Within the next 30 years the European workforce will be down by a quarter, upsetting the systems we have had in place for decades.
In this episode, Richard Kemp speaks with Giles Merritt, author of Timebomb: When Ageing Explodes, about this impending ageing crisis.
They discuss the multiple factors that have led us here, as well as what needs to be done to defuse this bomb before it goes off and explodes the European economy.
Listen to the podcast here, or on your favourite podcast platform:
Scroll down for shownotes and transcript.
Since his 1978 arrival in the ‘Capital of Europe’ as a correspondent of the Financial Times, Giles Merritt has specialised in Europe’s policy challenges as a journalist and think-tanker. He’s often hailed as a ‘Brussels institution’ by readers of his incisive and often critical commentaries on European politics and economics.
Timebomb by Giles Merritt is available on Policy Press for £12.99 here.
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SHOWNOTES
Timestamps:
1:20 – What is the timebomb and when is it going to go off?
6:27 – What happened to our growth and should we be concerned?
12:31 – Shouldn’t Brexiters be celebrating the lower number of migrants?
25:15 – What happened to create this chasm between just two generations?
35:31 – What is the truth behind the workforce crisis?
42:11 – Has there been any change to fix the upcoming pension crisis?
46:40 – Why do billionaires get away with profit diversion? Why can’t we tax them properly?
52:49 – Do parties like Trump, AFD and Reform actually intend to fix the problem?
54:01 – Where should we start to take action against this timebomb?
Transcript:
(Please note this transcript is autogenerated and may have minor inaccuracies.)
Richard Kemp: You’re listening to the Transforming Society podcast. I’m Richard Kemp, and on this episode I’m joined by Giles Merritt, correspondent, journalist and think tanker who since 1978 has specialized in the policy challenges facing Europe. Also a senior associate fellow at Belgium’s Egmont Institute, Giles has been hailed by many as a Brussels institution. He’s written extensively on European politics and economics for Oxford University Press, the Financial Times and many others.
Giles’ new book, ‘Timebomb: When Ageing Explodes’, published by Policy Press, is a warning shot aimed at the crisis that is our ageing population. We celebrate our longevity. It’s wonderful that we’re all living longer nowadays, but at what cost? In his book, Giles says that the pressures exerted by the over 60s, who are increasing from today’s quarter of the population to a third, will upend our politics and impoverish our young. Saddled with their elders runaway pension and health care costs,
Millennials and Gen Z are the first generations to grow up poorer and less privileged than their parents. In ‘Timebomb’, Giles traces the demographic projections that politicians of all persuasions have long ignored. And shines a harsh light on policy shortcomings that must be urgently addressed. Giles Merritt, welcome to the Transforming Society podcast.
Giles Merritt: Thank you Rich.
RK: I’m really excited to talk about your book today. The, it’s a wonderful book, and I found it concerning the entire way through, but also at times absolutely infuriating. Can you tell us what what is the time bomb and when is it going to go off?
GM: Great question. Which is why people always say when there’s no easy answer. And the time bomb is invisible. So it’s kind of difficult to say, to point at it and say, that’s the time bomb. And at the same time we don’t know what the timing mechanism is, so we don’t really know how and when it would explode. But we do know we’ve got a big, big problem.
And I mean, I find it very striking. I look at the list of great threats that hang over humanity, Britain, Europe, generally. And they’re all very clear, you know, are we at risk of nuclear Armageddon? What about climate change? So on and so forth. All the things we worry about, ageing doesn’t get a mention. And yet ageing is what affects us all.
So to go back to that difficult question, the time bomb is that this is the first time in human history that the even progression of generations has stopped. There’s normally 25 years between a generation, that generation A, is followed by the same sized generation B and so on. Not now. What’s happened? Well what’s happened is we’re living longer. We are in a new economy where younger people are not getting, not getting the same fair deal that my generation got.
And the result is that bit by bit we’re seeing a growth of retired people. I’m happy to say I’m not dying at the same rate, as early as our predecessors, but you’re also seeing a shrinkage of the workforce. So what up until about the 1960s, the average family was three kids. And in much of continental Europe, it was somewhere between 6 and 8 kids.
Well, everybody across Europe is now down to 1.5 kids per couple. So you don’t have to be a mathematical genius, we’re shrinking in size. At the moment we haven’t yet started shrinking, we’re just getting older. But within about ten years, 15 years, we’re going to see a dramatic fall off of the size of the European population. And that has all sorts of very unwelcome consequences.
I mean, everybody, you open a newspaper, you turn on the radio. People talk about growth. To have growth you need a growing workforce, more consumers. The whole economic machine keeps on turning a bit faster. Not when you’ve got a shrinking workforce. And within 30 years or so, the European workforce will be down by a quarter. Huge. So what does that mean for taxes and costs?
Because the old people are still there, but the workforce is shrinking and the workforce are the guys who pay the taxes and the pensioners are the people who receive the taxes. So we’re looking at a very complicated picture. And the point of the book is to say, look, I don’t have a crystal ball. And as a longtime Financial Times journalist, I mistrust statistics.
