The reform of the pension system is driving the French onto the streets. On January 19, all major unions called a strike against the government’s plan to allow most French people to work two more years if they want to receive full old-age benefits.
The call for a strike speaks of a “brutal reform”. The French have different priorities than the Germans: We value a low contribution and thus safeguarding the purchasing power of those who are active, while in France the shortest possible working life with the highest possible pension. In return, the French accept that the contribution burden is high, especially since there is no contribution assessment limit as in Germany. In the calculations of the OECD, France spends three points more on its old-age provision than the Federal Republic, at just under 14 percent of economic output (GDP).
Despite all the emotional surges in France: Overall, in western economies – unlike in China – the ongoing adjustment of pension systems to higher life expectancy and falling birth rates is part of day-to-day political business. And they do comparatively well when it comes to adapting to demographic change.
Change has been an issue for decades, and from more immigration to better employment for the elderly, OECD countries are trying to pull many levers to cope with the growing proportion of older people. Above all, they have understood that with a shrinking proportion of active people in the total population, their societies can only remain productive if employees become better qualified and thus more productive.
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The situation in China is completely different. There, the aging of the population is hitting the country, which has a claim to global leadership, with unbridled force. Until recently, there was a deceptive calm: in 2020, pensioners made up just over 18 percent of people of working age. So there were five active people for every retiree. But in two and a half decades it will be over 47 percent, so two active people will have to finance one pensioner.
None of China’s options are compatible with the leader’s ambition
The ratio will thus be significantly worse than in the USA. With five percent of economic output – the current Chinese expenditure for the pension system – it will no longer be possible to cope.
The government-run newspaper China Today lamented six months ago “the urgency and severity of China’s population trend, which is characterized by declining birth rates, a shrinking workforce and an increasing aging population.”
A solution is not in sight, apart from the approval of private pension funds, which are at best an offer for the middle class. And while Western societies have spent around five percent of GDP on state education for decades, the figure in China is less than four percent. After a rapid increase at the beginning of the new millennium, spending has fallen again in recent years.
Over the next few years, the country, shaken by the Covid crisis and slowing growth, will only have to choose between several difficult solutions: accept rampant poverty in old age, place a much heavier burden on the active generation, be content with less growth or reallocate within the state budget and other spending such as that for slow down the rapid rearmament.
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Then it would have to back down on its aggressive foreign policy. None of these options are compatible with the ambition of the leader Xi Jinping.
Viewed cynically, the People’s Republic has only one advantage over its Western system competitors: In China, no trade unions can call for strikes.
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