Rethinking the Relationship Between Demographic Transition, Technology Adoption and Socio-Economic Development

In 2024, Larry Fink, CEO of BlackRock, the world’s largest asset management firm managing $10 trillion in assets, made an interesting observation at the World Economic Forum. He argued that developed countries with shrinking populations may be better positioned to navigate the societal challenges posed by the rise of artificial intelligence (AI) and robotics. According to Fink, “The big winners are countries that have shrinking populations. We always used to think shrinking population is a cause for negative growth, but…these countries will rapidly develop robotics and AI technology. And we’ll be able to elevate the standard of living of countries…even with shrinking populations. The paradigm of negative population growth is going to be changing, and the social problems that one will have in substituting humans for machines is going to be far easier in those countries that have declining populations.”

Fink’s position challenges conventional economic wisdom, which has long viewed population growth as a cornerstone of economic growth. And while his perspective highlights the transformative potential of AI and robotics, it also raises important questions about the broader implications for global economies. In this week’s article, my aim is to provide a systemic analysis of Mr Fink’s argument, exploring its merits, demerits, and the strategies countries with both growing and shrinking populations could adopt to thrive in an AI-driven future.

The Merits of Fink’s Position

Fink’s argument rests on the premise that declining populations in developed countries create favorable conditions for the rapid adoption of AI and robotics. This technological shift can:

1. Compensate for Labor Shortages: As the working-age population declines, automation can fill gaps in industries ranging from manufacturing to healthcare, ensuring productivity remains high.
2. Elevate Standards of Living: By leveraging AI and robotics, these countries can increase efficiency and reduce costs, potentially enhancing the quality of life even in the absence of population growth.
3. Ease Social Adjustments to AI: Smaller populations may face fewer disruptions in transitioning to an AI-driven economy, as social challenges arising from labor displacement could be minimised compared to densely populated regions.

The Flaws in Fink’s Argument

While compelling, Fink’s perspective overlooks some critical factors that complicate the relationship between population decline, economic growth, and AI adoption:

1. Declining Consumer Demand: Shrinking populations result in fewer consumers, which can reduce demand for goods and services, limiting economic growth despite technological advancements.
2. Economic Dependencies: Developed countries often rely on exporting goods and services to regions with growing populations. Without robust international markets, their economies may struggle to sustain growth.
3. Innovation Ecosystems: Historically, innovation has thrived in diverse, dynamic societies with growing populations. Thus, a declining population could stifle creativity and entrepreneurship over time.
4. Wealth Inequalities: AI and robotics may exacerbate income disparities, with the benefits of technological advancements concentrated among very few winners, leading to social tensions even in countries with declining populations.

Implications for Countries with Growing Populations

Regions projected to experience significant population growth, such as parts of Africa and South Asia, face unique challenges and opportunities in the AI era:

1. Harnessing the Demographic Dividend: Growing populations offer a youthful, dynamic workforce that can drive innovation and economic expansion if adequately educated and trained.
2. Investing in Skills Development: To compete in an AI-driven global economy, these countries must prioritize education and upskilling initiatives, particularly in domains that are relevant to the evolving labor market.
3. Building Resilient Economies: Diversifying economies and investing in AI infrastructure are vital for stability and growth. Africa, for example, has lagged in AI infrastructure investments. We must move beyond dependence on the West and strategize for self-reliance. I recently read Mukesh Ambani’s plan to build the world’s largest data center in India. Where are the similar bold projects for Africa?
4. Addressing Social Unrest: Rapid population growth can strain resources and exacerbate inequalities. Thus, governments should implement policies to ensure equitable distribution of wealth and opportunities.

Strategies for Countries with Shrinking Populations

For countries with declining populations, success in the AI era will require proactive measures:

1. Fostering Global Partnerships: Developing strong trade relationships with regions experiencing population growth can offset declining domestic demand.
2. Promoting Innovation: Incentivizing research and development in AI and robotics will be key to maintaining competitive advantages.
3. Encouraging Immigration: Selective immigration policies can help replenish the workforce and infuse economies with new ideas and perspectives.
4. Addressing Ethical Concerns: Policymakers must navigate the ethical implications of widespread automation, ensuring that societal benefits are widely distributed.

Leveraging Resources for Growth in Emerging Economies

Africa and other emerging economies with growing populations can leverage their enormous resources to leapfrog in development, especially as AI drives down the cost of intelligence and human capital. These countries should capitalize on their vast mineral resources for economic growth. For example, the Democratic Republic of Congo (DRC) produces over 73% of the global output of cobalt, a critical resource for rechargeable batteries, superalloys for jet engines, and other uses. By harnessing AI-driven intelligence and local manpower, the DRC could compete in battery production instead of allowing its cobalt to be exported without added value. Bold and strategic investments in AI and industrial capacity could break historical cycles of resource exploitation.

A Pathway Forward

Larry Fink’s position challenges conventional economic thinking, offering a new perspective on the relationship between economic development and population growth. While his argument highlights the potential of robotics and AI to offset labor shortages and elevate living standards, it ignores critical factors like declining consumer demand, innovation ecosystems, and wealth inequality. That said, countries with growing populations must seize the demographic dividend by prioritizing education, AI infrastructure, and equitable policies to navigate the challenges of rapid growth. Ultimately, whether dealing with population decline or expansion, nations must adopt tailored strategies that foster collaboration, innovation, and resilience to thrive in an AI-dominated world.