Mechanical Failure: Robots Cannot Rescue Us From Decline

In most advanced economies the population is declining. Some would argue that this is a moral failure which is a natural consequence of the selfish 'brand of me-ism' exhibited by Boomers and Gen X-ers. Others might insist that this is a logical popular reaction to stagnant or declining incomes.

Either way (or however it might most accurately be interpreted), population decline has historically led to economic decline. The question now is whether technology and innovation are sufficient to overcome the demographic reality - or whether more fundamental alterations to financialization and other economic policies will have to be addressed. JL

Diane Coyle comments in the Financial Times:

For the first time since the dawn of capitalism, the leading economies are entering an era of an aging and shrinking potential workforce — and nobody knows whether an economy whose population is falling can actually grow, either in total or in per capita terms.
Pepper, a companion robot “that has its own emotions”, went on sale in Japan in June; the first batch sold out within a minute. Pepper does not actually do anything apart from provide sympathetic company. Still, the product represents in microcosm an unprecedented economic experiment: can technology and innovation compensate for a shrinking and ageing population?

The answer will turn out to be no, and that should worry rich economies — from China to Germany, Italy to Russia — where populations are shrinking and greying. Economic growth goes in either virtuous circles or vicious spirals; and in countries where there is so little belief in the future that the population is not reproducing itself, the latter dynamic will prevail.Japan’s economic growth has averaged about zero for two “lost” decades since its financial bubble burst. Meanwhile, the working-age population is falling by more than 1m a year, with the total population projected to fall by 15 per cent, or 20m, by 2050. There are more than 20m over-70s; by 2050 they will account for 32m out of a population of 108m. In Germany, where 13m out of a total 80m are aged over 70, that could well rise to 19m out of a shrunken total of 74m. The picture is similar in most of the advanced economies.

This shift is unprecedented. For the first time since the dawn of capitalism, the leading economies are entering an era of an ageing and shrinking potential workforce — and nobody knows whether an economy whose population is falling can actually grow, either in total or in per capita terms.

One thing that is clear about the process of economic growth is that knowledge and innovation are central. These depend on people — to have and exchange ideas, to be the market for new products and services. The positive feedbacks multiply, which explains why a chart of the level of gross domestic product or GDP per capita looks like a hockey stick. Output and living standards rise slowly at first but the pace accelerates.

A big enough jump in productivity, brought about by investing in new technologies — like Pepper but more useful — might offset adverse demographic dynamic. Yet for innovation to keep living standards rising even in per capita terms in an economy whose population is falling, it needs to boost productivity at an accelerating pace. That does not seem plausible.

Meanwhile the population projections are just that. Demographers are often caught unawares by baby booms — which, after a couple of decades, would change the economic dynamics. So would healthier people in their seventies working longer. Alternatively, governments can try, as Japan is starting to do, to bring more women into the workforce.

Immigration is another factor that could change the equation. Huge migrant flows could transform the growth picture. New arrivals in Europe are on average younger than the host population with a higher birth rate. It is sobering that those on the move have more faith than existing populations in the future of the rich economies, at least as measured by their willingness to bring new humans into the world.
The demographic headwinds facing some nations are so strong they will need to address all these factors to avoid the downward spiral. They will need policies to encourage more women to have children, and then return to work. They will need to welcome immigrants, despite the fear-mongering of so many political debates. And they will need innovation, to enable long-term growth in productivity and living standards.
Economic growth in the long term is driven by investment and effort, requiring optimism about the future. People build businesses and institutions for their own rewards but also for the next generation. Pepper is cute but who will want to build a future for its sake?
The writer is a professor of economics at the University of Manchester and author of ‘GDP: A Brief But Affectionate History’