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06/05/2006

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secret asian man

The typical Russian family does not have credit cards, or access to commercial loans on homes or car purchases. So the value of a large cash payment for having a second child is likely to be very appealing, especially to less educated women and other lower income families.

And here is the problem.

This program will have greater influence among the poor. Russian millionaires are unlikely to be swayed, but the Russian poor are likely to be convinced to have another child.

There is a very strong correlation between poverty and financial illiteracy. There is a very strong correlation between your parent's financial literacy and your financial literacy.

This program will increase the population - but it will increase the population of the financially illiterate (at best) or those dependent on the government (at worst).

Doesn't sound like it'll be good for the economy.

Arun Khanna

RussiaÔøΩs demographic decline like its democratic decline is hard to reverse. President Putin should encourage immigration of Russian Slavic population from what Russians term the near abroad.

fiona

1) the worst demographic consequences must surely be averted if life expectancy is so low as to kill off the majority of people before they reach pensionable age.
2) productivity must surely be rising if more people are pursuing degrees in accountancy instead of Bulgarian literature

Andrew Berman

I find it most remarkable that Russia is taking-- relatively speaking-- a 'small government' approach to this problem. Yes, there are some additional regulations on companies, but it basically comes down to the cash payout. If this succeeds, it will be extremely interesting to see how the rest of Europe reacts.

chicago boy

I think it's a good idea to stimulate fertility, but I would redistribute a large part of the money on immigration programs and programs valued by middle class.

This is a good point about inducing the poor to have children. To get high-quality kids it would be better to induce the middle class to do so, not the poor. The benefits are so generous that they will induce all classes to have children (with $9000 one can buy country house (dacha) near St. Petersburg in a reasonably good place, you can imagine what you buy in a place far from capital cities). I would rather start programs that should induce middle class to have children: reform educational and health systems, start a real transition to voluntary army (obligatory Russian army service for boys is a great horror for potential mothers), make it easy to open a business (one window system instead of 1001 officials waiting for bribes) etc.

Also it's a good point about immigration: a great number of qualified and hard working Russians from former Soviet republics would like to come to Russia that suffers from shortage of labor but Russia acts as it doesn't have any problem with population decline. Attitude of the State towards people was always horrible in Russia and immigrants suffer a lot. Incoming immigrants are people who definitely need a large sum of money when they come: they have nothing to start with.

Rachel

As a Russian history PhD student, and as someone who's spent a lot of time in Russia, I'd just like to point out a small factual error in Professor Becker's comments. In fact it was Stalin who initiated cash benefits to mothers to encourage population growth. The 1936 family law included a clause to grant 2,000 rubles per year for five years to women with seven children (according to Sheila Fitzpatrick in Everyday Stalinism this was "a really substantial amount"). In 1944, when the population situation in the Soviet Union was even more desperate due to the gigantic losses during the war, Stalin announced cash awards for mothers with three or more children.

Personally I am skeptical of whether Putin's plan will have much effect. For one thing I have a feeling that in Russia, unlike in coluntries like Japan, the problem is not so much that women aren't having children at all but that they tend to only have one child. And that is probably related to the fact that Russian women tend to marry early and often get divorced after a few years. I'm not too sure how many of these divorced women remarry (it seems much more common for men). Because women have children so young, often while they're in university, they rely a lot on their own mothers to take care of their children. And with declining life expectancy plus poor pensions which make it harder for people to retire, I'm not sure how much longer that will be a viable option. Finally I've heard there are strict maternity leave laws in Russia which mandate that a woman be given three years (unpaid) leave, after which she must be allowed to resume her job. Naturally this makes many businesses reluctant to hire would be mothers, and probably does not make child-bearing so attractive to women.

chicago boy

The benefit is huge. People are not going to believe that such a program can last long.
This is likely to cause an explosion of births in all classes of population during some short period of several years (many people will have children earlier than they planned (students), many people will have children although they are already close to be grandparents. This short baby-boom is likely to create problems with providing medical help for future mothers, providing childcare and school education for the kids. I guess many people are currently waiting (although they are ready to have children right now) until the reform starts. After the reform ends or changes rules there would be a sharp decline. Good that middle class will also be induced (not only the poor), but a good cost-benefit analysis is needed for such a program. Yes, small government approach is a good sign. It?s hard for me to believe that such a program is possible in Russia. Probably some free-market-oriented economists persuaded Putin that this is the best approach. In such country as Russia this is enough to start the reform.

Thomas Brownback

The Russian authorities are right about one thing: If the birth rates are low in Russia, then it suggests that children are very expensive. The explanation is simple: the Russian population is currently larger than the market will bear. Incenting an increase in population is hardly the solution to this problem.

Larry Horse

If Russia totally opened up its economy and allowed essentially free migration in, then that would get rid of the population bust without needing any subsidy. I guess Russia might need to work on assimilating the new minorities, but they have a history of doing that (albeit quite forcibly)

Georgi Angelov

1. The first issue is do we need government intervention into the intimate life of families, and even more - do we need Putin to decide insted of the people themselves? I doubt there is some market failure argument that can be a justification for government intervention. I doubt that Putin or whoever bureaucrat knows better what is the "optimal" size of population. The parents are most suited to decide on that question - they have the best possible information - about financial situation, education possibilities etc.

2. When you give large cash bonuses that is a burden to the taxpayers - it's not a windfall. Spending more taxpayers' money has direct negative consequences on the development of the economy.

3. Giving money for having children will discourage participation of women in the labour force. That is not a good development.

4. Cash bonuses will increase birth rate for poor people - some of them will start living only on the "income" they take for having children and will certainly avoid working. Then you will have poor families with 10 children or more. Then you'll need to create a welfare program for these families - and you create a welfare dependency trap. That what's happening with the gipsy population in Eastern Europe and that is becoming a huge problem in these societies.

