Mauro Guillén Keynote Lecture

Summary:

On 19 March 2024, the Rafael del Pino Foundation organised the keynote lecture "The Multigenerational Revolution", given by Mauro Guillén, William H. Wurster Professor and Deputy Dean of the Wharton School and former Dean of the Cambridge Judge Business School.

There are two fundamental ideas: retirement is an irrational idea that we should abandon, and we are sending the wrong message to young people.

140 years ago there was a major change, the second industrial revolution, in which new sectors of the economy were launched. At that time, entrepreneurs who wanted to succeed had two problems: they needed a very different workforce, one that was disciplined and literate. We are talking about large investments in fixed capital, which required people who knew what they were doing with that machinery and who followed instructions. All this coincided with the rise of the first workers' movements.

These two problems were addressed by the creation of two institutions that still exist today. The first is compulsory schooling, an idea that came from the 17th century but became widespread in the late 19th century in Europe and the United States. The growing membership of workers in trade unions called for another kind of solution, which Chancellor Bismarck came up with in the 1880s, and that was to create a public pension system. It came into effect in 1889 and provided a lifetime pension for male industrial workers who reached the age of 70. In return, it was hoped that it would calm the tempers of the labour movement. The life expectancy of a German male at that time was 52-53 years. The situation we have now is the reverse. People retire at 62-63 in Spain, but life expectancy is much higher, at 85 years.

The result of these two innovations is that it divided life into four stages. The first is before you go to school, then you go to school, then you go to university, then you work, and at the end you retire and have a guaranteed pension. This system worked very well for many years because it had some very attractive features. One of them is that it was very predictable: you knew that people went through those stages in order, so you knew how many places you needed in schools, how many jobs and how many pensions you had to pay at the end of that process.

Many things have changed since then. The first is the increase in life expectancy. Then there is the technological change. In the traditional model people were told to go to school, study, if they could go to university and they were going to have a job with a better income, but making sure they learned everything they were going to need for the rest of their life. This was his chance. But people start working and then most people hate their jobs. You are told to work and try to save money because, in the end, you are going to get your reward, which is retirement.

People reach retirement age and retire, but they regret having retired and try, in some way, to have the best possible experience. In the first years of retirement, people are optimistic, they are doing well. But, little by little, problems start to emerge. When people retire, the rate at which physical and cognitive decline accelerates. They become isolated from their co-workers and start to feel lonely, depression rates rise. In the United States, 42% of people who retire go back to work, full-time or part-time, and it is not usually because they are struggling. It is because they realise that they are missing something. One of the things they lack is self-esteem. Human beings need to feel useful. Retirement is the opposite idea to that, because it feels like you are useless. Of those who take early retirement, which is often considered a success, 51% in the US go back to work, full or part-time.

These percentages are set to rise further in the future because the digital platform economy is creating so many opportunities for retirees to return to work in some capacity. One of those most common occupations, at least in the United States, is driving a Uber. In most cases it is because they are lonely and want to be doing something, not because they need money.

There is another problem with retirement, and that is that someone has to pay. There is one cost that is endogenous: the retirement that is promised to that person. But there is another endogenous cost that is growing, and that is the health cost. The physical and mental state of people who retire worsens because they no longer lead as active a life as they used to. So it worsens more rapidly, which increases health expenditure. Those who pay for that are the workers.

One of the arguments put forward about the need for retirement is that we need to make room for young people. But we are doing them a disservice. On the one hand, we tell them that they have a job here for those who have retired, and on the other hand we tell them to pay taxes because we have to pay pensions and health care costs for all those who have retired. Forty or fifty years ago, in Spain we had four people of working age for every retired person. Now, the ratio is two to one. In Japan it is close to one to one and in Spain, before we know it, we will be like that too. That is unsustainable.

There is a solution called immigration, but it is becoming less and less popular in many countries. Another solution is to try to create incentives for people to work longer. But, in general, what we need to do is to rethink this model in which we go through the phases in sequence.

A perennial person is a person who neither thinks nor acts according to his or her age. That model we had until now of linear careers in which we were there all the time is a thing of the past. With technological change, we are going to have to reinvent ourselves several times, to look for other alternatives. For that, we must have opportunities to acquire new skills and knowledge, but we are not ready for that. In Spain, only 2% of the population change their professional career during their working life.