But I do trust the statistics that tell me who’s been born and who has died. And we didn’t listen to the demographers when they started warning us 40 years ago that we were heading for trouble. And the problem with the demographers is they talk to themselves and they talk in their jargon, and they failed to ring any alarm bells.
So the point of this book is to try and say look we’re heading for trouble, but we can soften the impact if we start to introduce useful policies now, because the alternative is we do nothing and Gen Z and millennials get older and older, not much richer because my generation is not dying so fast. So we’re not transferring our assets very quickly.
So Gen Z and the millennials end up with huge tax bills. Now it’s possible you know a high tech boffin, nerd, would come and tap me on the shoulder and say “No Giles, you’re forgetting AI and robots and so on”. So far we haven’t seen any extra economic activity as a result of the microelectronics, the fourth industrial revolution. Looking forward to it.
But right now, I’m not putting any money on it. And money is what we’re talking about here.
RK: I want to talk a bit more about growth. You say in your book, for 55 years, Europe’s population had grown year on year on year, and birth rates and family sizes, as you mentioned, they dipped. But improved health care, living conditions and continual immigration meant that our population could continue to grow. That was until 2015, when this growth trend suddenly ended. What what happened to our growth and should we be concerned?
GM: We should be very concerned. And what happened? Why 2015? A number of things happened. The most obvious thing was the so-called migrant crisis. Do you remember? After all those Syrians suddenly arriving principally in Germany, but a bit all over. And that provoked a reaction, it was the growth of the populist parties in Germany, France, Britain, Brexit. So a lot of countries turned off the tap on migration.
It still continues at a reasonably high level, but not as much as before. And we stopped family reunifications and things like that, so that was one thing.
RK: Family reunifications, can you explain that, please?
GM: Yes. Of course. People who are opposed to migration say migrants from North Africa, shall we say, Afghanistan, wherever, should not bring their families, that they are a burden on social services and so on. It’s rubbish, of course. You need granny to mind the kids while the wife goes to work.
RK: Right, yes.
GM: I mean, you need stability. And when I look at migration and my previous book was about migration, saying why we need more migrants. When you look at migration, you realise one of the bad things we’ve been doing is only allowing young men in. Seems sensible at first sight, young men, fit, ready to work so on. We don’t have enough women in the migrant communities.
We are creating civil unrest and criminality on a serious scale. So we have these short sighted attitudes. But migration was only one of the factors in 2015, because ten years ago, the other, I think, was austerity. We had the the economic and financial crisis 2008 to 2010, and that was met by policymakers with austerity clamp down on spending, slowing the economy.
So on, so forth, try and catch up again. Well, I think we now know, most of us anyway, it was a disastrous reaction cause we just slowed growth and when we slow growth who were the first to suffer? Young people, people coming into the labor market. People who have had a job for ten, 15, 20 years, they’re pretty secure. But the kids starting out.
And it doesn’t matter if they were really skilled, digital experts or stacking supermarket shelves, it didn’t matter, last in first out. So we had the effect that young people suddenly got stopped in their tracks and that continues ten years later to be a big problem. They have very low wages, wages flatlined and earning power goes down. We know that. Inflation.
So the result is that we started to see a very sharp slowdown in birth rates amongst young couples. And one of the reasons there was housing. And I have a chapter in the book that just says homelessness equals childlessness. And it’s obvious, if you don’t have a decent place to live and you don’t have enough income to support a couple in reasonable circumstances, they’re not going to have kids.
Or they’re going to put it off. So now, if I remember rightly, instead of the average age for first child being 25 or so, it’s 35. And it’s not the first child, it’s the only child. So the whole thing all happened with appalling speed that we’ve gone from this emerging problem, we’ve moved in the space of ten years into a dramatic problem. As I said earlier, the optimists say doesn’t really matter.
The robots can do the work. Well, I mean, one of the problems here is Asian countries who actually have got much less of a demographic problem than us, even China. Are the leaders on robotics, Britain, I’m afraid, is at the bottom of the league table in its store of robots. So we’re not going to catch up with this. And what happens is that the whole growth cycle slows down.
I mean, I find it strange when I listen to the radio, good discussions on the BBC, but none of the experts get to the root cause. They talk about, you know, what sort of breathing space can the new Labor government find caught between various pressures. And they don’t mention ageing. They don’t mention that the solution to our problem is to start to address an ageing problem that’s going to get a great deal worse. So I think that what we really need is a sort of, not just a national consciousness in Britain, a European consciousness that we Europeans have got this huge demographic weakness. And if we don’t start to confront it, if we don’t build more houses, if we don’t stimulate jobs in depressed areas. I mean, that’s why I watched in you know really very sad and depressed way, the way the Northern Powerhouse project ran into the sands, it’s being gently revived.
But it was so important. And yet, you know, we just don’t have industrial policies that can get us back into a sort of constructive phase.
RK: So I just want to talk about Brexit very briefly, which is, I know everyone’s tired of hearing about it, but just that they, they wanted fewer immigrants coming into our country. That was part of the promise. Part of the wish. And they’ve got that. So shouldn’t we be celebrating or shouldn’t they be celebrating the fact that, hooray, we’ve got fewer migrants. We’ve got we’ve got what we wanted.
