Automation and robotization: miracle cure or social utopia?

The automation and robotization of production processes are underway, and it seems to be progressing quickly. Responsive modes of production are viewed as a miracle solution to population ageing and workforce shortages, but do they provide a viable model for society? Our analyst Sébastien Mc Mahon shares his views on the issue.

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast, where we discuss your essential economic news and its impact on your finances in less than 10 minutes. The impact of an aging population and robotization is real. My name is Ashleay. I'm here with my colleague Sébastien Mc Mahon, our Chief Strategist and Senior Economist here at iA Financial Group. Hi, Sébastien.

Sébastien: Hello, Ashleay.

Ashleay: So, we often talk about the aging population in Canada. Can you give us a picture of the situation?

Sébastien: Yeah. Sure. So, the Canadian population is aging, just like other countries in the world. Where we're based here in the province of Quebec, the situation is even a bit worse than the Canadian situation. So, if you look at the share of the population in, this is as of 2021, the share of the population in Canada that's older than 65 years, you have a ratio of 18.5%. Now, of course, this is favourably compared to Japan where you're talking about 29%. But the province of Quebec is a bit into a more dire situation at about 20%. When you compare then the share of the population that's younger than 20 years, what you see is that 21.1% of Canadians are younger than 20 years old, which means that there's pretty much as many young as older people in the country. So, we used to talk about demography as a pyramid, but now the top and the bottom are pretty much as wide.

Ashleay: I see. And why is the aging population an economic problem?

Sébastien: Because economic growth, it's led by demography and innovation. So, when you hear on the news that GDP is growing at X percent, well, a good share of that is from the growth in the population. So. the main engine of growth through history has been demography. The second one is innovation. So, the more creative we are, the more innovative we are as a society. The more technology evolves, the more we can do with what we have. So, those are the two pillars. And if we're losing steam on the demographic pillar, we can run into some issues down the road. Because when you talk about the importance of economic growth, you talk about paying for the social benefits that we have as a society. So, if you have a public pension plan, for example, you know, the money that you're putting aside or that you're sending the government to pay for the future public pension plans, it's not like they're putting it on the side in a bank account for you. They're just paying as they go. So, what they take from workers now they send to the oldest part of the population So, it's pay as you go. And if we have a slowing economic growth and we have a population that's aging, at some point we're going to have some issues in continuing this pay-as-you-go system.

Ashleay: Okay. And what would be the economists’ solutions to the problem?

Sébastien: Well, one solution that's installed right now, it's using immigration as a public policy. And this is a policy that's well done in Canada, because we know that Canada is one of the most attractive destinations for immigrants around the world. So, immigrants think highly of Canada. When they come, we tend to attract the most educated ones. So, this is very beneficial to our society. They're very good at integrating society. So, you know, buying a house, having a family, becoming Canadian. So, they're very good at that—immigrants that we bring to the country. So, we, when you look at OECD data, Canada usually ranks near the top with New Zealand. So, Canada, we're good on that front. The other solution, of course, would be robotization and automation, the use of technology. So, we're seeing lots of promising solutions on that side. But you know, we're still in the, let's say, in the early part of that process.

Ashleay: I see. And you mentioned automation, robotization. Why is this such a popular solution?

Sébastien: Well, because the demand for manufacturing goods continues to grow. So, it's easier, let's say, to invest in robotization to produce manufacturing goods than doing something that would be more creative. So, some jobs will be harder to replace by robots than others. The capacities of robots are still growing, so we know that we can do more and more with robots. So, it's a promising avenue and you know, it's now cheaper to produce some goods and services through robots or through automated supply chains than with actual workers. So, there are a few good economic reasons to go in that direction.

Ashleay: And apart from industrial production, can you give other examples?

