A safe investment?

The new government has fulfilled its pre-election promise and introduced a costly program with the objective of promoting demographic development in Poland, which in terms of the number of children born – 1.3 per couple – is seriously lagging behind in Europe and the world. It is not known, however, whether this incentive will work, or whether it is a demographic, or rather a social program

By Sergiusz Prokurat

The Family 500+ program constitutes a system support program focused on Polish families. In accordance with the program, the state will help parents in bringing up their children until they turn 18. A family with two minors will be able to receive the equivalent of about €120 for their second child, regardless of income. In the case of families with an average monthly income below €190 net per person, such a family will also receive support for their first child up to the age of 18.

Piotr Szukalski, a demographer from the University of Łódź, argues that from a demographic point of view, the 500+ program has properly identified its target group. That is people who have at least one child, and are considering having a second, provided that the circumstances are favorable. This is because it is the second and the third child who will, in practice, dictate the level of deviation from the expected current substitutability of generations. The bi-annual research (Social Diagnosis), conducted by Janusz Czapiński, shows that as much as 40 percent of the people surveyed in Poland have decided not to enlarge their families for financial reasons. “For a certain group of people, the lack of resources constitutes an obstacle to having offspring. It is therefore a safe investment for the nation to survive. Nevertheless, in the election campaign it was highlighted as a pro-natal and not a social initiative,” Szukalski claimed. However, the latter is evident, because the program is directed at children who have already been born.

Demographic approach

[caption id="attachment_98437" align="alignleft" width="300"] Image: Shutterstock[/caption]

Poland is adapting to European patterns. Szukalski sees it as catching up with the demographic approach, which has not been a priority for many years. The structure of the 500+ program is inspired by similar programs that are already in operation in Europe. Those countries which provide monthly benefits for families with children include: Belgium, Denmark, Germany, Greece, France, Ireland, Iceland, Italy, Spain, the Netherlands, Norway, Austria, Sweden, Finland and the United Kingdom. Outside Europe it is less frequent, but this type of program is also present in Singapore, where parents are given SGD 9,000 for their second child and SGD 18,000 for their third child. When Vladimir Putin began his fertility campaign in 2008, the streets were dressed with billboards and posters encouraging citizens to have children, and the government began to pay mothers the equivalent of $10,000 for the birth of their second child. Where did the idea of paying people to have children come from?

The concept of more children meaning tangible advantages for the state appeared before the interwar period. At the end of the 19th century, during the Franco-Prussian War, French politicians came to the conclusion that the more people that were born, the more soldiers there would be to serve the country, as the chances of giving birth to a boy was 50 percent on average. However, at the beginning of the 20th century, the military men and their authoritarian far-reaching plans had been replaced by economists with their calculations in spreadsheets. And so, they calculated that more children are necessary to maintain high economic growth. Meanwhile, the birth rate began to drop below the replacement level (2.1 children per woman) in Western Europe decades ago. In 1979, the global birth rate was 6.0. Today it is 2.52 and it continues to fall. Alvin Hansen, an American Neo-Keynesian economist, noted, as one of the very first to do so, that a slowdown in population growth leads to a downturn in the overall demand, including the demand for investments, which pushes the economy into crisis. We can try to fight it by lowering interest rates to such an extent so as to maintain demand for investments, despite the decline in the population. The problem is that it eventually leads to negative interest rates. If we trusted the demand school on economics, this statement could be true, particularly when looking at the declining population of Japan, where economic growth is close to zero and the interest rates are negative.

Serious demographic programs, which proposed paying parents to have children, appeared before the Second World War. In 1943, in one of his radio broadcasts, Winston Churchill expressed the opinion that one of his deepest concerns is the declining birth rate in the UK. Previously, a similar problem was addressed by Hitler. After he came to power, he introduced a law, according to which, a married couple (provided the wife gave up work) received a loan of 1,000 marks, which was the equivalent of several months’ salary for an average German. The loan was written off, depending on how many children the family had. Two children meant writing off half of that amount. Four children and the debt was considered null. In the 1930s France began to pay its citizens as well. And it is France’s experience that can be considered a prelude to the present trend of sponsoring fertility. In 1938, a regulation was introduced that provided a yearly grant for parents of each baby born. Today, that way of thinking is emulated by many countries.