GM: Well, in the first place, the first thing that they noticed was that there were no fruit pickers. You know, in large parts of Poland and Central Europe had this tradition of coming to rich countries Britain, France, Germany in the autumn to pick fruit, grapes, whatever. And in the first year after Brexit that hit the British very hard, and the Kentish fruit growers, the Garden of England were up in arms overnight and within a matter of weeks, the Tory government at the time relented and said, oh okay, you can bring them in.
And that’s sort of fixed one problem, but not the overall problem, that the bars and restaurants suddenly found that they were no longer getting all these bright, well educated, English speaking kids from the Baltic states and Romania and Bulgaria and so on. They suddenly had problems. So I think the first inkling of labor shortages came with Brexit. And then I think it has come with the sort of political pressures in mainland Europe.
Rassemblement national in France, AFD in Germany, so on and so forth. Pressures on governments to reduce free movement. I mean, free movement is a right within the European Union. But housing shortages, a sort of lack of welcome have also played a part. So we’re seeing labor shortages in key areas all over Europe, and it’s partly measures against migration, but it’s also the underlying and much more important problem.
We just don’t have the young people. They’re coming on to the market for labor at a diminishing rate. So they are more sought after. And of course, they say when I say this to a friend over dinner, they say, yeah, but what about the great resignation in Britain, you know, if that’s the case.
RK: That’s the great resignation that happened during the Covid times?
GM: And after, after Covid everybody thought well, that’s okay. They can go back to work now and they didn’t, they haven’t. And why is that? I mean, I think it’s low wages which do not compete that well with social benefits. I mean, they are frankly a bit higher than social benefits. But you’ve got to get up and go to work and so on.
I think also health, so much of our health care focus is being switched to older people. Somebody of 80. I’m 81. Somebody of 80 generally costs a health service about 12 times what it does somebody of 40.
RK: That’s that that’s a that’s a huge difference.
GM: And obvious, when you think about it.
RK: Makes sense of course. Yeah.
GM: You know, I mean I’m quite healthy, touch wood. But I’m always being tested for this, that and the other. Doctors say, you know, go and get that tested. It’s very expensive getting people tested. And then you put them in hospital and the cost goes up like that phenomenally. So the result is that younger people are less healthy because they’re starved of health services.
And we find that very difficult to believe because we all know that medicine is doing miraculous things. So the idea that people are getting less healthy doesn’t seem to make sense. And if it doesn’t make sense, you don’t accept it. But it’s true. So people have been saying to analysists, especially in Britain, have been saying, look, one of the reasons for the Great Resignation is they’re not well enough to hold down a good job or they don’t feel well enough and so on and so forth. But the result is that we’re making a bad situation worse. By the fact that, we’re not focusing our health care properly. And this, I think, is an area where governments can do a great deal. You know, we must get old people out of hospitals. We must therefore built up a sort of, if you like, para hospitals, care homes for the very old and infirm but not hospitals as such.
And it seems to me to be one of those ideas, one of those policies that is blindingly bloody obvious. But you don’t hear anybody talking about it. They talk about the lack of carers, well, that’s an immigration problem. I mean, we know all the best carers tend to be from immigrant communities and tend to be better than European or British carers. More heartwarming and warm.
So I mean the obvious policy to be adopted right across Europe is to say we must have a crash building program of care plus homes. So somewhere in between a geriatric hospital and a care home. And that, I think, would be one of the elements. I mean, there are a whole lot of things we can talk about Rich, tax, pensions, house building.
All these things need to be addressed now because although I know I sound terribly pessimistic, gloomy, but I do actually believe if we act now, we can head off an awful lot of trouble. If we can build enough houses in the right places, because one of our problems is we build houses in the wrong places. Ask the experts, they’re all in the book.
But if we build enough houses, we can coax young couples back into having 2 or 3 children. If we could get back to an average of two and a half children per couple, we’d be heading off an awful lot of trouble down the road.
RK: I remember from reading your book, actually, that, you saying that in the UK there’s only like 5% of the land in the UK that’s actually got houses on it, basically got housing on it, which, that kind of seemed quite, quite insane to me that the way the housing and housing space is spoken about. And yet the reality is it’s 5% of the entire land that just seemed crazy to me.
GM: I know, and when I first saw that figure, it was somebody mentioned it in a Financial Times article. I looked at it and I thought that can’t be right. So I looked it up. It’s not, the FT thinks it’s 6%. It’s actually 5%, including gardens.
RK: And gardens. Yes. Right. Wow.
GM: But then when you look out of the window or you get out of town and drive a bit, you start to make sense. And you think we haven’t asphalted over the whole country. We have centralised people much more than before in towns. But it doesn’t mean to say that we’re short of land. I mean, I, I think we need to do two things.
In the first place, we need to go back a bit over a hundred years, the man called Ebenezer Howard was the inventor of new towns. Welwyn Garden City, things like that. And there was a very strong move in the Edwardian period before the First World War. Let’s build new towns. And they continued it in the interwar years, but it worked very well.