There are other problems induced by this model that are even more serious. Who votes for populist politicians? Those who feel that the system does not help them, that they are marginalised. Many of them are unemployed people, who feel that they don't have opportunities in life because we don't give them opportunities. But then it's a problem for women in general, because that sequential model was designed for men. Women started to have better opportunities in terms of access to the education system, especially to university, and that has put a lot of pressure on the system because companies have made two kinds of very harmful decisions. The first is that if you haven't managed to climb the ladder before you turn forty, you will never make it. That's what the data says. The other is that once an employee turns fifty, the company is already looking for justifications to eliminate that employee. Which, from a social point of view, doesn't make any sense because that fifty-year-old employee has experience, which is human capital, and because a fifty-year-old today is not the same as a fifty-year-old in 1960. That person is often in better physical and mental shape than two generations ago, so we should have changed our perspective, companies should have changed their attitude towards these employees. But that's not what happens. Why do they think that? Because they think that, with the salary they pay them, they can hire two young people, obviously on junk contracts. The system is therefore outdated.

Another disadvantaged group is one that, for one reason or another, misses the transition from one stage to another, for example, teenage single mothers. In the United States, only 2% of teenage single mothers graduate from college. College provides economic opportunities. Another group is those who suffer from addiction. We are talking about hundreds of thousands of people in Spain, in the United States we are talking about millions of people. As we don't have a mechanism to recover these people, this is a cost that, in the end, we have to pay.

Another important problem is that of teenagers, to whom we tell them to grow up and decide what they want to do with their lives. But, at the moment, it is impossible to answer that question because many of the professions that exist today will probably not exist in ten years' time. We have not adjusted to this reality. The message we have to give to teenagers is a different one, it is to tell them what you want to do in the next ten years of your life because then you are going to have to reinvent yourself. The effect of not doing that is the depression rate among teenagers, the school dropout rates, the suicide rates, which are growing all over the world because we are insisting that they have to make such an important decision at that age and that it is going to be a dead letter in ten years' time. The message has to be different. At the moment, in Spain, the fertility rate is 1.23 children. Forty years ago it was five. When there were five, parents did not pay special attention to them. But now that they only have one, they pay a lot of attention to them. Values have changed. Parents now think that it is not about raising a child, but a successful child, so the pressure they are putting on them is enormous, when nobody can assure them that that job will exist in ten years' time. This is the fundamental problem.

Then there are other issues related to this, for example, the university. Universities have a problem, especially the most successful ones, that they are used to success and there is nothing that prevents innovation and change more than having been successful in the past. The education system classifies people by age and then segregates them and creates age-specific programmes. However, studies indicate that when people of different ages are put in the same class, the learning rate is higher, because human beings like to interact with people of all ages. Research in companies shows very similar results. Work teams that are more diverse - by gender, by ethnicity, by culture, by age - have higher levels of productivity and creativity. But companies also tend to compartmentalise by age group. So the system is stuck in the past and is not equipped to help people adapt and succeed in the new situation we are in, where technological change is the reality of life.

In order to reinvent themselves, people need more educational opportunities, more opportunities to be able to reinvent themselves and to be able to cope with all these changes that are happening in the labour market. In Spain we have high unemployment rates, but companies complain that they can't find qualified workers, so they should be given the opportunity to acquire those skills.

We always talk about generations. All of them are dedicated to criticising the one that comes after them, the younger one. Generations are groups of people that exist only in our imagination. In the real world they do not exist. Generations, in the end, are pure inventions because the differences within each generation are greater than the differences between generations. In the end, generations are stereotypes, they are clichés. In the United States, women of the millennial generation are usually going to have a college degree, they are usually going to have a child. However, those who don't go to college are going to have, on average, two and a half children, and those who didn't finish high school are going to have three and a half children. These women do not have the same aspirations, the same opportunities in the labour market, the same level of income.