Uncharted territory

Unfortunately, research conducted by economists and experts does not confirm the effectiveness of this type of program. Analysis made by economist Jan M. Hoem proves that an increase in expenditure on fertility by 25 percent results in a less than 0.5 percent growth rate in the short term, and approximately 4 percent in the long term. Szukalski claims that no one is able to answer the question of what the consequences of the Family 500+ program will be. “Possible effects should be seen in two dimensions: actual changes and calendar changes. Probably, for some people, who were already considering having another child, it will speed up the implementation of their plans, with a concern that the program may disappear within a few years. Therefore, its positive effects will be observed rather quickly – after a year or two. The increase may even amount to a 10-15 percent birth rate. Then the 500+ program will no longer have such a positive effect.”

Critics of the 500+ program pose the question of whether Poland can afford it. The government assumed that the benefit will go to 2.7 million families, raising 3.8 million children and that it will cost about PLN 17 billion in the first year (2016) and PLN 22-23 billion annually after that. These estimates assume that 2 percent of the amount (more than PLN 340 million) will be absorbed by the administration, i.e. the salaries of officials. Several thousand posts have been prepared for people who will, among other things, review submitted applications – something a good computer algorithm could do instead. The cost of the entire 500+ program is equivalent to building 550 km of motorways annually (€9.6 million per 1 km), or 61 km of metro lines (assuming €85 million per km). It is more than the cost of maintaining the entire higher education system in Poland (almost PLN 20 billion) and almost as much as the maintenance cost of the national defense with weapons, army, logistics, supply and command. The Chinese organized several flights to the Moon for less. It is a huge amount of money that must be borrowed in the form of bonds, printed by the State Treasury. Forecasts of the EC indicate that in 2017 only Portugal and Romania will have a higher budget deficit than Poland. By giving away the money, at the expense of a huge public debt, we give consent to rob future generations. The question is, whether the kids, when they grow up and inherit the indebted country, will choose to emigrate or not?

[negative]PLN 17 billion is the estimated cost of the 500+ program in first year[/negative]

So far, the reaction to the 500+ program has been positive. According to research conducted by CBOS in February 2016, as many as 80 percent of Poles support, or strongly support, the 500+ program. On the other hand, only about 30 percent of Poles believe that the benefit will result in more births. In the 25-44 age group, a little more than 20 percent of respondents think that fertility will increase. Is this hypocrisy or rationalism?

Maria Zych, a mother of two from Warsaw, claims that no one would choose to have a child simply to receive additional money. “I believe that there should be more free kindergartens and nurseries. In fact, I am going to spend this money on a nursery. For me it will be a measurable help, because it is additional money, which I am going to spend on childcare.” Not all Poles approach this topic similarly. According to research conducted by ARC Rynek i Opinie, about 21 percent of the parents who can count on the PLN 500 child benefit intend to spend it on general family necessities (including books). According to other studies, the main objective is food and clothing for children, or rent and living costs. Nevertheless, the next item on the list is holidays for parents, or electronic goods. A high place is occupied by alcohol and other drugs. Although the target transfer of public money to families is considerable – PLN 23 billion – only 2 percent of Poles believe that they will be able to save some of the sum.

The wrong solution?

“Before the election, the governing party announced that the benefit would fall to all children, but after the election and the recalculation of the program, they limited it to the second and all subsequent children. Instead of supporting families in this manner, the government should rather diagnose why the birth rate in Poland is so low. It is, to a large extent, the consequence of an unstable labor market, the inadequate number of state childcare institutions, and housing problems,” Maria Zych continued. These issues are confirmed in Szukalski’s analysis: “Without improvements in the labor market and greater access to housing for young people, fertility will not increase. For a Polish woman, one child is now a real measure of success. This is due to the strong domination of liberal narration, including underscoring the values of work and career. Many Polish women find this reality comfortable.”

In times when society consisted of illiterate peasants, children were an asset providing parents with free work and care in their old age. In a modern society, which offers various ways of spending time, children are an expenditure of time and money. The number of children has been replaced by investing in a child’s attributes – and it is a clever strategy. Figures show that educated women have fewer children, since the cost, including the alternative cost of having children, is increasing. An American economist, Shirley Burggraf, the author of the book “Feminine Economy,” stated that for many families the cost of children, understood not only as an expenditure, has become so large that it is unbelievable that women want to have children at all. She claims that parental love has never cost as much as it does now. If all costs are added up, we would reach an amount of €50,000 per child in Poland from birth to their 18th birthday – and more than €100,000 in the UK.