And then somehow we stopped doing that. And the result has been too much competition for housing in limited areas. I mean, not to speak of London or Manchester, but look at big British cities. Same in Europe. Too many people going after too little property. So we’ve got to do this and we’ve got to start planning. I mean, I grew up at bit in France and I’m a great fan of postwar France.
They had a plan, and the plan was to put steelworks here, factories there, and build houses around. And it worked very well. And it’s one of the reasons that the French are actually outliers on the demographic problems. They have more children, not enough but more than the rest of us. So I think first of all, we’ve got to have a plan on developing industries and then building houses around.
We did for a while steel, mining and so on. Then we shut down the mines or the steelworks and left the houses and people unemployed. Brilliant. That’s one area to tackle. The other is, I think, on housing, we have to break the property bubble, but it’s very, very difficult when people’s savings are in their houses. And where you are, where you live is who you are.
So to destroy housing values would be a body blow to society, and would have all sorts of political repercussions. But if we can do something because where’s the money going to come from for a big housing boom? A big housing boom would be a flywheel for the economy, so where’s the money going to come from? My favorite is to tax the land underneath big buildings, walk around London, big hotels, mansion House, stock exchange, big banks, all sit on land that is taxed at the same rate as houses.
It’s absurd.
RK: Wow, that is absolutely absurd.
GM: Absolutely absurd. And if you look in my book on the housing thing, somebody advances a very good arithmetical formula, to say, right. I can’t remember the figure, a half percent or something tax increase over 20 years. Problem solved. The big companies don’t feel it. And the actual amount of cash released by that. And when we come to talk about tax, it has the big advantage that it can’t be moved.
It’s sitting there, it’s land and the tax thing I think just to move seamlessly on to tax, because everybody says, yeah, yeah, it’s a big problem. Get the rich to pay more. I’m all in favour of the rich paying more, but we’ve had some really good examples of people trying to soak the rich.
RK: Soak the rich means to kind of tax them heavily?
GM: Absolutely. I mean, there are obvious abuses that move profits around and have a host of lawyers finding loopholes and who pay virtually no tax, that we clamp down on, provided we can persuade the Americans to play ball. The French tried it with a couple of times, Mitterrand the socialist prime minister about 40 years ago.
Had a Impôt de solidarité sur la fortune tax on the rich. It produced very little money, in fact it cost more to apply than it yielded and the reason was the suitcase trade. People emptied their bank accounts, put the cash in a suitcase and drove across the border to Switzerland. And we’re seeing the same thing in Britain now, with the row about the non-doms.
RK: Non-Doms. Yes.
GM: And you’re getting rich people.
RK: Rishi’s wife, for example.
GM: Indeed, saying, oh, well, if you’re going to tax us like that, we’ll move. We’ll go somewhere nicer, more sympathetic to us. So it’s very difficult to make the rich pay a lot of money. And we haven’t tried hard enough to get a consensus amongst governments who tend to, they tend to compete with each other for rich investors. Instead of saying, let’s have common rule. The taxation is a very important problem to be addressed and resolved, because we’re going to need a lot of investment money to tackle the ageing problem.
RK: Giles, when you were talking about the need for fixing the housing situation, I just wanted to to bring up a figure that I that I found in your book, just this is one of the things that, as I said at the top of the show, I said about how sometimes I found this book absolutely infuriating. And so for for many young people, as you’ve said, it’s impossible to get on the housing ladder.
The right wing media would have you think otherwise. But in The Economist, they reported that the last of the American baby boomers aged around 35 years old in 1990, those 35 year olds, on average, 35 year olds, they owned one third of US real estate by value. Millennials, the generation, many of whom are 35 year olds right now they own just 4%.
So that’s one third in 1990, which is 33% compared with 4% today. The same people, the same age, but different generations, 33% now 4%. But what has happened to create such a chasm between just two generations? And what is this? What is it doing to young people?
GM: I mean, it is staggering and embarrassing and the figures are much the same in Europe. The baby boom generation, my generation at the same age as the Gen Z and millennials, up to about 35. Our generation had roughly a fifth of not just property, but assets in general, which is about right for a generation starting out on its careers, starting to put money aside, found somewhere to live.
So you take a fifth with the older people having more money was about right. But 5% is totally wrong. What it represents is first of all, low wages, not such good job opportunities cause of lower growth, and most of all the housing problem. We built more houses in Britain in the postwar year, this until roughly 65, 1965, we built more houses then to between 1965 and now.
I mean, construction was going on, of course but it’s pretty embarrassing. Really no new houses to speak of in relation to the number of people looking for a roof over their head. Almost no new houses have been built in Britain in the last 15 years. Whatever the politicians may say it’s actually old houses being renewed or replacement of ones that have been knocked down.
RK: Ah, like how Boris Johnson was talking about new hospitals, but it was actually rebuilt old hospitals.
GM: There you go. I mean, my skepticism for politician statistics is undimmed. So why? What’s happened? Well, the sort of key figure that I took away, was when I looked at mortgages in 1980. You’re a young couple. You go to the bank and you’ve got a flat you want to buy and you need a mortgage. It’s as though the apartment, and the cost of money meant that your mortgage had to be four times your earnings over the period of the mortgage.
