Free Reports

A Demographic Time Bomb About To Detonate

Aug 29, 2016


What scares you more: the idea of robots stealing all our jobs or the idea of working until you're 90?

I want to talk to you about two particularly controversial ideas that scare the life out of some people. Then I want to show you why fearing either of them is just plain stupid. And if we have time, I'll introduce you to a way of taking advantage of the situation.

All good? Right then. Let's start with a question. What scares you more: the idea of robots stealing all our jobs or the idea of working until you're 90?

Neither is a particularly pleasant concept to think about, I'll grant you. But they're both manifestations of very real problems the world faces: the demographic timebomb, and the threat of robotics/automation putting large numbers of people out of the workforce.

It may not seem like it, but these problems are interconnected. Understand how they relate to one another and you get a glimpse of the world of the future.

Demographic earthquakes

The demographic timebomb is something you'll probably be familiar with. Much of the Western world is facing a large imbalance between the old and the young. People are living longer and having fewer children. That begs the question, who will look after all these older people once they're retired? Can we even afford for them to retire and exit the workforce?

Case in point: Japan. To put it simply, the imbalance between the old and the young in Japan is huge. There simply aren't enough young people to care for the old. And the problem keeps getting worse. By 2020 it is predicted that 29% of Japan's population will be 65 or older. By 2050 the ratio is projected to soar to 39%.

Who on earth is going to look after all of those over-65s when they need medical care? Where are all the young people needed to work and pay for all those old people?

The rest of the industrialised world faces a similar demographic timebomb over the next half century. Many nations already have fertility rates (number of children per female) far below the figure needed to maintain the population at current levels - 2.1 in Australia and in Brazil it's 1.7. In China it's 1.6, in Japan and Germany it's 1.4, and in the US it's 1.8.

As life expectancy worldwide grows, and as the world gets wealthier - people in wealthy nations have fewer children than in developing ones - we'll see an increasing disequilibrium between the young and the old. This is perhaps the greatest challenge we'll face in the coming century:  not the fact that there will be more people on the planet, but the fact that an increasing number of those people will be elderly.

Demographics are like tectonic plates - you might be able to see them, understand them and even predict them, but doing something about them is nearly impossible. We need to find a way of making the economy run much more efficiently, with far fewer people working, and we need to figure out who on earth is going to care for the elderly.

It's a problem: our entire society is based on the premise that there will be enough young people around to care for, and help pay for, the elderly. That's how the welfare state works. Flip the pyramid on its head and you get problems.

That's controversial idea #1: that demographics will doom us to poorer retirements, or worse a world in which large numbers of people can never retire.

Controversial idea #2 is the opposite side of the coin: robots are going to steal all our jobs!

Again, there's at least some evidence to back this one up. It's not an entirely unfounded fear.

The robotic workforce

"We are approaching a time when machines will be able to outperform humans at almost any task."

So said Professor Moshe Vardi, of Rice University, speaking at the American Association for the Advancement of Science annual meeting in Washington earlier in the year

Vardi claimed that the increasing ability of robots to outperform us at so called "professional" middle class jobs will lead to a 50% plus unemployment rate.

He's not alone. The last couple of years have seen an ever increasing tide of people falling over themselves to claim that robots = doom for the workforce.

And it's true, to an extent. Robotic and machine learning technology is advancing at a pace that will likely mean it'll "threaten" jobs in the future. Setting aside the fact that the workforce isn't some fixed, static thing - it's constantly ev0lving and would do so even if robots put people out of work - the real point is:

Robots are the answer to the problem, not the problem!

Demographic changes mean we're going to have large numbers of people wanting to retire and leave the workforce. As well as replacing them, we need to figure out how to care for them. And at almost exactly that point, robotics will have advanced far enough to do vast amounts of menial jobs.

To put it another way: it's illogical to be worried about both a demographic timebomb and robots putting millions out of work. Robotics will solve the demographic crisis. They can't both mean the end of the world.

This is a more important idea than perhaps it sounds at first - because it creates a real, urgent need for us to develop robots that can perform a huge variety of different tasks.

That's one of the key reasons why robotics is expected to be one of the biggest tech growth industries around in coming years. According to the Boston Consulting Group, spending on robotics is going to more than double from $25 billion to $67 billion over the next ten years. The vast majority of this money won't be spent on robots that try to replicate humans, but rather on robots with highly specialised skills that help people work more efficiently or care for themselves. In short, robotics will be assistive.

This is a huge opportunity. And it's one of the reasons that robotics as an industry is expected to grow so much over the coming decade. As the Pictet-Robotics fund lead manager Karen Kharmandarian describes it, that could lead to a major outperformance of robotics-focused sectors:

We think we're at inflection point when it comes to robotics, for two main reasons. We are witnessing technological advances that are really enabling a new generation of smart robots to come to market. At the same time, we have prices coming down quite significantly. When you have this combination of technological advances and prices coming down, you have a product, a technology, a service that can really become ubiquitous.

Robotics in the industrial field is already well developed, but we have a new generation of robots coming to market, what we call collaborative robots, where the potential is really in terms of consumer and services applications. That's really just starting, and there are tremendous growth opportunities. It's going to take time really to become, from a revenue generation perspective, as significant as industrial automation is today. That's why we recommend having a medium- to long-term perspective when considering robotics.

 [The Boston Consulting Group] expect 10% per annum growth in robotics over the next decade, which in itself is quite significant growth when you compare that to the expectations for world GDP growth of pretty much 3% per annum. We're talking about three to four times the expected world GDP growth.

That's just one excerpt from a much longer piece which will feature in my new book (called The Exponentialist, look out for it this autumn). We could go into much more detail - perhaps we will later in the week - but the key point is this:

Robots are the answer to the biggest and most unavoidable challenge the world faces - the demographic timebomb. We have an urgent problem to solve, the technology to solve it and the funding to make it happen. To me, that makes a very compelling case for investing in robotics over the next decade.

Please note: This article was first published in Capital & Conflict on August 23, 2016.

Nick O'Connor is a writer and editor at Moneyweek. He is also the publisher of Exponential Investor.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Get 'India's Big Government' at Just Rs 199 Now October 18, 2017
Vivek's latest book is now available at a rare discount. Grab a copy now.
Our Plan to Save the Ranch October 18, 2017
How to increase fertility in the kingdom of cows.
Nobody Honks in Bali - Lessons for Indian Tourism October 17, 2017
Things India can learn to promote tourism from this small island.
We Rode Out... Unarmed October 17, 2017
Money is the tape measure for the carpenter economy.

Equitymaster requests your view! Post a comment on "A Demographic Time Bomb About To Detonate". Click here!