Huxley is creating a world for us to compare our world to. Either world fitting in on the either side of the extremes. The world state is a place where erotic play between children is moral but individuality is not. The vice versa is true for our world.
The
argument I assume is taking place is that our world remains on the strict side of the spectrum and that sexual activity should not be encouraged or repressed. The lack of individuality in the world state is their claim to success, but at what cost? "Bokanovsky's Process is one of the major instruments of social stability". The world may be happy, but that conformity came at the cost of over-contentiousness.