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Czech Republic: Drop In Birth Rates Spells Trouble (Part 2)

In the mid-1960s, fertility rates in Western Europe began to slowly drop below 2.1 children per woman -- the rate needed to ensure the replacement of the current population. This trend prompted warnings from demographers, leading to measures -- particularly in Scandinavia -- to encourage larger families. Central and Eastern Europe have likewise seen a drop in fertility rates, especially following the collapse of communism. But in this case, the region experienced not a slow decline but a sharp drop -- one from which it has yet to recover. In this second of a five-part series, RFE/RL correspondent Jeremy Bransten looks at the problem of dwindling birth rates in the Czech Republic.

Prague, 19 October 2001 (RFE/RL) -- In 1989, the average Czech woman had 1.8 children -- lower than what politicians would have liked, but higher than in many Western European countries. By 1999, the fertility rate had dropped to an unprecedented 1.13 children, placing the Czech Republic at the very bottom of the global fertility scale.

Jitka Rychtarikova, head of the Czech Academy of Science's Demographic Society, says it is important to examine the reasons behind the sudden fertility drop in Europe's postcommunist states. In Western Europe, fertility rates began to drop in the 1960s as a result of large numbers of women beginning to join the workforce. But in the communist world, including the former Czechoslovakia, almost all women already held a job in addition to raising a family.

What has prompted postcommunist couples to forgo or delay having children, Rychtarikova says, is a mixture of economic uncertainty and choice. Young Czechs suddenly face career, education, and travel options their parents could only dream of. At the same time, they know that having children, or at least more than one child, could severely curtail those options -- in terms of both freedom and family budget. Although the capital Prague has seen a boom in the postcommunist years, the Czech economy overall has seen no growth since 1989.

Rychtarikova says: "I see, in this country and in the other postcommunist countries, a basic contradiction. People have high aspirations. They expect to live like people in the West economically. But this is not happening, and so this has to be resolved at the expense of something else -- at the expense of the number of children people have. You can be a parent with only one child and that can prove satisfactory."

In surveys, young Czech couples continue to overwhelmingly cite the desire to have an average of two children, and say they only want to delay planning a family. But Rychtarikova does not believe the low fertility rate will reverse itself anytime soon.

"We speak about delaying, but we've been talking about delaying having children until a woman is older for a very long time. This discussion has been ongoing for almost 10 years. But we know that it is a fact that when childbirth is put off, fewer children end up being born. I think significantly fewer children will be born here, because it's a combination of this desire to delay and the economic situation."

There is another factor at work in the Czech Republic's drop in fertility rates -- one that ordinarily might be considered good news, but in this instance deeply worries the experts.

Rychtarikova explains: "The Czech Republic is the only postcommunist country where the mortality rate has begun to decline significantly and mortality is declining in higher age categories. We are starting to see an increase in the number of older people and on the other hand, the number of newborns keeps shrinking."

It's a trend that, down the road, could have serious economic consequences, among them a shortage of skilled labor and a potential collapse of the state-funded pension plan -- which is already 20 billion crowns ($500 million) in debt.

David Marek, an analyst for Prague-based Patria Finance, says: "The proportion of people receiving state pensions will increase while the proportion of those paying into the system through taxes -- economically active workers -- will decrease."

Presently, 2.33 Czech workers support one retiree drawing a state pension, a ratio that analysts call the "index of economic dependence." That rate, given current trends, is expected to drop to 1.66 workers per retiree by 2030. Whereas people over 65 years of age currently make up 14 percent of the Czech population, that figure is due to top 25 percent within 30 years.

While Western Europe can expect a similar problem, Marek says the Czech Republic faces much more serious difficulties, given its weaker economy.

"The effect is likely to be worse because Czech public finances are in far worse shape than in countries of the European Union. There, these countries had to consolidate their finances in order to participate in the single monetary union and join the euro-zone. One of the necessary conditions was fiscal reform, so you could say they are better prepared for current demographic developments than the Czech Republic."

What policy options do Czech politicians have to remedy the situation? One approach, floated by Deputy Prime Minister Vladimir Spidla, is to attempt to reverse the demographic trend through a package of child-friendly subsidies. As an incentive to parents to have more children, Spidla recently proposed setting aside 50,000 crowns ($1,300) in state money per newborn child. Upon reaching the age of 18, each recipient could spend the money, plus interest accrued, on education, housing, or other necessary expenses.

The plan has yet to pass through parliament and has been attacked by right-wing parties as an unaffordable luxury. Marek of Patria Finance is also skeptical. He says the proposal will cost a lot of money and is unlikely to make people feel more financially secure.

"The idea behind this -- raising the birthrate and softening these negative demographic trends -- may be good, but I don't think this is the way to successfully resolve the problem. Since we need to reduce state budget expenses, as I mentioned, this measure would mean an additional expense of 4 to 5 billion crowns a year ($105 million to $132 million). This will mean taxes will have to be raised, so people's motivation to save and their ability to choose various savings vehicles will be lowered."

Marek says tax relief would be a better solution: "This measure could instead be replaced by lowering people's tax burden after a certain degree of financial consolidation was achieved. Households would be left with more money and it's possible that this would allow them to have more children, more quickly."

Over the long term, Rychtarikova of the Demographic Society says the government should strive to level the economic playing field, so that having more than one child does not impair a woman's or a family's choices to such a degree.

"I believe we have to draw a distinction between social welfare programs -- where you help economically disadvantaged families, people and groups -- and a family policy. This means trying to equalize conditions or reduce the differences between the living standards of families without children and those with children -- even though a family with children is never going to be able to reach the same level of financial comfort."

Marek suggests planning for the future by fundamentally reforming the state pension system, so it can cope with a new wave of retirees.

"Relatively little has been done so far. The traditional pay-as-you-go system was supplemented with the possibility of additional pension funds, but it's only on a voluntary basis and it appears it will only play a small, supplementary role. More important would be to undertake a reform, which would trim state budget expenses by introducing a new pillar to the pension program. This would entail establishing obligatory private savings accounts for retirement."

Under the pay-as-you-go system, retirees are paid their pensions using tax contributions from current workers. Clearly, there will come a point when an ever-shrinking pool of workers is to sustain an ever-growing pool of pensioners. Under a private pension plan, workers would pay into a fund that invests in stocks and bonds and would accumulate interest.

Experts agree that private savings accounts will become a necessity to supplement state pensions, given current demographic trends. But even in Western Europe, governments have been reluctant to make the switch. Most people continue to expect the state to provide their full pension, and that holds doubly true in postcommunist Europe, where recent bank failures and related scandals have undercut public trust in private financial institutions.

Increasing in-migration -- migration into the country -- could be another way to help alleviate demographic pressures. Already, tens of thousands of workers from poorer Eastern European countries have flocked to the Czech Republic to take up manual jobs locals do not want to fill.

But Marek doubts the Czechs will be able to emulate the Americans or the Germans and draw on a large pool of highly qualified foreign employees.

"In the case of the Czech Republic, I think it will be difficult to find a cheaper, well-qualified workforce. On Western markets there is the advantage that the local workforce is relatively expensive. In the case of Central and Eastern European countries, we have the disadvantage that we don't have anywhere to look for a similarly well-qualified and even cheaper workforce."

Never before in human history have countries had to face the massive peacetime shrinking and aging of their populations. For states such as the Czech Republic, the impact could be especially severe. Czech policymakers must now face the decision of whether to put a greater portion of the state's resources into reversing the trend -- or to plan for its inevitable impact.