Can We Afford Longevity?
Our Future as the New Leisure Class
Research by Robert Fogel
Forecasts predict that by the year 2040, working people will enjoy more than 50 hours of leisure time per week. In addition, after retiring at age 55, they will be able to look forward to about 35 years of full-time leisure. Due in part to substantial increases in productivity, longevity and human health over the last 300 years, modern man is now able to enjoy amounts of leisure time once reserved for a small percentage of privileged society. We have, in a sense, "democratized leisure." But can we afford it?
The following excerpt is based on a speech presented by Fogel at the 1998 Paris meeting of the International Council for Global Health Progress Congress. It includes ideas from his forthcoming book, "The Fourth Great Awakening and the Future of Egalitarianism" scheduled for publication in 1999 from the University of Chicago Press.
The nations of the Organization of Economic Cooperation and Development (OECD) generally are faced with crises in their pension and health-care systems not because they are poor but because they are, by historical or Third World standards, exceedingly rich. It is the enormous increase in their per capita incomes over the past century that permitted the average length of retirement to increase by fivefold, the proportion of a generation that lives to retire to increase by sevenfold and the amount of leisure time available to workers to increase by nearly fourfold.
Study of the long-term causes of these developments, particularly of the reduction in mortality, points to the existence of a synergism between technological and physiological improvements that has produced a form of human evolution that is biological but not genetic, rapid, culturally transmitted, and not necessarily stable. This process is still ongoing in both rich and developing countries, and is called "technophysio evolution."
Unlike the genetic theory of evolution through natural selection, which applies to the whole history of life on earth, technophysio evolution applies only to the last 300 years of human history. Despite its limited scope, technophysio evolution appears to be relevant to forecasting likely trends over the next century or so in longevity, the age of onset of chronic diseases, body size, and the efficiency and durability of vital organ systems. It also has a bearing on such pressing issues of public policy as the growth in population, in pension costs, and in health-care costs.
The theory of technophysio evolution rests on the proposition that during the last 300 years, particularly during the last century, human beings have gained an unprecedented degree of control over their environment -- a degree of control so great that it sets them apart not only from all other species, but also from all previous generations of Homo Sapiens. This new degree of control has enabled Homo Sapiens to increase their average body size by over 50 percent, to increase their average longevity by more than 100 percent, and to improve greatly the robustness and capacity of vital organ systems.
Figure 1 illustrates how dramatic the change in the control of environment after 1700 AD has been. During the first 100,000 or so years, the human population increased at a very slow rate. The discovery of agriculture about 11,000 years ago broke the tight constraint on the food supply, making it possible to release between 10 and 20 percent of the labor force from the direct production of food, and also giving rise to the first cities.
Yet, as Figure 1 shows, the advances in the technology of food production after the second Agricultural Revolution (which began about 1700 AD) were far more dramatic than the earlier breakthrough. This revolution permitted the human population to increase at so high a rate that the line of population appears to explode, rising almost vertically. Abetted by a remarkable acceleration in the rate of technological change, the increase in the world population between 1900 and 1990 was four times as great as the increase during the whole previous history of humankind.
The Capacity to Afford Abundant Leisure
One aspect of technophysio evolution has been a change in the structure of consumption and in the division of discretionary time between work and leisure. Table 1 shows how sharply the U.S. distribution of consumption has changed over the past 119 years. Food, clothing and shelter, which accounted for about 75 percent of consumption (expanded to include the value of leisure time) in 1875, accounted for just 12 percent in 1995. Leisure on the other hand, has risen from 18 percent of consumption to 67 percent.
Will OECD nations have the resources to afford amounts of leisure that were once considered luxurious and also provide high quality health care for people living longer lives? Assuming that the per capita income of OECD nations will continue to grow at a rate of 1.7 percent per year, the resources to finance such expanded demands will be abundant. This is a reasonable growth rate, below the long-term experience of the last half-century, as well as of the past decade and a half.
Consider a typical new American household established in 1995 with the head aged 20 and with the spouse earning 36 percent of the income of the head (part-time work). Such a household could accumulate the savings necessary to retire at age 55, with a pension paying 60 percent of its peak life-cycle earnings, by putting aside 14.7 percent of annual earning from the year that the couple enters the labor force. That pension would permit retirees at age 55 to maintain their pre-retirement standard of living, with a real income that would rank them among the richest quarter of households today.
By putting aside an additional 9.4 percent of income the household can buy high-quality medical insurance that will cover the entire family -- assuming the couple has two children -- until the two enter the labor force and will also cover the parents' medical needs between the time they retire and age 83 (assumed to be the average age of death in their generation). Saving an additional 7.8 percent of income will permit parents to finance the education of their children for 16 years, through the bachelor's degree at a good university.
