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Investment Note #11

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Synopsis

  • For a long time, the narrative around the world’s population was that it was growing too quickly. There were going to be too many humans, not enough resources and that spelled disaster. But the script has flipped. Now there’s a concern that developed countries are racing towards depopulation – too few people too quickly.

  • For many, the notion of fewer people is good news - taking the strain off the planet’s scarce resources. But, with populations ageing rapidly, combined with a significant drop in births, societies will need to plan for the future – how can they continue to grow against these headwinds?

  • In this investment note, we explore the anticipated decline in the global population growth rate and what can potentially replace the reduction in working-age people in developed countries over time.

  • The answer could be to replace missing humans across the globe with robots. Should we therefore consider robots and artificial intelligence (AI) as demographic units?

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Baby Bust

  • Global population growth is falling. The decline in birth rates is strikingly broad, although it does vary greatly by geography.

  • Europe’s total fertility rate stood at 1.46 births per woman in 2022, ranging from 1.08 in Malta to 1.79 in France. A total fertility rate of around 2.1 births per woman is considered to be the replacement level in developed countries: in other words, the average number of births per woman required to keep the population size constant in the absence of migration (source: Eurostat).

  • The fertility rate in Ireland – which was the highest in the EU for the majority of the period between 1998 to 2011 – is now just above the EU average at 1.54 in 2022 (source: Eurostat).

The Impact

  • Demographics usually change very slowly, making their effects easy to ignore. Governments and companies, however, have to plan ahead. Current demographics in developed countries reflect working-age populations (ages 15-64) that are steadily declining, and those of retirement age (>65) significantly increasing. Factoring in longer life expectancy, this becomes an even bigger problem for governments as soaring healthcare costs will have to be paid by a smaller number of taxpayers.

  • There is a view that falling populations are beneficial in that they use fewer resources, which is true, but the issue is that large parts of the world are coming into peak consumption.

  • As an example of this, the average age of 1.4bn Indians is 28.2 years old (source: worldometer). They are coming into peak wealth creation and consumption, much like the Baby Boomers entering the labour force in the 1970s.

  • For developed countries to keep growing against this demographic decline, possible solutions include migration and productivity improvements to avoid a fall in economic activity.

Is Technology the answer?

  • The projected shift in global demographics is a problem for economic growth. The most likely solution is the application of new technology to increase productivity. There will need to be a step-change in productivity gains from technology to maintain economic activity and offset the fall in the working-age population. We can see this in every part of our lives. Technology has been making our lives better, faster and cheaper, and this will need to accelerate

  • Advocates of stronger regulation of artificial intelligence have a long list of concerns and possible dangers supporting their argument, from short-term threats such as the spreading of believable misinformation to more existential far-off risks of superintelligent AI taking over humanity.

  • A more medium-term fear is that AI will be one of the biggest job disrupters in recent history, with Goldman Sachs calculating in March 2023 that this fast-growing technology could replace or diminish the equivalent of 300 million jobs in the U.S. and Europe. But the peril of losing our jobs to AI could be offset by the developed world’s rapidly declining birth rate.

Are Robots coming for our jobs or are jobs coming for our Robots?

  • The narrative that new technologies are inevitably going to lead to widespread job loss seems extreme. When it comes to AI, the net benefit will likely be positive because of enhanced efficiencies and technology’s ability to replace professions that are already getting harder to fill in a shrinking labour market.

  • Labour shortages are starting to change the conversation about robotics and automation from threat to opportunity — from putting jobs at risk to filling critical gaps in the workforce. Economic headwinds may put a damper on some employment growth, but skills shortages will persist, fuelling the drive to install more automation — and artificial intelligence — to keep things running.

  • Amazon is the second-largest employer in the US with over 1.5m employees. Since 2018, the number of people Amazon employs has doubled. But something even bigger is going on at Amazon. It is leading the way in robotics with its fully autonomous warehouse robot. Amazon currently “employs” 520,000 robotic drive units across fulfilment and sort centres. That is 30% of its “workforce”. However, as robots work 24/7/365 and don’t have holidays or sick days, these 520,000 robots are incomparable to human labour productivity.

  • This is not just a story of Amazon. Walmart, the largest employer in the US is rolling out fully automated distribution centres using a combination of AI and robotics. McDonalds recently opened its first mostly automated location where digital tills take customer orders and robots push food through a conveyor belt in designated pick-up areas.

Summary

  • The structure of the global “working population” is changing as robots begin to capture a larger and larger share of the job market. But the use of automation, robotics and AI to reduce the reliance on workers is the only way most companies can continue to grow against this long-term challenging backdrop.

  • AI and robots should possibly be viewed as “demographic units” that replace the waning working-age population in developed economies over time.

  • While the introduction of AI may lead to a transformation of existing jobs, it also offers new employment opportunities. The automation of repetitive tasks, the emergence of new sectors and the demand for AI-related skills are creating a need for new jobs. AI has the potential to create these new opportunities provided there is an effective synergy between artificial intelligence and human skills.

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