Now and the bank will ask you for 15 times your earnings. Hardly surprising that we call them generation rent. Who can afford to buy unless it’s the bank of mum and dad, which is another problem that inheritances have become one of the sort of driving elements of society, the social economy. I mean, the if you’re young, fertile, wanting to have kids, got a reasonable job, your card is marked, your chances of finding somewhere decent at a decent price unless you’ve got a bank of mum and dad are pretty poor. And I think we we somehow overlook all these things, or we don’t focus on them because speaking as a journalist, it’s not a good story, it’s not sexy as stories go.
RK: With the bank of Mum and Dad, Giles, any time I’ve seen that reported on or, opinionated on in a column, it’s generally kind of used as a derogatory thing as like, these some, some people are going to be able to get a house because they’ve got the bank of mum and dad, and it’s almost like a shaming thing that like, these, privileged young people are getting their money for free from the bank of Mum and Dad. Does that, does that kind of ring true in the reporting that you see?
GM: I think you’re right. I think it is looked down upon as being unfair. And of course it’s unfair. Life is unfair. We all know that. But it it points to a bigger problem, I think. The fact is, the bank of Mum and Dad, has been a growth financial services sector for some time. And why is that? It is because older people living longer have been getting richer, and therefore older couples have more disposable money to lend to their kids.
Lend, give whatever. So in a way, it’s a solution. But in another way it’s a symptom of a distortion of intergenerational fairness, fluidity, call it what you want. So I think part of the danger we see of this widening gap between the haves and the have nots, I mean, the root tends to be education, and education tends to be a reflection of local society.
If you’re in a depressed former mining village, primary school isn’t going to be that good and secondary school is going to be lousy. I mean, people say, well, why aren’t these bright kids going to university, getting skills and so on. It’s obvious they got a poor start in life. So I mean, education is a big problem, but so is low wages.
If you pay low wages for crap jobs then there’s very little chance of self improvement. But at the other end of the scale, you’re watching the kids with a master’s or PhD in some sort of digital wizardry who’ve got runaway incomes. So we’re getting this very upsetting, imbalance within society, despite the fact that we we like to fool ourselves that society has been getting more equal and that the old class divisions have disappeared.
I wish it were true, but I think they’re coming back in a way that 20 years ago I would never have expected. Talking about imbalances. I wanted to add something that is totally left field.
RK: Oh, please.
GM: The imbalance that worries me most. Well, worries me a lot, is between countries. When the Berlin wall came down, we thought we were going to create a new Europe whole and strong. And indeed, I mean, I’m a specialist in European integration stuff, for a while we did rather a good job. Put a lot of money into infrastructure and economic development, called it cohesion in the Brussels jargon of bringing up the former communist countries.
And I remember when the wall came down, I wrote a book about what we’re going to do with the communists and people, experts I talked to said it’ll take 25 years for the central Eastern Europeans, and 50 years for the Russians, to become market economies. Totally wrong, course it all happened very, very fast. Russia different case. Now we’re going the other way.
Those countries are being hit by very low birth rates. So the whole of southern Europe, eastern Europe, Bulgaria, Romania. Bulgaria shrinks by 40% over the next 40, Romania not much better. And then you’ve got, Poland are okay because of Catholicism.
RK: Are they, are they shrinking birth rates? Is it migration? Is it, what’s going on there?
GM: Right. You’re spot on. It’s both. They have much lower birth rates and part of the reason is they have well educated young people attracted by higher wages in Western Europe. So they leave and they take their fertility with them.
RK: So I can imagine then a place like Romania 40% population decrease is going to destroy that place.
GM: Absolutely.
RK: Is that too blunt to say?
GM: No it’s true, and it’s true of the Baltic states. The Baltic states worry about being invaded by Russia. But in fact they’re emptying out at a frightening rate because, you know, they were the pioneers of the digital revolution. Estonia, so on. So they have a ready market in the rest of Europe for their skills. And the reason I mention is that I think it’s very dangerous.
I think we could pull the European Union apart at a time when I look at China, rogue America, all of these big pressures, doubling of the African population over the next 20 years and of the Arab world’s population, and in Europe shrinking and splitting. And I think we’ve got a big geopolitical problem here. We’ve got to do something fast about restoring growth and economic activity to the Eastern and Northern part of Europe. And you never hear anybody talking about that here in Brussels.
RK: Much of the media, they talking about a workforce crisis, for example, that young people can’t be bothered to work and they expect too much. Then there are migrants stealing all our jobs. Older workers are hanging around far too long. Part timers are cutting in on jobs that should be going to people who really need them. What’s what’s the truth of the matter here?
GM: I wrote, circular firing squad. They’re all blaming each other.
RK: Right, right, right.
