EUROPEAN PAPERS ON THE NEW WELFARE

Technological Changes, the Reversal of Age Pyramids and the Future of Retirement Systems

2. Toffler’s Wave Theory and the Retirement System

Toffler’s theory in the Future Shock (1970) and The Third Wave (1980) is based on the analysis of certain patterns in human history. Despite the complexity of the issue, he managed to identify three great advances or waves that triggered profound changes in the world’s social structure and economy: the agricultural revolution, the industrial revolution, and the information revolution (the Third Wave). He showed the enormous strength of these waves, and pointed out the problems that will result from the accelerating frequency of future technological waves following in the wake of the information revolution. In The Third Wave (1980) he related mainly to the developed countries, which have, however, since then experienced one or two additional technological waves, as forceful as the previous ones, while the less developed countries have been exposed to enormous changes and have to adjust to all these waves almost simultaneously within a very concentrated time span.
In the following paragraphs we briefly describe the waves, while emphasizing parameters that have special importance for the discussion of retirement systems.

2.1 The First Wave: Agriculture

The first human society was based on nomadic people who found their living by gathering, hunting and fishing. They had the ability to make basic tools to help them in hunting and fishing, and in preparing their food. The society was based on small families, probably with some sort of organisation for more complex hunting missions. People who lost their ability to hunt as a result of injury, sickness or old age were probably not able to survive. In such a society there was no strong need for a ‘retirement system’.
The first technological wave began about 10,000 years ago when man discovered the possibility of planting a seed and nurturing its growth. The age of agriculture began, as people abandoned nomadic hunting and wandering and began to cluster into villages, to develop culture, and to create more sophisticated tools, products and ventures (ploughs, mills, jars, oil and wine presses, canals, dams, roads, etc.). It was a change that triggered the evolution of some sort of organisation and management (irrigation systems, and an extended family form of life). It also led to the wider spread of written documents and languages, and increased the ability to record and document. At the same time, the dependence on weather resulted in the development of religion, of temples, and the study of astronomical phenomena.
In an agrarian society the family provides the individual with protection against existential risks. There is no need for a sophisticated pension, social security or any other form of retirement saving scheme to handle the risks of premature death, injury, sickness, and old age. In an agrarian society there is typically no way to store food and supplies over extended periods, as a precaution for a ‘rainy day’. Also the use of money, and monetary saving instruments, is not that common. The economy is by and large autarchic, supported to a limited extent by some barter. Therefore, the ‘retirement system’ in such an economy is simply based on the support within the (extended) family.
If you tell a person in an agrarian economy about social security or a pension fund, the response will probably be a raised eyebrow and the comment: “I don’t see the need for such a ridiculous idea. I cannot believe that the government will be able to take better care of me than my children and family”.
In agrarian societies we typically do not find any organised retirement plans (such as social security or work-related plans). In the ancient world, the examples of retirement systems are rare, and they all relate to non-agrarian occupations. For example, Alexander the Great (at end of the fourth century BC) secured some sort of a pension plan for his soldiers. The Roman army followed by building special colonies and by allocating lands or certain concessions to retired soldiers. Some guilds in medieval times also had some primitive retirement arrangements.
The spreading of the first wave was slow. Due to poor communication and the resistance to change (and sometimes also the wish to keep secret technologies from competitors and enemies) it took a long time for new technologies to move from one part of the world to another. For example, the same type of ancient ceramic oil lamp was in use for more than 500 years, and that model was gradually replaced by another model that was in use for another 500 years (see Figure 1). Later models were gradually introduced, with intervals of several centuries or decades between each design. Even during medieval times it sometimes took centuries for a technological transfer to occur. During the Mongol Empire around the thirteenth century, Europe had unbelievably little knowledge about the developments made in the eastern part of the world. The Chinese inventions of gunpowder, printing and fine porcelain were known for centuries before they were imported to Europe (and then it took decades for the European countries to copy them). It was quite a different world from today, when we see in real time what is happening almost anywhere around the globe.

Figure 1: Ancient oil lamps
The four-nozzle type shown on the right was in use in the Middle East between around 2250 and 1750 BC, whereas the single-nozzle type shown on the left was used between 1750 and 1200 BC.

kahane-fig-1.jpg

Source: author’s collection.

