Hamish McRae: The age of portfolio workers begins as the age of retirement, er, retires - Hamish McRae - Business Comment - The Independent

Hamish McRae: The age of portfolio workers begins as the age of retirement, er, retires

Economic view

Sometimes you write something and you're not sure it is right.

Well, you might think that this thought should occur to journalists more often, for as a profession we are not noted for our humility. But I mean something more subtle than simply making a factual mistake or even some error of judgement. It is rather when you have a mental framework, a model in your head of what matters, and you wonder whether that model is still applicable – still a useful way of looking at things.

That happened to me last week when writing a column on the ending of the default retirement age of 65 in the UK. Like many others, I think it has long seemed ridiculous both to have a fixed age for stopping work and, in the light of better health and rising longevity, to have one set so young. But my worry was about the thought that followed – that the whole idea of a specific national age for retirement at which a state pension would be paid, introduced by Otto von Bismarck in Germany in 1889 – had a natural life of 120 years and that its time was up.

Some social and economic innovations have great longevity, whereas others are quickly abandoned. For example, the string of reforms in England from the 1830s to the 1850s – the Penny Post, the police force, competitive examinations for civil service entry, the tax reforms and so on – have lasted to this day and become a model for the rest of the developed world. By contrast, the idea of state-owned industries, pioneered in Britain in the late 1940s, had a natural life of less than 50 years. States now take over commercial companies (or banks) in an emergency, and seek to offload them as fast as possible.

But up to now the social reforms, started by Bismarck, have gradually spread throughout the world, with the state gradually taking on a greater responsibility for people's welfare. This spread from unemployment pay, to pensions, to universal healthcare and to wider social support. You could say that the movement started in Prussia from the 1870s onwards has culminated in the reforms of President Obama to the US health-care system.

No one is suggesting that this whole structure, developed over the past 120 years, is about to be scrapped – or at least I hope not. But it would be reasonable to ask whether systems devised for the late 19th and early 20th centuries are actually appropriate for the very different economy now. Jobs are different; longevity has increased; there is huge international migration; family structures have changed. And anyway, the present set-up, in Europe and Japan at least, is unsustainable.

You can catch some feeling for that from the chart, which shows the rising proportion of older people in different OECD countries. Japan and Italy have the most serious problems, the US the least serious, while we in the UK are in the middle of the pack. Unfortunately, these ageing profiles come on top of rising sovereign indebtedness, as we all are very well aware, so the financial problem is all the more serious. As Japan has already experienced, a workforce that shrinks each year has to finance a retired population that rises each year. In social and human terms it is wonderful that people should live longer, but in financial terms it is a disaster.

Or rather it is under the present set up. If there were no such thing as a fixed retirement age and people made their own decisions about how much they should save for retirement, either though state schemes or independently, and at what age they would retire, then the financial aspects of what is really a most welcome development – people living longer – would be fixed. Of course there has to be a safety net for people who make mistakes or are hit by unexpected events. But when you consider that people are seen as perfectly competent to decide on their careers, which country to live in and work, whether to get married, how many children to have, what home to buy or rent, is it unreasonable to expect them to plan for their own retirement?

Indeed – and this is the core of it – maybe we will in another 30 or 50 years not think of retirement as such. Rather, we will think of working in one way and at a certain pace for part of our lives and then in a different way and at a different pace for another part of our lives. Remove the default retirement age and it will not just be us who are nudged in that direction.

Employers will be nudged that way too. If you know you cannot retire people you don't take on older workers. You know young people will move on, for statistically that is what happens. But there will be bigger risks in taking on, say, a 61-year-old if you know he or she cannot be retired in a few years' time. So what will happen will be that older people will indeed remain in the workforce for longer but it will be as self-employed contractors or on temporary contracts. One result may be a huge increase in self-employment.

Now it gets really interesting. The idea of the job contract is embedded in our culture, but it has been weakening with the growth of part-time working and temporary jobs. Employers need to get the job done but the more flexible a workforce, the more they can adjust their labour costs to the revenue they can generate. So it may well be, in another decade or two, that they will choose to buy-in many more services from self-employed people, rather than from their own full-time staffs. It was the writer Charles Handy who first identified the distinction between core workers and portfolio workers and it seems to me that one of the side effects of an end to a default retirement age will be to give a further shove to people who choose to have a portfolio career. They will move to that at an earlier age and carry on in the portfolio career later in life.

If this is right, and I think as a general trend it will be, then what this government is doing becomes very important. Not only does it encourage people to think more strategically about their working lives, but it will also push firms towards a more efficient management of their workforce. Indeed, if the idea of ending a default retirement age also increases the efficiency of the economy, it will be much more than a money-saving device. And I suppose, just suppose, that it could become as important an intellectual export as privatisation, which became an idea that swept the world.

It is always impossible, when there is some big policy innovation, to know whether it is a blind alley or the start of something big. To take a current example, it looks as though Asbos have been a blind alley. But they might not have been; they might have been a useful half-way house between legal enforcement of better behaviour and social enforcement. In this case, though, it is at least possible that ending the defined retirement age, rather than simply increasing it, will sweep the world. It that is right – and I really don't know whether it is – that Bismarck innovation will have come to the end of its natural life.

Here's what is needed to give our athletes a sporting chance

What is wrong with our sport – or, more specifically, our sports industry? It is such a huge and contentious subject that anyone venturing into it is heading into a quagmire. So it is all the more welcome to be able to greet a new report, State of Sport in Britain 2010, which seeks to analyse what has been going wrong and what needs to be done. The report is the brainchild of Jon Holmes, now head of the Sports Nexus. As one of the pioneering managers of sportsmen and women in Britain, he is one of the best for understanding the relationship between the talent and the business side of sport. He commissioned three sports professors: Stefan Szymanski and Georgios Kavetsos of the Cass School in London, and Stephen Ross of the University of Pennsylvania.

Their thesis is that we are hugely interested in sport but we under-perform in a number of ways: we don't play enough of it; we have a weak coaching culture; funding is disorganised; governing bodies are fragmented and unaccountable; and government policy inadequate. The report highlights three areas: tension between club sport and national teams; the role and potential resources of the private sector; and the need to encourage more girls in sport.

So what do you do? Well, it is a 64-page report, but, in a nutshell, it suggests that we learn particularly from Australia, the US and Germany. We have certainly learnt a great deal from the way Australia develops elite athletes for the Olympics, but this seems to work best in the less popular sports, such as rowing. (The joke is that the UK is best at sports you do sitting down.) From the US we can learn from the commercial culture and from Germany, the way in which young people are encouraged to take part in sports at a local level.

Bottom line? The key passage starts: "We don't want more money, there's enough there already. We want the money to be used properly, with accountability, transparency and simplification." And it ends: "And although we recognise the arguments against big government, we want the Minister of Sport to hold the ultimate sanction over sports which do not act in the broad public interest but put narrow self-interest first."

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