GM: So everybody is to blame. And migrants steal your jobs. The old people stay on and occupy jobs that other people should have. It’s all rubbish. All complete rubbish. Blaming each other for things that have totally different causes. Point one, migrants don’t steal jobs. This is one of the oldest economic fallacies. It’s called the lump of labor fallacy and it’s a stupid idea. You see it all over the place. Politicians cling to it. The idea is there’s a finite number of jobs to go around, and people compete for those jobs. Silly idea. Everybody is their own demand center. So the more people you have, the more demand, the more people you have more likelihood that they will find employment of some sort or other.
RK: Why is that the case, Giles, because, like the scarcity mindset that we’re all that we’re all taught to kind of take in as normal is that if more people come into the country to do to do jobs, there’s going to there are going to be fewer jobs to do.
GM: Absolutely. That’s the lump of labor fallacy.
RK: But why is that not correct?
GM: Because the more people there are then the jobs there are to be done, and the more jobs to done by the newcomers.
RK: Right? They bring they bring needs with them, which then need to be fulfilled by other people.
GM: Absolutely.
RK: Right.
GM: Absolutely. And they bring more consumption, which triggers more production. So it’s a completely daft idea and one that sounds simple enough that people can grasp and too simple to be true I’m afraid. So that’s one myth. Older workers hanging around far too long, if only! If only we could harness older people. One of our big problems is early retirement? If you remember, 20 years ago, everybody spoke about the leisure revolution, and there was going to be so much money that people won’t know what to do with their time and they’ve trained themselves to find hobbies and things like that.
It’s not true. What we now find is pensions are paying out less so that people can’t afford to live, especially on a state pension and even private pensions are paying out much less than they used to because the pension funds invest in safe things, rather than in growth things. So what we actually want is for older people to stay in work, to keep the labor force growing, to be able to pay their own way. And as there is a labor shortage.
They’re not taking anybody’s job. I mean, we do actually see it in the upper reaches of big companies where the older generation of executives tend to be turned into consultants of some sort of other, allowing their younger successors to take the reins, but nevertheless hanging on to the experience of their seniors. But you don’t find it so often in smaller enterprises. Where you do find it is in supermarkets.
I don’t know if you’ve noticed, but check out people are getting older.
RK: I have noticed, yeah.
GM: A damn good thing too. I’d much rather see some old lady of 70. Who, has got all her marbles, knows everything than some young girl who’s not only floundering, but could be pursuing an added value job elsewhere. So part timers cutting in on jobs that could go to people, if only we had more part time work. Part time work is brilliant. Part time work is what would help us get women and mothers back into work.
And if mothers could do part time work, they could have another child, but when they’re just stuck at home looking after the baby. There’s no income, there’s no sort of room for a bigger family. So part time workers, I’m all for it. And the bottom line here is walk down any high street, what catches your eye? Help wanted, jobs available, everywhere, all over Europe.
It’s quite, you know, hamburger joints hiring now all this stuff. There aren’t enough people in the labor force. And I go back to that shattering figure that I maybe passed over too quickly to begin with. One quarter of the present European labor force will disappear within 20, 25 years. One quarter. What does that do to taxes?
I mean, taxes, you that well over half of tax incomes of governments come from labor chiefly because it’s easy to tax labour. It’s easy to tax workers, PAYE schemes. It’s easy to tax small companies with easy sort of profit and loss books, double entry bookkeeping so on. It’s very difficult to tax big companies because they’ll run rings around you. So what we actually need.
I know this sounds crazy. We need more tax inspectors. We need tax inspectors who’re much sharper than the present sort of breed of sort of jobsworth tax inspectors. I’ve met a few, you know, and they’re not flexible. We need more tax inspectors going after the hidden taxes, the fruit is on the trees. You just need ladders tall enough to pick it.
And that means more tax inspectors and more intelligent tax inspectors.
RK: You say that anyone currently under 40 will work until their 80s to enjoy the same pensionable income as current 65 year olds. That that’s that’s simply that is bleak. It’s so bleak. Can you please tell me the there’s there’s been a policy that’s come in to rectify this since you’ve published the book.
GM: No. The whole thing about pensions is spine chilling because there are more and more people drawing a pension. The state pensions are more or less underwater. The sort of key figure in the postwar years, right up until about 1990-95, there were four taxpayers for every pensioner. There are now, and this is a European average, there are now less than three taxpayers per pensioner. The figure is 2.97.
RK: So that’s like, yeah. Just that, that load. I’m thinking about it in terms of like carrying shopping bags from the shops or something. And before you had four people carrying all these groceries and now you’ve got 1.03 less people, fewer people carrying it. That’s a heavy burden.
GM: Well, you could say you have four people standing outside the supermarket giving money to some old lady who’s going to buy. They have, shall we say a pound each the four people. And they give the old lady a pound each so she’s got four quid. Now you’ve got less than three people, 2.97 people standing there. They can’t give her 2.97 pounds, they give her 4 pounds.
May even have to give her 5 pounds because of inflation.
RK: Right. Yes.
GM: So where do they get their money from? They borrow it, the state borrows it for them. So if you look at that I mean I hate figures. But I also think that if you don’t have the right statistics, the right information, you’re it’s just speculation. I make no apology for the figures in the chapter on pensions. What you see there is all pensions are at risk of getting bankrupted.
