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McArthur’s advice was a recipe for economic disaster. It encouraged the nation’s brightest and most expensively educated students to devote themselves unreservedly to their careers on graduation, working 90-hour weeks and destroying their private lives, in the hope that any ethical depredations they committed in the hope of quick gains could be returned to society through “service” after they had retired at 48. Apart from the problems of retirement, this life-pattern is additionally damaging when the executives concerned are women, since it pressurizes them during their fertile years, making them postpone child-bearing until it is too late. That’s bad for the women executives; since these are presumably society’s best and brightest, it’s also bad for society.
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A further restructuring will have to take place in education. It is already counterproductive to concentrate education at the beginning of the working life; over a couple of decades skills rust and, more important, become obsolete. This is particularly the case in fast moving technological sectors such as IT and biotech, where a degree that is 20 years old is almost worthless. The obsolescence factor will become much more severe when careers stretch half a century. A 65 year old executive who still has all the mental acuity and energy to perform well at the top level will be unable to do so if his technical and even business education is 40 years in the past."
The Fifty Year CareerBy Martin Hutchinson
October 1, 2007
SourceMartin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site www.greatconservatives.comSenator Barack Obama (D.-IL) has proposed that the income ceiling on social security contributions be abolished, in order to balance the system. However his solution ignores the much greater Medicare deficit and fails to address the central problem: the system needs balancing because we are living longer without working longer. If we are to enjoy the benefits of modern medicine, we need within a generation to adjust our society to the 50 year career.
Combined with the reversal of the Bush tax cuts to which all Democratic Presidential candidates appear committed, Obama’s proposal would take the combined federal and state marginal tax brackets on the higher incomes close to 70% for the self-employed, a rate which is accepted to be counterproductive even in France. Thus not only would the economy suffer, amid a tsunami of tax evasion, but the social security deficit itself wouldn’t get closed. If any attempt were made to solve the yawning Medicare deficit by similar means, the fundamental nature of US society would be changed, almost certainly in a way that would not prove enjoyable. This is not particularly a criticism of Democrat proposals on tax; it is simply an actuarial fact. Without some non-tax solution, the social security and Medicare deficits aren’t fixable.
During the “holiday from history” of the 1990s it was fashionable to suppose that early retirement could be the lot of all. Savings would be invested in profitable dot-coms, the Dow Jones Index would soar beyond 36,000 and the middle class could retire at 50 secure in the knowledge that their dot-com millions would support them for however many decades remained. Dean John McArthur of the Harvard Business School apparently used to explain to students that there are three stages in life: twenty devoted to learning, twenty to earning and twenty to serving – thus encouraging America’s best and brightest to retire in their late 40s, having extracted enough blood from the economy to sustain a 35-40 year retirement.
McArthur’s advice was a recipe for economic disaster. It encouraged the nation’s brightest and most expensively educated students to devote themselves unreservedly to their careers on graduation, working 90-hour weeks and destroying their private lives, in the hope that any ethical depredations they committed in the hope of quick gains could be returned to society through “service” after they had retired at 48. Apart from the problems of retirement, this life-pattern is additionally damaging when the executives concerned are women, since it pressurizes them during their fertile years, making them postpone child-bearing until it is too late. That’s bad for the women executives; since these are presumably society’s best and brightest, it’s also bad for society.
Needless to say, in an age when a young adult can expect to live into their late 80s, a system that encourages them to devote only 25% of their life to productive activity is actuarially hopelessly unsound. Apart from the severe damage to intellect and personality from ignoring everything outside work for two decades and the damage to the economy from such executive short-termism the percentage of late -40s retirees who can devote themselves to “service” at anything like the productivity of which a Harvard Business School graduate is capable is minuscule.
Of course there are exceptions; if you are Bill Gates and have made a fortune of $50 billion or so it is reasonable to expect that you will have sufficient value added in spending that money to make it worthwhile to devote your efforts in that direction. However, the average or even somewhat superior business school graduate’s career, acquiring a fortune of maybe $20-30 million before the time comes to take early retirement, does not allow for eleemosynary activity on anything like the scale that could justify not continuing to devote their intellects to saving General Motors. Two days a week devoted to the local operations of the United Way is simply not an economically efficient use of their highly trained capabilities. The scale of the operation is too small and the percentage of its activity that uses their superior capabilities even smaller.