This generation thing is a figment of our imagination, but it has consequences. One of them is marketing and advertising. In 2024, many consultancies are saying that the millennial generation likes this or that and the brand has to be positioned in this way. In 75% of car advertisements, young people appear but more than half of car purchases are made by people over fifty-five, so there is a mismatch between advertising and what the market is doing. Right now, marketing has very powerful tools. In the past, you had to do a survey to see what the consumer wants and you had to wait several weeks to get the results. But now, because we are constantly connected, they have real-time data on what people are buying and what they are considering buying. But in marketing we still talk about generations. This is something that has to change in the business world.

Nor have companies changed human resources policies sufficiently. Contrary to popular belief, intelligence will help older workers. As human beings we start to lose cognitive capacity very early, from the age of twenty-five onwards. We compensate for that cognitive decline with experience, which allows you to overcome and overcome the limitations of cognitive decline. Artificial intelligence, especially generative intelligence, does not give the answer you need immediately. You have to ask them questions and the people who are best placed to ask the right questions are people with experience. In the next few years, we are going to see that workers over the age of forty are the ones who are going to benefit most from artificial intelligence, because they have complementary skills with them. However, the conventional assumption is that this is something for young people. AI is going to make it easier for a lot of people who felt they couldn't keep working to stay relevant and keep working longer.

There is another very interesting issue, which is the great intergenerational transfer of wealth, that is, inheritances. A lot of wealth has been accumulated in Europe because we haven't had a war for a long time, and also in the United States. That wealth is going to be transferred to the next generation. The inheritances are going to be greater because there are fewer heirs. There is also more wealth to be distributed. But parents are living longer and are likely to spend it all. Which variables are going to be more important? The biggest inheritances are to be expected in Asian countries. Spain is towards the bottom of the table. What do people do with inheritances? Half is saved and the other half is either misinvested and lost or spent. That is why it is very important for parents to start educating their children about what to do with that money.

The most important thing in all this is that, if the model has become outdated, where is the stimulus for change going to come from? It is going to come from the market. First, from more innovative companies, or with managers who see where the change is going to come from, where the shots are going to be fired. They will try to experiment with other forms of workforce management, with keeping employees over fifty because they have experience and because they are more valuable with artificial intelligence. Those pioneering companies are going to set the tone for the others, because they are going to start doing better. The others are going to see that these companies are going to do better and it will cause them to implement the same kind of systems.

What are governments going to do? The relationship between competitiveness in the political marketplace, which is elections, and the policies that parties implement when they win elections is not so straightforward. Governments are going to rethink many of the policies they have put in place over the last hundred years that are counterproductive. For example, pension plans, which have tax advantages but you can't withdraw the money until you retire. That is a mistake. As a government, it would be better to be able to withdraw that money and use it, for example, to go to university so that you can continue working. That way, you would continue to work and pay taxes. On the other hand, if you retire, it's worse because, in addition to not paying taxes, you have to pay a pension. These incentives were created under the assumption that retirement is what everyone wants. Many incentives have to be changed, especially the ones we give to families to make choices, and many of them are within the income tax.

But what we need to change above all is our mentality. If we change our way of seeing things, we will surely be able to make progress in abandoning this model that has become stagnant over time. First of all, the education system has to change, from school to university, but this is very difficult. There is an aversion to change in universities. The two most important innovations in universities in the last thirty years, even in American universities, have been overhead projectors and PowerPoint. Apart from that, there has been very little innovation.

But we have to be optimistic, because more and more education is being offered through digital platforms. When the bad ones are eliminated and only the good ones remain, when the quality of the digital education offer increases and approaches that of the universities, many people are going to rethink going to university because the cost of a platform is much lower, so the universities are going to have to change. This gives more flexibility to people in their thirties, forties, fifties, who want to go back to learning but don't have time to go to university. This is going to benefit the labour market and the economy. The education market is going to change because there is competition there.

We are at a very impressive moment. The falling birth rate is very good in the long term because we have a problem of global warming, of depletion of non-renewable resources. The problem is that it takes fifty years to go from eight billion to four billion people in the world. The problem is the transition. In that period we face incredible challenges because we have never had such an ageing population as we have now.

We spend most of our lives in companies. It is essential that the company adapts to this, but they don't adapt for the fun of it. They do it if they have a need for it, so you have to expose them to competition. And artificial intelligence is going to be very important because it needs talent. To make a leap from a middle-income country to a high-income country is through investment in human capital.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.

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