There are sort of rescue funds and they’re minuscule in relation to the unsecured debt of pension funds. So if there were to be a serious credit crunch of some sort. Not sure what would happen. I mean, we’ve already seen this, of course, until about the end of the last century. Most companies, they’d offered their employees and in-house pension scheme would say, right, you pay in this amount X and when you retire at 65, you will get Y per year fixed.
It’s called a defined benefit scheme. You don’t get it any more. Whoever you go and get employed by BP. Shell doesn’t matter. You’ll get a DC defined contribution. They’ll say every year you put in X when you retire. Well we’ll see. It might be y, but it’s probably y minus.
RK: We’ll see. That’s, that’s a horrible statement.
GM: And that’s what’s happening on pensions. So when I say I’m happy to see older people still in work, that’s the reason. We’ve we’ve got to keep as many people working as possible because we don’t have the stored fat for society to live off its savings. We spent the savings. When state pensions were originally set up after the war, the idea was that the pensions would be funded by the profits for the money the state put into. Well, within about 15, 20 years, various governments ran into financial hiccups. Do you remember the British went to the IMF to be bailed out. So what did they do? They raided the pension funds. So now the pension funds are paid out of current tax earnings.
We’re living on a bit of a knife edge here, having after the war in all those difficult years when not just the British, but everybody was paying off war debts, and ours were huge. We at the same time managed to structure the relationship between the state and the citizen in really very sound structured ways. Not any more we’ve eaten our seed corn.
RK: Wow, that’s a great way of looking at it. We’ve not only eaten our corn, we’ve eated the seeds. Yeah. Oh my goodness. Giles. I want to talk about people who are doing quite well. The billionaires, you spoke about them a bit earlier. I’d like to get a bit more, if that, if that’s okay. The European Commission reported that eight individual billionaires, eight individual people own assets worth as much as 3.6 billion people.
That’s eight individuals owning the same amount as 3.6 billion individual people. The poorest. That’s the poorest half of the global population.
GM: Exactly.
RK: And that these billionaires, you know, your Elon Musk’s, your Jeff Bezos, Michael Bloomberg’s, etc., etc.. Only eight of them. They pay very little tax and sometimes none at all. PayPal founder Peter Thiel, he tried to claim that his floating home was a tax exempt state. Bezos once once fabricated his earnings to claim child benefit. The HMRC here in the UK is very aware of this sort of behavior.
Refers to it as profit diversion, which is a horribly innocuous term for something for what’s actually happening. But we’re talking about billions here. We’re not talking about, we’re talking about billions of dollars or pounds or whatever. Why why is this allowed to continue? Why not just tax these people properly?
GM: Correction Rich, we’re not talking about billions. We are talking about trillions. Thousands of billions. My attention was drawn to this some time ago by a guy who was German who was president to the European Parliament, and we were at a dinner and he had to stand up and make a speech. And he started talking about tax evasion, not avoidance, which is legal.
Disgraceful but legal. He said the European Union is currently being cheated of €1 trillion a year every year. The very rich and by huge companies that are dodging the taxes they should pay. And I looked at the American side and I found roughly the same calculation. United States Treasury is robbed of $1 trillion every year. Nonpayment of taxes due.
And you remember over the last few years, there was a slew of papers. The Panama Papers and something called the paradise papers which were unearthed in Panama by, there’s a consortium of investigative journalists based in Washington, DC, which delved into the computerized records of tax dodging specialist lawyers in Panama. And then in the Cayman Islands, the Isle of Man and so on and so forth.
And they discovered these huge caches of illicit tax dodges that governments when we were talking about the need for clever tax inspectors, we need genius tax inspectors with an army of lawyers to dig all this out. One of my favorite things, because it goes on very much in Europe, my favorite example is there’s quite a small office building in a suburb of Luxembourg City, it’s enough for about maybe hundred people.
Well, it’s the headquarters of I think it’s 4000 companies. Of course it isn’t. They just have a little brass plaque saying they are headquartered in Luxembourg. Luxembourg presumably gets a small fee and they get off scot free. These are abuses that are sitting there waiting to be addressed. But there isn’t political pressure to do so. And I’m afraid it is not going to come from the populists, and it doesn’t seem to be coming from the radical left.
So I’m not sure where we go from here. I want to get back to your original question. What is the time bomb, and when will it explode, because I know I didn’t answer that, I sidestepped, but I do want to try to answer it. The time bomb is made up of, I think in the book I say ten different detonators. What we find is as we get into the late 2030s, early 2040s, we will start to get 1 or 2 detonators going off, and in the way of explosives, detonating the others.
So then you get a big bang.
RK: Yeah. And, can you just run off a few of those detonators for us, Giles?
GM: The detonators they are, the ageing problem. The migrant problem, the pensions and tax problem. The health care and social costs, which will, within ten years time, about a quarter of all government spending across Europe will go on health care and related social benefits. At the moment it’s down to about 12-13%, it just goes up like that. So those costs. I mean, how the detonators will go, I don’t know. Will we have old ladies on the streets, hitting people with their umbrellas because their pension hasn’t been paid, I don’t know. I think we will see we are a rich, comfortable society at the moment, that is about to get poor and vicious. So how that plays out? I don’t know. What I do know is that so far, the first rumblings of this have fed the populists, because voters tend to be attracted by any politician who says, I’ve got the solution.
