document: The welfare state , the glue that binds the social fabric of the world 's advanced capitalist economies , is coming unstuck . The immediate cause is its increasing cost at a time when budget deficits burden most of the 24 member states of the Organisation for Economic Co-operation and Development . Rising welfare spending has been a significant factor in the average increase in net state borrowing of 3 percentage points of GDP across the OECD between 1989 and 1992 . In the longer term , there are fears that the cost of the welfare state could become insupportable as populations age over the next 50 years . While short-term measures may ease the immediate budgetary pressures , more fundamental reforms will be needed if the welfare state is not to undermine the economic performance that has underpinned its enormous expansion since the second world war . Reform of national welfare systems to bring costs under control is now on the political agenda throughout the OECD , as countries struggle to rein in government spending . Total government spending in the OECD countries has risen from 28.1 per cent of GDP in 1960 to 43.8 per cent in 1990 . The biggest element in this growth has been the cost of pensions , healthcare , unemployment benefits and family support . Social security payments more than doubled during this period , from 7 per cent of GDP to 15.4 per cent . Health expenditure also doubled , from 3.9 per cent to 7.8 per cent . The largest single budget item in most welfare states is the cost of publicly provided pensions . Expenditure has risen rapidly in recent decades , more than doubling its average share of GDP in OECD countries since 1960 . Pensions typically account for about a quarter of the increase in public expenditure over this period . The growth is largely attributable to three factors : The increase in coverage as pension schemes introduced after the second world war mature . The rise in the number of elderly people . Improvements in pension benefits , such as automatic increases to match rising earnings . The maturing of the welfare state is also a significant factor in the doubling of health expenditure since 1960 . Countries such as Spain , Ireland and the Netherlands have been extending their public healthcare systems to provide universal coverage . As with pensions , health systems have become more generous in the wake of economic growth - for example , including grafts and transplants that were previously regarded as experimental . The ageing of the population has also contributed to rising costs , though not as much as for pensions . Rising unemployment has added to the cost of the welfare state in both unemployment benefits and general family support for low-income families . But it has also helped to push up the budget for sickness and invalidity benefits , which often offer an escape route into early retirement for older workers . Most OECD countries have recognised the need to curb growth in these main areas of welfare spending during the 1980s , and have introduced policies to tackle the underlying causes . For example , governments have become much less willing to offer improvements in pensions . Moves are afoot in countries such as Germany and Italy to raise the pension age . Automatic indexation of pensions to earnings has been weakened in Germany and ended altogether in the UK for the basic flat-rate pension . Healthcare systems have been reformed to make them more efficient and to bear down on the cost of pharmaceuticals . Although there are considerable differences between national health systems , healthcare reforms in countries such as the UK and the Netherlands are increasingly converging on models that use competition and price incentives to control costs . Many countries have also begun to tighten up on unemployment benefits , with reductions in benefit levels and more rigorous conditions to qualify . Active labour market policies have been introduced to promote a return to employment . Some countries have succeeded in stabilising their welfare costs by measures such as these . But what most concerns those responsible for public finances is the strength of underlying pressures on welfare spending that will push costs upwards in the future . The most important of these is demography . Increases in life expectancy have already increased the number of elderly people collecting pensions . The number of over-65s in the 24 OECD member states rose from 61m in 1960 to more than 100m in 1990 . The growth is accelerating , with the number projected to rise to more than 115m in 2000 , 131m in 2010 and 156m by 2020 . Only halfway through the 21st century will the number of over-65s peak , at about 190m . The strain that this will put on the welfare state can best be seen by relating it to expected trends in the number of people of working age . The standard measure for this is the age dependency ratio , the population over 65 as a percentage of the population aged 15-64 . For the OECD as a whole , the age dependency ratio is predicted to rise from about 19 per cent in 1990 to 28 per cent by 2020 and 37 per cent by 2040 . Some countries face much greater pressures from the ageing of their populations than others . Germany and Japan , for example , will both have age dependency ratios of 34 per cent by 2020 - one person over the age of 65 for every three people between 15 and 64 . By 2040 , almost half of Germany 's population could be over 65 , though the proportion will fall thereafter . Age dependency ratios will climb more slowly in the UK and US , to about 25 per cent in 2020 - four people of working age to support every elderly person . In both countries , ratios will peak at about 33 per cent in 2040 . The most immediate impact of these demographic changes will be on pensions , where costs will in any case rise as pension schemes continue to mature . Overall , the OECD estimates that the pension burden could double over the next 50 years . Real economic growth