Tag: Politics

The ageing paradox – why grey power is preventing the investment an ageing Europe needs

In a recent LSE blog, I argue that Europe is suffering from an ageing paradox whereby grey power is tilting government priorities toward preservation over progress, undermining the investment needed to tackle the negative consequences of ageing populations.

Across Europe, a quiet demographic revolution is reshaping politics. From Britain’s untouchable state-pension “triple lock” to France’s debates over the retirement age, an ageing electorate is steering governments toward policies that protect the present at the expense of the future.

As I argue in a new study, this rising grey power is initiating a profound transformation of advanced capitalist democracies. As societies grow older, voters’ priorities shift in understandable but problematic ways: the elderly logically care most about their pensions, whereas the working age population depends primarily on jobs and the investments that sustain them over time.

When older voters dominate electorates, as they now do across much of Europe, democratic politics tilts toward preserving the security of the elderly in the present over providing greater opportunity for the rest of the population in the future. As a result, Europe is trapped in an ageing paradox: governments prioritise the protection of pensions at the expense of the investments that an ageing Europe desperately needs.

This results in lower growth and higher debt, which then further aggravates the negative consequences of ageing. Escaping this paradox requires implementing reforms that rebalance the interests and political power of different age groups.

Grey power in ageing electorates

The numbers tell the story. In the EU, the over-60s account for about one third of all adults and the over-50s now represent a majority of the electorate. The problem is not unique to Europe, with the US exhibiting only slightly less pronounced population ageing, whereas Japan now has the highest old-age dependency ratio in the OECD. The result is an escalating electoral weight of the elderly across almost all liberal democracies.

Grey power is even stronger than the demographic statistics suggest because younger people are less likely to vote in most democracies. Within countries, the distribution of older voters across regions and constituencies varies, typically with much higher shares in the countrysides than large cities, which further exacerbates the problem in some places and intensifies urban-rural cleavages.

The pension trap

In well-functioning democracies with governments that are responsive to their electorates, ageing gives older voters a disproportionate influence over policy. Pensions in the EU were about 12% of GDP in 2022 and as high as 15% of GDP in Italy where public debt reached about 135% of its GDP. Despite these mounting pension expenditures, governments face strong opposition to reforms. For example, the UK triple lock, guaranteeing pension increases by the highest of inflation, wage growth or 2.5%, has become politically untouchable.

Elsewhere, similar stories unfold. France already spends more than 14% of its GDP on pensions, yet President Macron’s effort to nudge the retirement age upwards sparked strikes and protests. Germany’s coalition government refrained from raising the retirement age to 70 after fierce opposition, while Spain’s government recently restored inflation indexation of pensions.

Each country’s specifics differ, but the dynamics of the problem are similar: ageing brings about higher pension expenditures but makes reforms harder, which crowds out public and social investments and binds this new electoral politics of the welfare state to economic stagnation.

When policy loses its future orientation

This is more than a short-term budgetary challenge. Ageing alters the political priorities of economic policy making in ways that will have long term ramifications for Europe.

For decades, Europe’s welfare states were designed to combine present-focused public consumption spending on pensioners and workers facing particular risks and insecurities, with more future-oriented social and public investments to spur productivity gains and innovation, leading to more high-quality employment and inclusive growth. But when a larger share of voters is no longer in the workforce, this logic weakens.

Governments become guardians of existing consumption policies rather than implementing the policies that maximise renewal and progress. In ageing societies, pension reforms are difficult because they are strongly and immediately felt by politically powerful older voters.

By contrast, investments in childcare, education, housing or infrastructure, whose benefits are long term and uncertain, start to receive less attention and funding over time. In short, the government’s time horizon in ageing democracies contracts.

Rebuilding the politics of shared time

Ageing need not condemn Europe to decline. With the right strategy, we can turn the welfare state from a brake on dynamism back into an engine of transformation.

Although developing high-quality employment and embracing more migration would certainly help, the former necessitates the investments that are now politically difficult to introduce, while the latter is already politically contentious. Thus, rebuilding the politics of shared time requires changing the power and policy priorities of different age groups.

First, we must strengthen the political influence of working-age and younger voters to rebalance intergenerational power dynamics in our democracies. Lowering the voting age to 16 and encouraging the young to vote, for instance via compulsory voting laws, can help correct the political skew created by ageing. Retirement-age reforms can also boost the share of the electorate that is in the workforce, but this should be done in ways that protect and benefit workers in more challenging and economically insecure occupations.

Second, we must more strongly align pensions with prosperity. Given the scale of demographic change and current projections, even full participation by the young and a larger workforce will not suffice. Re-indexing pensions to wage growth, rather than inflation, ensures that retirees share fairly in national prosperity.

This also re-aligns their interests so that they become part of the electoral coalition prioritising the economic growth that makes possible higher wages, taxes and hence ultimately their pensions. When considered in static terms, the allocation of government resources between workers and pensioners is a zero-sum game, but when adopting a dynamic approach, it becomes clear that both workers and pensioners gain from higher growth in the long run.

A new social contract for an ageing Europe

Europe’s postwar social contract was built on reciprocity across time: workers supported retirees today, trusting that future generations would do the same. This contract remains valid only if governments can still promise growth and opportunity to those who will finance tomorrow’s pensions.

The rise of grey power is reshaping European politics, but it need not paralyse it. The real challenge is not demographic but democratic: whether parties can build the pro-growth coalitions that look beyond the next election by rebalancing the political power of each demographic group with reforms that change their policy and economic priorities.

For more information, see my new study in World Politics.