If Social Security and Medicare are to be funded, we need an economic, social and tax system that discourages early retirement. At the top end of the ability scale, we need 50 years’ production out of our best and brightest, not 20. At the bottom end, we need the less productive to continue to support themselves by their own work for as long as possible, ideally with an employer providing health insurance, so that the drain on the state system of their retirement is minimized. Just raising the Medicare eligibility age to 67 by 2026, to match the social security’s retirement age for those born after 1959, would reduce its cost by more than $35 billion per annum in current dollars. Thus the actuarial problems of the social security and Medicare systems could be eliminated by raising their eligibility ages over a period of time.
By 2050, for example, a system that had delayed social security and Medicare eligibility by a month for each year after 2026, continuing the 2014-2026 trend, would have moved to eligibility for both programs at 69.However by 2050 the percentage of the elderly in the population is expected to have tripled and life expectancy to have increased by 5 years from 2000. Both systems would thus still be actuarially in balance. Beyond that date, raising the retirement and eligibility ages in line with the increase in median life expectancy would pull the systems further and further into surplus, because it would increase the percentage of lives that were spent in productive employment.
This has substantial implications for today’s youth. A student who graduates from high school in 2010, having been born in 1992, can by linear extrapolation of the above proposed reforms expect to begin drawing social security and Medicare at the age of 70, in 2062. A baby born in October 2007 can expect to become eligible for social security and Medicare in January 2079, at the age of 71 years and 3 months. These are not excessive costs to impose on the medically fortunate younger generation to push social security and Medicare back into balance.
If the younger generation is going to have to work till 70, work patterns must be redesigned to accommodate its needs. The 1990s assumption that early retirement was to become increasingly prevalent must be reversed, so that proper accommodation is made for older workers. Companies will have to rework their career paths also, moving them a long way back towards the gerontocracies of the US 1920s or Japan today. If it is difficult for a 65 year old employee to be accepted in a junior role by a 35-40 year old boss, it follows that successful companies will need correspondingly fewer 35-40 year old bosses.
The effect of a move back to older workers will be far greater in some sectors than in others. In retailing or automobile manufacturing, for example, much of the workforce is already at or near retirement age, so an extension of retirement will not significantly change the nature of the business (though over time it will eliminate the auto industry’s problem of excessive unfunded pension and healthcare costs.)
In investment banking and consulting, on the other hand, the effect will be enormous, moving both industries back towards their patterns of 50 years ago. Companies will pay consultants for their experience, rightly presuming that the latest analytical techniques may add little value to their business, while in investment banking the focus will move back towards client service and long term relationships and away from the attempt to make a quick buck on the trading desk. In both businesses, other changes will be a reduction in the resources devoted to travel and the hours worked by the top practitioners, It will become obvious to the industries themselves, rather than merely to their outside observers, that 90-hour weeks and excessive travel add far less value than is brought by experience in the field concerned.
A further restructuring will have to take place in education. It is already counterproductive to concentrate education at the beginning of the working life; over a couple of decades skills rust and, more important, become obsolete. This is particularly the case in fast moving technological sectors such as IT and biotech, where a degree that is 20 years old is almost worthless. The obsolescence factor will become much more severe when careers stretch half a century. A 65 year old executive who still has all the mental acuity and energy to perform well at the top level will be unable to do so if his technical and even business education is 40 years in the past.
Successful careers will thus include periods of intellectual refreshment, probably accounting for 1 year in every 10 of the career, when the executive will immerse himself in the latest technologies and management techniques or, if it seems appropriate, retrain for another field. Human resources departments and headhunters will themselves need to be retrained, to eliminate their current ageism and recognize that an executive with 30 years experience in another field and retraining into their own is not the equivalent of a raw college recruit. Financial arrangements such as mortgages will need to be restructured, to make it financially possible for executives to return to education for a year in mid-career. Suitable tax incentives, perhaps replacing the home mortgage interest deduction, will encourage savings for retraining and family care during the retraining period. Further tax incentives will encourage companies to hire the middle aged and mothers returning to the workforce and not to overpay the young – it needs to be more difficult to retire at 48 and easier to find a new job at 62.
The current paradigm of a world of ever-accelerating instability, aggression that short-circuits ethics and thirst for short term returns will go, for actuarial as much as for market reasons. It will not be missed.