2.2 The Second Wave: The Industrial Revolution

It took thousands of years for the second wave to arrive — this time, in the shape of the Industrial Revolution, which began towards the end of the eighteenth century. The slow adaptation of the world population to the change is reflected by the fact that until some 30 years ago, about three quarters of the world’s population, in some of the largest countries in the world like China, India, Pakistan, Indonesia, and Brazil, to name a few, were still living according to the old, agrarian way of life.
The major social change accompanying the industrial revolution is the move of people leaving the peasant culture of farming and coming to work in city factories. In the agricultural countries today a small percentage of the population (typically, less than a quarter) live in cities, whereas in the developed countries more than 75% live in urban areas. The industrialisation resulted in the creation of huge metropolitan areas (such as London, New York and Paris in the past, Istanbul, Mexico City, Beijing, Shanghai, Delhi, Bombay, and Rio today). In the developed countries about one third of the population lives in such mega cities.
The ability to harness forces like steam and water and later electricity and atomic energy to the production of goods created major changes in the economy and in the entire social structure. The industrial revolution is characterised by mass production, that is, the ability to manufacture large quantities of similar products, with less manpower. It has led to the concept of standardisation and mass production, mass merchandising, and has helped to create huge multinational corporations and mega markets. It enables us to ship the products in relatively inexpensive ways to all parts of the world. It enables us to store food by canning or refrigeration. It has created far better mobility of goods and people (by trains, ships, airplanes). It has enabled people to get water in remote areas, to separate sewage water from drinking water, to get decent medical treatment, and to save people from all kinds of medical problems that threatened their lives in earlier times. And last but not least, it has been accompanied by a dramatic decline in illiteracy, which has improved beneficial communication.
On the down side, the industrial revolution has also produced some derogatory effects: some of the fiercest wars known to mankind, the dropping of atomic bombs over Japan, a major pollution problem, global warming, etc. In addition, the common assumption that the rural population is primarily poor and that the urban population is relatively rich, is not always true. The urbanisation following industrialisation has not always improved the economic conditions of many people.
The industrial revolution was responsible for major changes in the social structure. The extended family was replaced by the small nuclear family: husband, wife and children. In contrast to the seasonal work in the farm, people had to work longer hours all year round. The proletarian class was created. The economy became less autarchic, and thereby more dependent on money and trade. The tough conditions at the work place, the crowded housing, and the bad sanitary conditions created more cases of sickness, injury, disablement and death, and a family whose breadwinner suffered from such eventualities faced serious economic problems. This led to the creation of the parish charity system by the churches, which managed to give only a partial and insufficient economic solution to the problem. It was these conditions that led to the development of the ideology of Socialism and later to Communism.
Education was also affected by the second wave. The industrial revolution created an educational system that viewed teaching as a factory activity and young human beings as products to be processed. Children were supposed to be taken care of while their parents were in the factories. They were also expected to get used to wake up at an early hour, to do things that they did not necessarily like to do during the day, and get disciplined in preparation for their future employment in factories. At the same time they were expected to learn to read and write, and gain required know-how in a variety of areas. So illiteracy declined dramatically in countries that underwent the industrial revolution.
The rise of Socialism, with its threat to the governments and the rulers in Western Europe, was the direct result of the industrial revolution. In order to pre-empt the revolution, Bismarck, the German Chancellor, enacted the first social insurance and health insurance programs, at the beginning of the 1870s, and most West European countries had followed with social security arrangements by the First World War. This led later on to the development of early forms of work-related pension programs. The Russian revolution, which is a definite by-product of the industrial revolution, led to the introduction of the Communist system in Russia and its later spread to a large part of Central and East Europe, and Trans Siberia. In these parts of the world, the state took the full responsibility for retirement risks.
Retirement plans in the industrial revolution era are characterised by two major features. They are often work-related programs (premiums are typically proportional to the salary or wage), and they typically rely on the participation of both employer and employee in the financing. Run by either governments or by the labour unions, they reflect the concept of mass merchandising: very uniform programs with very little flexibility. The typical plan is based on the mutual support between the spouses (reflecting the typical nuclear family, based on a husband and a wife).


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