rates of up to 1.5 per cent a year would be needed to pay for pensions alone - and that on the assumption that the pensions do not increase in real terms . In practice , increasing pensions in line with prices might be difficult to sustain if earnings rose faster . The growing gap between pensioners and those still at work that would result could be politically unacceptable . However , raising pensions by more than prices would either require much higher growth rates or higher taxes for those in work to pay the bill . The impact of an ageing population on healthcare costs is less clear-cut . Experts differ on whether increased longevity inevitably means more medical care : while more might be required for the very elderly , less might be needed for younger people as chronic diseases become less common . Additional costs of new drugs and advances in medical technology could be at least as important as demography in pushing up healthcare bills . However , there will be an increase in demand for geriatric care and social services for the elderly . This will be encouraged by social changes , such as the decline of the extended family in which older people were cared for by younger relatives . Other changes in social structure are also pushing up the demands on the welfare state . Throughout the OECD , for example , the number of lone-parent families has been rising since the 1960s . In some countries , the increase has been relatively moderate - 20 per cent or less in countries such as France , Japan and Switzerland . At the other extreme , the increase has exceeded 50 per cent in the UK and Australia . In the US the number has more than doubled . Lone-parent families now typically constitute 10-15 per cent of of all families with children in OECD countries . In the US it is one in four families . The reasons for the growth include the greater ease of separation and divorce . But inevitably lone-parent families rely on welfare provision to a far greater extent than two-parent families . Added to concerns over demography and social change are fears over the increase in unemployment levels across the OECD . Over the past two decades , jobless levels have risen during recessions but not fallen back to the same extent in the following recovery period . This ratchet effect has worried the Group of Seven leading industrial countries sufficiently for an employment summit to be hosted by President Clinton in the coming months . Continuing rises in the base level of unemployment would further undermine countries ' ability to pay for their welfare states . Responses to these cost pressures vary from country to country . Germany , the UK , France , Italy and the US are among countries that have already raised tax and social security contribution levels . However , the scope for such increases is limited by voters ' reluctance to pay higher taxes . Where the cost of welfare is jointly funded by employers - as in Germany - higher contributions are also increasingly resisted by business , which fears the consequences for international competitiveness of higher costs . In a global economy , no country can long afford to burden business with higher welfare costs than its neighbours . An alternative response to cost pressures would be further increases in borrowing to fund the welfare state . But that would also have deleterious effects , according to the OECD . Average government debt in OECD countries has risen from 23 per cent of GDP in 1979 to 44 per cent in 1992 . Without either tax rises or cuts in welfare budgets , current welfare spending plans could increase debt ratios on average by 90 percentage points over the next 40 years , according to one OECD study . It says this is ' a situation which most would think unsustainable ' . This is why the OECD 's half-yearly Economic Outlook repeatedly stresses the importance of controlling welfare spending in improving economic performance . The OECD 's immediate priorities for reform include charges for the use of some welfare services and greater competition to increase the efficiency of those services . But the OECD has also drawn attention to the need for action to anticipate the funding implications of the rise in the number of elderly people . Tackling these longer-term pressures will require more than tinkering with charges and efficiency drives in welfare services . Significant cuts in benefit levels , for example , may be needed - including greater targeting of benefits on the most needy . User charges could become increasingly widespread , especially for the better-off . They could rise to cover a much larger part of the costs of welfare services . And the demands put on the welfare state might be eased by encouraging more private provision of pensions and healthcare . Measures such as these would fundamentally change the nature of the welfare state , however . From providing support ` from the cradle to the grave ' , it would become a safety net for those who could not afford to provide for themselves . As countries become wealthier , moving the boundary between the state 's responsibilities and those of the individual in this way may be a natural step . But it would be politically controversial . Yet it is increasingly clear that there is no alternative to fundamental reforms if advanced economies are to protect their most vulnerable citizens without imposing unacceptable burdens on economic performance . The welfare state may have effectively bound societies together through the ups and downs of the economic cycle for the past 40 years . But a new glue will be needed over the next 50 years if advanced economies are to pass beyond the welfare state . This is the first in a series of articles analysing the pressures on the welfare state across the world , and examining policy options for relieving the strain
extractive_keyphrases: welfare costs budget deficits president clinton healthcare reforms national welfare systems
abstractive_keyphrases: welfare reform