulation.

As European baby boomers age, writes acclaimed British novelist Lionel Shriver in the Guardian newspaper, "We will assess the success of our lives in accordance not with whether they were righteous, but with whether they were interesting and fun." For Europeans, she says, kids seem messy, and they get in the way of a good time. Rearing them is "hard, trying and dull, inevitably ensnaring us in those sucker-values of self-sacrifice and duty." As for the future, the 48-year-old mother of none admits that today's Europeans "don't especially care what happens once we're dead."

This attitude, of course, is the opposite of biblical ideas about family and true happiness, and its dominance of Europe is yet another result of the almost-total eclipse of Christianity on that continent. It's an attitude with tremendous economic consequences, but public policy can do little to change it. So for a real glimpse at Germany's economic future, don't just look at the status of the country's government on Oct. 18; look also at the status of its families, and maybe even the status of its churches.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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