Don’t worry, vote for me, I’ll fix it. Trump being the upmost absurd example I can think of, but AFD, reform party in Britain, don’t worry, we’ll fix it, well they can’t fix it. They’ve never advanced any sort of a policy that makes much sense to me. And these are very complex problems that require really serious decision making and planning, so forth.
RK: Those parties, you said Trump there, AFD, reform party. They say they put their hands up and say, I have the simple answer. And they make a good job of like, you know, creating their story around it. Do they have the intention of fixing the problem?
GM: Think so. I mean, I, I don’t think they’re on the whole I don’t think they’re the sort of parties that attract deep thinking analysts. So I think they find it easier to say, we’ll stop the migrants. We’ll pay more money to maternity benefits, that sort of stuff, but none of that tackles the real problem. So I fear that where we’re going is at some point, some indeterminate point in the next ten, 15 years, these various detonators come together and you start to get either a series of explosions or a single big explosion.
You destabilize previously very set, stable societies, and you wait to see what happens. As the beneficiary of longevity, unfortunately I don’t think I shall be there to see the show.
RK: Okay, so we’ve got this time bomb, we’ve got these detonators. They are going to go off the rate that we’re going, the route, the roads that we’re going down right now. If we’re going to take action against this time bomb before it’s too late. Where should we start first?
GM: I think we start with taxes, housing, health care. I think we make a major effort to introduce new taxes. I mean, that tax underneath big corporate buildings is easy done. A strategy for building care homes, that are sort of quasi hospitals for what is known as end of life patients. House building, I mean, it seems to me absurd. Whenever I go past a building site, I look at it and I think they’re making houses now in the same way they did since time in memorial.
Why? Why not prefab, make houses in factories and go and plonk them down somewhere. The Chinese build one Manhattan, they love skyscrapers. The Chinese build one Manhattan every 3 or 4 years. And we don’t and we build our houses in the wrong places. You know, it’s very interesting, there’s a lot of discussion about this sort of Oxbridge corridor. This could be the nucleus of a new European Silicon Valley and blah, blah, blah.
All the houses are being built elsewhere. They don’t build nearly enough houses in Cambridgeshire and Oxfordshire, ludicrous.
RK: They could presumably they have the capacity.
GM: Of course they could. I mean, surely they could build it where they’ve put their silly railway line. No, I mean, I think there are a whole lot of things that can be done that have the advantage of being flywheels to get the bigger economy moving faster and at the same time demonstrate a willingness to, to face up to this great big unfair problem being placed on the shoulders of younger people who have absolutely no responsibility or guilt for what’s happening, but are going to be the victims. They’re going to have to pay huge amounts out of their incomes and yes they will eventually start to inherit money from older people at a slower rate than before.
But that’s not the same as having an economy that’s turning fast enough to give them the earnings they need, especially in their child rearing years. So, I mean, I feel we actually need a sort of I hate to use this term, ageing. Everybody says, oh yes, we all know we’re getting older, so maybe it should be a sort of rejuvenating strategy, looking at ways that we can tackle this first time ever disruption of the generational balance. I have to say that if you look at previous disruptions, a big one is the Black Death, fourteenth century. It killed everybody, irrespective of age, didn’t interrupt. It changed a lot of things. Changed agriculture, the way towns were built, so on and so forth. It didn’t change generations. This time, certainly got younger generations getting smaller and smaller.
We didn’t touch on this Rich, but I think the really worrying thing here is what I called the silver stranglehold. As far as we can see. Old people outvote young people. Old people are going to hang on to what they’ve got as much as they can.
RK: Right. You said you said, for example, the silver stranglehold on voting back in the Brexit vote. Like if, if all young people had gone out to vote and also all old people had gone out to vote, young people would have been absolutely decimated in the voting anyway, it would they still the old people still would have got what they wanted, even if all young people turned up to vote. Was that, have I remembered that correctly?
GM: That is correct for 2016. Look at it in 2020., 2021 it’s shifted. Enough old people have died, that the younger people, and of course older people who realize what a mess we’d have been part in. And also, I mean I’m not a psephologist who studies constituency by constituency, but my understanding is that if young people had turned out to vote instead of staying home in some of the key constituencies, we wouldn’t have had a problem.
RK: Thank you so much for coming on the show today, Giles. It’s been an absolute pleasure. It’s been an infuriating pleasure to speak to you today, but you’ve really given us a lot of hope as well in terms of like, yes, things are going the way you’ve shown us where things are going, but also kind of what we need to focus on in order to turn this ship around before it’s too late.
It’s really it is. It is an infuriating book, but it’s also a really hopeful book as well. And I recommend everybody listening, go get that book. ‘Timebomb: When Ageing Explodes’ by Giles Merritt, is published by Policy Press. You can find out more about the book by visiting policy.bristoluniversitypress.co.uk and also transformingsociety.co.uk.