Russia's campaign to increase its birthrate.

Commentary about business and finance.
May 24 2006 5:29 PM

Children for Sale

Would $36,000 convince you to have another kid?

Communism is officially dead in the Soviet Union, but the Marxist belief that men and women are essentially economic creatures is alive and well at the Kremlin. In May, Vladimir Putin, alarmed at Russia's declining population, which is falling thanks to short life expectancy and a plummeting birthrate (1.17 children per woman, down from about 2 in 1990), offered a bonus of 250,000 rubles (about $9,200) to women who would have a second child.

Meanwhile, at the other end of Europe, Portuguese Prime Minister José Sócrates is using the stick instead of the carrot to make babies. As part of a slate of reforms intended to simultaneously reform pension funding and reverse Portugal's declining birth rate (about 1.5 children per woman compared with 2.6 in the 1970s), Sócrates proposed tying tax rates for pensions to the number of children a worker has.Rates for those with two kids would remain constant, would fall for those with more than two, and would rise for those with fewer than two.

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Does this work? Can citizens of democracies (or, in Russia's case, a pseudo-democracy) be bribed into having more children? At first blush, the evidence would suggest that they can't. Virtually every industrialized country has financial incentives to encourage procreation—tax deductions, family support programs, bonusesfor children, etc. And yet fertility rates have been declining in virtually every industrialized country. "The history of pro-natalist measures, which goes back at least as far as Caesar Augustus, who slapped a bachelor tax on the Roman aristocracy, isn't very impressive," says Philip Longman, a fellow at the New America Foundation and author of Empty Cradle: How Falling Birthrates Threaten World Prosperity and What To Do About It.

In the past, it made economic sense for a family to have lots of children. The more kids you had, the more people there wereto work the fields, tend livestock, and care for you in your old age. But pro-natalist governments are working against pretty powerful countervailing forces: modernity, industrialization, urbanization, and technology. In developing countries, reducing the number of children is the path to prosperity. In a fine Wall Street Journal article last month, June Kronholz and John Lyons noted how Mexico's multifaceted campaign to reduce family size has borne fruit. The country's birthrate has plummeted, and the smaller families may allow "parents to invest more in their children's education, finally producing the generation that lifts Mexico into the developed world." They note that by 2050, Mexico may have a higher median age than the United States.

But for developed nations, the birthrates may have dropped too far. Europe and Japan face a shortage of children that endangers pensioners and undermines economic dynamism. Even China is facing a labor shortage, thanks to its one-child policy.

Can the market fix this? Extremists on the left (Marxists) and right (supply-siders) believe firmly in the power of economic incentives to change behavior. But the sums involved are generally rather small. According to the CIA, Russia's gross domestic product per capita in 2005 was $10,700, compared with $42,000 in the United States. So giving a Russian $9,200 in cash is like giving an American $36,112. Would that be enough to convince lots of Americans to assume the financial responsibilities associated with an additional child? For most, probably not. The U.S. Department of Agriculture has data on the price of human husbandry. According to the latest estimates, depending on your income, it costs anywhere from $139,110 to $279,450 to raise a child to age 17. And that doesn't include college, or graduate school, or help with the down payment for a starter home. Phillip Longman argues that these are lowball estimates, because they don't account for the forgone wages of a mother. "For a middle-class couple in which the wife works, but takes some time off, I came up with a total per-child cost of $1 million in direct and indirect costs."

Obviously, it costs much less to raise a child in Russia. But just as a one-time payment of $36,000 would be unlikely to prod many Americans to have an extra child, a one-time payment of $9,200 is unlikely to do the same in Russia. (Putin is also pledging to increase child-support payments and provide more funding for nursery school.) In evaluating such incentives, potential parents have to weigh the tightly defined incentive against a responsibility that is open-ended.

For many, of course, having children has nothing to do with financial calculations. Having children fulfills powerful psychological, human, and religious needs. There are some people whom you wouldn't have to pay anything to have another child. And there are some people who are so entirely satisfied with the two wonderful children they already have—and who, given their age, energy level, and real-estate prices in the Northeast—would require a Trump-sized incentive to embark on the adventure of parenthood again.

But while small-bore financial measures may not do much to sway decisions on family size, economics isn't irrelevant to fertility rates. The U.S. baby boom, which reversed long-standing declines in fertility rates, took place against the backdrop of a broadly expanding economy. In the 1950s, people raised in the Depression were highly confident that they could give their children a better life, and so they had more children. No matter how much cash Putin offers, Russians will still have to raise their children in Russia, with its gloomy climate, low wages, short life expectancy, and tenuous attachment to the rule of law. And Portuguese couples aren't likely to produce more little Joãos and Marias if they don't become more optimistic that their domestic economy will expand more rapidly—regardless of tax penalties imposed on the childless.

That's not to say that the government can't push policy levers to encourage fertility. Longman notes that policy played a huge role in the baby boom. "The G.I. Bill tilted every policy lever available in the U.S. domestic arena in favor of young couples, and vastly improved their economic prospects," he notes. It may not have offered cash payments for children, but the GI Bill gave millions of Americans greater access to higher education and affordable housing. And that did a great deal to encourage the formation of larger families. Today, Longman suggests that government-sponsored enterprises like Fannie Mae, which facilitate cheap mortgage lending, are powerful fertility enhancers.

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