5. At some point you will end up with several huge problems - the welfare expenditures will rise as well as the poverty. The literacy rates will fall. The unemployment will rise.

6. As long as the Russian economy is not creating prosperity, people will continue to emigrate and the population will continue its decline.

7. Instead of reforming the economy Putin is starting a Latin American populist style of governing by offering cash to whoever wants (the same like Chavez in Venezuela). This will not increase the productivity in Russia at all.

chicago boy

Commenting on Georgi Angelov's comment.

It's not that Putin decides how many children to have. People still decide themselves, but they have more incentive to have two children. So this is not interference, this is an option to get a subsidy. So, people have better options now, not worse. This subsidy does create distortions, however, through changing fertility and creating deadweight loss by taxing.

It is not obvious that it is bad that some women switch for a while to home production. Many of them will be able to produce kids with high non-cognitive skills and also do home production which is very important although not registered in national accounting.

No, Russia is not going to get poor families with 10 kids. As I understand, they pay this huge amount only for the second kid. So, for sure a lot of poor families with 2 kids and $9000 in the bank (which will make them not so poor?)

Agree, looks like somewhat populist idea. This child program may help Putin's successor (who will for sure strongly support the continuation of this program) to win the elections. Inviting immigrants, by the way, is extremely cheap, efficient, but unpopular: people are afraid of competition; they have the wrong idea that immigrants will steal their jobs.

dba

Dr. Becker and other people leaving comments - what about making abortion illegal in Russia? Not for any of the usual moral reasons, but to increase population. It might sound drastic, but terminated pregnancies outnumber live births there, I've read. Stop even some of those abortions, and you have a big increase in fertility.

Surely, some women will go and get "back alley" abortions, but making them illegal would probably reduce them at least somewhat.

Is this a viable choice?

chicago boy

I don't think it's a good measure. Abortion is still a very important way to regulate fertility in Russia: many people are still very ignorant about contraception. A prohibition will cause tragedies of many women and children. A lot of single mothers would appear, a lot of orphans. Also, a lot of black market for abortion will appear leading to poor quality of this operation and high corruption. I hope Russia would never turn to such kind of prohibition policies.

James Publius

This is an interesting discussion about Russia, but what about the United States? Do we have an underpopulation problem? Is that why we spend so much money on education and tax breaks for people raising children?

It seems to me that if government were limited, Americans would have smaller families. We would not deplete the country of people because immigrants would continue to increase the population. Some argue that natives are necessary to retain the culture, but we seem to have assimilated outsiders well. And, letting others carry the expense of educating a portion of our population would reduce the strain on government.

chicago boy

The benefit will be at high cost for mothers. Russian authorities are not accustomed to think ahead even if something 99% predictable. For instance, they are always very surprised be high snow and low temperatures although this is almost an every year event. Now, a lot of birth hospitals were closed during low-fertility period. For sure, during the baby boom it will be hard for women to get good medical service. Later the children will have higher competition to enter the university and higher probability to be drafted.

Antonis Roussos

"However, low birth rates reduce the number of persons of working ages relative to retired persons, and thereby makes it more difficult to raise enough revenue from taxes on workers to pay for the retirement benefits and medical care of the aged"
A comment from a European prespective: Contrary to what happens in Russia, the problem of low birth rates in Europe is mainly critical due to its combination with increased life expectancy. In your article you describe a situation where low birth rates come along with low life expectance rates. This is quite a strange situation. How is this affecting your economic analysis of President Putin's initiative? I am quite afraid that I tend to agree with Georgi Angelov above that his incentives are quite different and only explained within strict political terms.

chicago boy

Despite all criticism I posted above I understand Prof. Becker's optimism about the program. If optimal number of children (from parent's point of view) becomes one in developed countries governments (for whom optimal might be two or more, as they may have strategic goals that parents never take into account) have nothing to do but subsidize children. Giving parents cash is probably the least distortive way to do it. So, Putin's experiment (if successful) can become a pattern for developed countries.

Razib Ahmed

The main problem is that bringing up children is becoming a more and more expensive affair every where- not just in Russia. All the South Asian countries are burended with huge population but even here; in the large cities educated people are taking much fewer children than a generation ago.

Grumpy Old Man

I think they still have easily available abortion in Russia, a hangover from communism, which was highly ambivalent about the family and sexual "freedom."

Make abortion more difficult and the population will not fall as precipitately. The Orthodox church is surely anti-abortion.

kizhe

Ironically, using modern political lingo, both Hitler and Stalin may be attributed to the "PRO-LIFE" category. Both these "butchers" outlawed abortions. After the war Russia experienced "baby-boom" period (like in the US) but I suspect that part of it was due to "pro-life" policies of Stalin. He also put very long waiting periods on divorces and made it a very complicated procedure. In this respect Stalin may be on the same page with the Pope.
But, low and behold, I was born because of it!
When I was born my parents were in a very desperate situation: they did not have a place to live, my mother was not divorced yet from her first husband, they did not have any money and, on top of that, my father expected arrest by KGB every minute.
He even had a small suitcase ready for arrest,
sitting at the corner of the room. In every other country family would not even dream to bore a child!
But against all odds I was born, my father survived all purges, my mother become a manager and my father a professor!

chicago boy

Given how important fertility decisions are I would guess that the demand for abortion is pretty inelastic. "Making abortion more difficult" is likely to decrease actual number of abortions only slightly. For sure this would increase the cost of abortion and the number of black market abortions. Some increase in fertility is likely to happen, but mostly among the most disadvantaged mothers who would produce disadvantaged kids. Both abortion prohibition and abortion limitation are not kinds of policy that should be implemented.

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