Sébastien: Yeah. Sure. So, just recently in the news we saw Tesla unveil its new humanoid robot that they call Optimus. The idea is that you can have, at some point, you'll be able to have a robot in your house that's going to be able to do some things that maybe we don't like to do anymore. So, like the chores and maybe cooking and, you know, taking out the trash and stuff like that, mowing the lawn. So, there's also this field of development, the promise that it could cost the price, the same as the price of a small car. So, maybe $20,000, $30,000, something like that. So, we're seeing some development going there, too. At some point, if we think that there are aging population, maybe it's going to be useful to have a robot to take care of the chores around the house and allow people maybe to go work more, do more productive activities. So, it could also be part of the solution.

Ashleay: Absolutely. And what about the job market versus all this?

Sébastien: Well, the job market, this is where it gets interesting because we think always GDP growth, production. But how do you integrate robots into our economic model? You know, right now, if you have a factory that's employing multiple workers, well, these workers, they're taxed on their income. So, there is money going to the government to pay for our social benefits. If you lay off some workers and you replace them with machines, so how do you properly tax the production of machines to make sure that we can ensure that we have our social benefits, that continue to be paid for correctly? Remember, we have a pay-as-you-go system. And some jobs will be easier to replace than others. There was a study from Oxford Economics showing that regions where the average income is lower tend to be twice as much impacted by “automatization”, meaning that there are more jobs that are lost there, so they become poorer. So, the social inequalities, the income inequalities could grow because some jobs that need a lot of creativity, maybe they'll be able to, you know, warrant higher wages through time. But some jobs, it’s going to be hard to compete with the machines.

Ashleay: Absolutely. And what's happening elsewhere in the world?

Sébastien: Well, what we see around the world is that machines are being installed at an alarming pace, I would say. Since 2000, between the year 2000 and 2019, the number of robots has been multiplied by three. So, now it's 2.25 million robots that were in place in 2019, the latest data that I have. And you won't be surprised that one in, one robot in three is, has been put online in China because of all of the manufacturing production that we see over there.

Ashleay: That's all well and good. But is it all positive?

Sébastien: Well, there are some negative again, impacts, as I mentioned earlier. Now, it's how do you share the social dividend that comes from robotization? And by that I mean the benefits from “automatization”. Again, as I mentioned, how do you tax properly the gains in productivity that come from robotization? Will many people be left behind? And also, as in many industries, maybe some, a few multinational companies will be behind most of the robots that take, that are installed around the world. So, how do you properly tax these companies to make sure that the benefits that we get here are not all in the pockets of the investors that are, that may be abroad? So, there are a few important questions that remain lingering.

Ashleay: I see. And so, what's the conclusion? Is robotization a viable model for society?

Sébastien: Well, of course we need to use technology to support our aging society. So, this is a given. If we have, if we lack workers, if we don't have enough workers for all of the needs of our economic system, then of course you need to, you need the help of robots or automated supply chains. This is for sure. Also with an aging population, having a robot at home that could, you know, cook for you, mow the lawn, do all of these things, that's going to be an important support also for people as they get older. So, it is a viable model. We think it's something that is inevitable for sure, but it does raise, at this stage, multiple questions.

Ashleay: I see. Very interesting. Again, thank you so much, Sébastien. And for our listeners, don't forget to share and sign up for our podcasts. Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms, visit the economic news page on ia.ca, or follow us on social media.

About

Sébastien Mc Mahon joined iA Financial Group’s economy team in January 2013. Throughout his career, Mr. Mc Mahon has held various positions in several prominent financial institutions, notably at Quebec’s Ministry of Finance and the Autorité des marchés financiers, Quebec’s financial market regulator.

Sébastien Mc Mahon also serves as Vice-President, Asset Allocation, and Portfolio Manager for our subsidiary, iA Investment Management Inc. (iAIM), with assets nearing $15 billion. Mr. Mc Mahon is also a member of the firm’s asset allocation committee.

Sébastien Mc Mahon

Chief Strategist and Senior Economist

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

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2023-02-03 11:48 EST
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