In good times and in bad times –
The New Treaty between
Young and Old
A new generation contract instead of the slogan „Better that you look after yourselves“
The generation contract refers to a supposed social consensus which should guarantee the financing of the retirement insurance provided by law. The working population (or at least a large percentage thereof, namely the employed) with their share pay for the pensions of those who have stopped working (apportionment) and thus acquire a claim to similar benefits from the next generations.
Also other instruments of the social welfare state, e.g. public health insurance are mainly based on the principle of a “generation contract”, since average medical costs increase later in life but income decreases.
The generation contract is not a binding law and thus is not suable. In no European country is the generation contract a law. In the course of the last decades it merely constituted a declaration to solidarily care for each other.
Often, generation contract is understood merely to be the system of apportionment, whereby generations in the work process contribute to social, health and old age insurance of the older generations who have stopped working.
As long as the generational balance exists, e.g. as long as there is a social balance of work, income and retirement and a balanced distribution of age groups in society, this contract can be sustained.
But rapid changes in social and economic policies and in population trends have led to an increasing imbalance. More and more, older people with decreasing buying power on the one hand, face less younger people in the work process, on the other hand, who due to decreasing wages and insecure employment conditions need support and help themselves.
In liberally oriented economic systems the responsibility of the individual is being stressed. That means that everybody should be in a position to look after him/herself. Solidarity groups are being limited so that competition increases. According to the slogan “efficient people of all generations are the winners”, there is pressure to reduce social expenses of the working people and change existing educational, occupational and retirement systems.
In future, private or company old age insurance should take precedence over the first pillar of retirement insurance, i.e. public insurance which is being supplied by apportionment.
Somebody who is old today hardly still has the financial means to start looking for private insurance. What is more, the rates increase exorbitantly with old age.
Young people today who don’t have secure jobs or so-called flexible jobs hardly have a chance to provide for their own insurance, not to mention for the generations to come.
What can be expected from a new generation contract?
A new generation contract will be established taking into account the real social conditions between the generations and calls for a guarantee of public and legally binding bases of existence.
It is funded by contributions of the employed, but to a much larger extent by a just redistribution of wealth in favour of the poor.
Socially oriented standpoints are, for instance:
Apportionment (working people pay for those who are retired) is more just than a capital based system.
Apportionment linked to basic insurance provides security for old and young.
Neither youth nor old age should constitute a life risk.
Risk insurance must not become a private affair.
Interference in the labour market must not be achieved by pushing older people out of it.
Economic interference must not be achieved by insecure jobs for young people.
People may not be used as a reserve army for the labour market.
A new generation contract does not only imply old age care.
It also implies
- The right to participation (e.g. voting rights for young people)
- The right to prevention and promotion of health instead of a “medical repair philosophy”
- The right to education for all generations
- The right to work for all generations
- The right to equality between women and men
- The right to justice among the generations (i.e. no discrimination of young and old, etc.)
Politics has to assume responsibility on the road towards a new generation contract :
When, in the German parliament for the first time, young deputies of all parties tried to introduce the generation contract into the constitution, they failed. One more reason for us to stress our efforts in favour of all generations and to introduce this request on a European level.
The following paper by Ute Schmitz stresses once again the importance of a generation contract.
Project generation justice
In each parliament there are politicians who fight for generation equality, i.e. for long-term ideas and actions. Their aim is to link the needs of today’s generations with the chances that future generations will have in their lives. But they notice a trend towards favouring the present and neglecting the future. Politics has to change so that problems are not pushed away, but tackled, because politicians tend to first fulfill the wishes of their electorate or to keep promises they made to their voters, or to value voters who might vote for them at the next election.
Generation justice would mean that governments act and plan taking into consideration sustainability and in accordance with the need of generations in order not to burden future generations even more than today. States and countries have to take into account the interests of future generations. Sustainability has to be taken into consideration when formulating new laws and generational justice has to be an argument required for future laws. Some politicians demand that sustainability and generational justice should be part of the basic law or constitution.
This requirement for sustainability would be valid for future households, employment, education and research, social security systems, for environment, climate and energy policies.
The point is not to drive a wedge between the generations, rather to prevent future generations from running into high debts. More investments in future expenses should be made and less government debts permitted.
Government debts are less problematic if at the same time government assets are being created, the interests of which can be used to pay debts, because then high debts are balanced by higher governments assets.
When the economy is in good shape less debts should be incurred.
Like in Switzerland, governments and parliaments should be obliged not to spend more than they earn, for approx. 10 years.
Justice between generations also implies that, as is common in some European countries, older employees should not be discriminated in the labour market because of their age. The knowledge and experience of older people should not be wasted in the long run. Access to the labour market should be more transparent, more receptive, more open and more just.
Often investment in education and research is not enough for the future, which in turn has negative effects on future generations. The development of highly innovative products and services is the only medium or long term guarantee for the competitiveness of jobs.
The decreasing number of young people in Europe, due to the low birthrate, will probably, in the future, lead to a lack of people in the work process and to a lack of skilled workers. Fewer employees would have to finance more pensions. Today, the ratio in some countries is 3:1, in 2020 it would be 1:1.
Environmental politics must be future oriented. The point is to protect future generations from big environmental problems or from using too many resources already today. In future, this would affect young and old people who are weak. A law for “renewable energy” would be the right solution for an energy and environment policy doing justice to generations. Promoting renewable resources and renewable energy would save natural resources. Furthermore, renewable energy is an important economic factor since the protection of the environment creates jobs.
Exhaust-free mobility is also an important task for the future. Furthermore, more money should be invested into environment-friendly and promising technologies. Market oriented economic international allocation for trade in emissions is a necessary precondition for international climate policies.
Generation equality is a chance to make long-term sustainable politics and will be achieved when the generations of today and tomorrow have the same chances, i.e. when the generations of today and tomorrow have an equal opportunity to shape their lives.