The point of the example is that prospective real resources are adequate to finance early retirement, expanded high-quality education, and an increasing level of high-quality medical care (Assuming that US medical expenditures will increase to about 20 percent of GDP by 2040). The typical working household will still have 68 percent of a substantially larger income than is typical today to spend on other forms of consumption. Current levels of food, clothing and shelter will require a decreasing number of hours of work during the family's life cycle -- dropping to about 300 hours of work annually for the typical household by 2040. Families nearing retirement will face several new options: increase their rate of accumulation of consumer goods and housing; increase spending on travel, entertainment and education; further reduce their hours of work; or retire earlier than age 55.
The Question of Social Security
Embedded in the above simulation is a suggestion for modernizing current government systems of taxation and expenditure. Close to half of what are called taxes are actually deferred income or forced savings. In these cases the government does not collect money for its own benefit but merely acts as an intermediary in order to insure that money needed for later use, such as retirement, is set aside and delivered to households when needed. The particular form of intermediation exercised by the US government, however, is quite peculiar. Instead of setting up an account in the name of the individual doing the savings, the government transfers the funds to a person who had earlier deferred consumption. At the same time it promises the current taxpayer that when he or she is ready to retire, the government will find new taxpayers to provide the promised funds. Under normal circumstances OECD governments provide this form of intermediation quite efficiently. The costs of administering the US social security system, for example, are less than 1 percent of expenditures.
The problem with the current system, aside from the fact that it gives the impression that personal savings are actually taxes, is that its operation is subject to heavy political buffeting. As a consequence, rates of return on the savings for deferred income are highly variable and often far lower than they would have been had they been invested in a balanced pension fund insulated from irrelevant political pressures. Moreover, the current system is affected by variations in the fertility and mortality rates -- such as the swell of the baby boom generation -- that have created financial crises and thrown into doubt the governments' promises that they will be able to provide the money supposedly set aside for future use.
The crisis then is not in a nation's resources for providing extended retirement, improved health care and extended education, but in the exceedingly clumsy system for financing these services. Modernization of the essentially self-financed programs for retirements, health care and education is not easy, but it can be done in a manner that preserves intergenerational equity. It will involve a change from the current unsustainable system of financing to a sustainable system of forced savings in sensible funds.
The Democratization of Self-realization
The question remains, then, what will we do with our longer lives and increased amounts of leisure time? For more than 2,000 years, people with leisure time have contemplated the question: How do individuals realize their fullest potential?
Self-realization requires good health and extensive leisure. Technophysio evolution is making it possible to extend our human quest for self-fulfillment from a minute fraction of the population to almost the whole of it.
Leisure time activities, including lifelong learning, and health care are the growth industries of the late twentieth and the early twenty-first centuries. They will spark economic expansion during our age, just as agriculture did in the eighteenth and early nineteenth centuries, and as manufacturing, transportation and utilities did in the late nineteenth and much of the twentieth centuries.
Decision makers both in government and in the private sector now need to review existing policies for their bearing on the timely growth of institutions that will satisfy an expanding demand for leisure. Some may consider it premature to speculate on the new forms of human activity that will come into being in order to provide a better understanding of ourselves and our world. What is required is more than an expansion of existing universities and other forms of adult education. Entirely new educational forms are needed that aim at satisfying not only curiosity, but also a longing for spiritual insights that enhance the meaning of life, and that combine entertainment with edification and sociality.
I believe that the desire to understand ourselves and our environment is one of the fundamental driving forces of humanity, on a par with the most basic material needs. We are lucky to be living in an age that provides vast amounts of time, much longer lives and better health to satisfy this urge. But we are also faced with a new set of equity issues -- immaterial or spiritual equity -- that could become more divisive within our culture than those that threatened stability a century ago.
The new equity issues in the United States do not arise from the shock of rapid urbanization, the destruction of small businesses, or the massive destitution created by long-term unemployment. Rather, the new issues are to a large extent the products of the solutions to these problems, achieved by a combination of economic growth and social reforms.
The most serious threats to egalitarian progress -- certainly the most intractable forms of poverty -- are related to the unequal distribution of spiritual (immaterial) resources. These include such immaterial resources as a sense of purpose, a vision of opportunity, a strong family ethic, a sense of community, a work ethic, a sense of discipline, a capacity for self-education and an appreciation for quality. Without these and other spiritual resources, individuals will be increasingly unable to cope with the new world or to share in its abundance, and they will become estranged from the mainstream of society.
Spiritual resources are unequally distributed among young and old, among men and women, among various ethnic groups and among rich and poor. Those among the rich who are continuously preoccupied by sensual gratification are as likely to fail in self-realization as the poor who share that preoccupation. It is vital for the future success of our nation that we discuss ways to distribute immaterial resources to the most deprived members of society, which includes the chronically poor, the alienated young, the defeated midlifers, and the estranged elderly.
Realization of the potential of an individual is not something that can be legislated by the state, nor can it be provided to the weak by the strong. It is something that has to develop within each individual, and must be fostered within a society committed to developing the most virtuous aspects of human nature.
Robert W. Fogel is the Charles R. Walgreen Distinguished Service Professor of American Institutions at the University of Chicago Graduate School of Business. In 1993, Fogel was awarded the Nobel Prize in Economic Sciences for his work in applying economic theory to explain economic and institutional change.