As a general-purpose technology, AI can now be applied in any field, ranging from cancer diagnosis and urban planning to fraud detection. — Reuters
ARTIFICIAL intelligence (AI), a technology nearly half a century in the making, has finally taken the world by storm.
AI-powered chatbots, such as ChatGPT, have captured the imagination of people around the world, thanks to their broad utility.
Meanwhile, the recent blockbuster financial results of the world’s leading AI chipmaker Nvidia Corp demonstrate that smart money is now pursuing the AI dream.
Scientific research on building computers capable of simulating intelligent, human-like behaviour can be traced back to the 1980s. But advances in computing power have now brought practical applications of AI within reach.
As a general-purpose technology, AI can now be applied in any field, ranging from cancer diagnosis and urban planning to fraud detection.
It also has the potential to offer breakthrough solutions that are incomparably better than existing approaches.
Singapore is among a handful of governments worldwide that have already prepared a policy framework to harness AI’s benefits in recognition of its transformative potential. The republic initiated its National AI Strategy in 2019.
Like any other modern technology, however, AI has been greeted with both exuberance and scepticism.
The exuberant lot is hopeful that AI’s transformative powers will land immediate benefits by sending growth into hyper drive worldwide.
The sceptics are worried that the human-like attributes of the new technology will result in massive unemployment as knowledge workers, such as infocomm professionals, physicians, pharmacists, architects, engineers, scientists, designers, accountants, lawyers and teachers, are replaced by machines.
The ultimate versions of both sides of the debate are probably off the mark. A more plausible scenario lies in the middle.
No matter how promising a new technology is, it takes time to build the hardware on which it will run and more time for it to get usefully adopted across the economy.
In addition, regulatory frictions, fragmented global supply chains, geopolitics, infrastructure constraints and social acceptance will extend the adoption timeline and limit economic impact in the near future.
Still, years of academic research indicate that AI will eventually have a significant impact on the global economy.
From a macroeconomic perspective, for any technology to be truly transformative, it must augment either labour or capital – the two most crucial factors needed to boost productivity.
Cutting output costs
A simple example of capital augmentation is replacement of wood by steel to increase the productivity of a plough. AI can automate much more complex mechanical processes or replace entire production lines with robots and in time lower the cost of output.
We have already seen this cost reduction impact on durable goods prices, which declined by 35% in the three decades to 2020, thanks to automation.
In services, though, prices have increased by 120% in the same period. Even after the surge in usage of digital apps and eCommerce platforms by consumers during the Covid-19 lockdowns, there has been little to no price impact and hence no productivity gains.
But since AI’s biggest attribute is to mimic human intelligence, it would augment the cognitive skills and abilities of the existing labour force in the service industries as well.
Hence, one staff member in a professional services office should eventually be able to do the work currently done by five, or even 10 people, for example.
Thus, AI’s potential to cut costs in the service economy will be transformative.
A study by the National Bureau of Economic Research (NBER) found that customer service workers at a Fortune 500 software firm who were given access to generative AI tools became 14% more productive on average than those who were not, with the least-skilled workers reaping the most benefit.
In addition, the NBER study conducted by researchers at Stanford University and the Massachusetts Institute of Technology show that AI helps improve customer sentiment, reduces requests for management intervention and improves employee retention.
With production processes and a labour force that are more productive, companies will be able to lower their products and services’ prices, boost sales and generate more profits.
In this scenario, companies would also not mind sharing part of the monetary benefits of increased productivity with their workers. In turn, higher incomes would boost consumption of goods and services.
As profits and consumption increase, companies will make new investments in production capacity, services and new jobs, leading to the explosive growth estimates experts have given in recent years.
For instance, PwC, one of the world’s top accounting firms, estimates that AI could contribute up to US$15.7 trillion to the global economy by 2030, almost as much as the current output of the European Union.
Of this, US$6.6 trillion is likely to come from increased productivity and US$9.1 trillion is likely to come from consumption-side effects.
Higher productivity
US investment bank Goldman Sachs predicts that as tools using advances in AI work their way into businesses and society, they could drive a 7%, or almost US$7 trillion, increase in global gross domestic product and lift productivity growth by 1.5 percentage points over a 10-year period.
Experts at Boston Consulting Group (BCG) believe that if cost reduction and falling prices are how AI delivers significant productivity growth, then consumers will be the winners. Lower prices will boost real incomes that can be spent elsewhere.
“Consider that food once took a significant share of people’s wallet, but as prices fell – via mechanisation and, later, fertilisers – income was freed up to spend on household goods and services, such as tourism.
“This is how tech drives aggregate growth – and how dystopian predictions of mass unemployment have not come to pass because new spending also creates new jobs,” said Philipp Carlsson-Szlezak, BCG’s global chief economist, in a report.
“But for companies, this means that the productivity cascade – tech-cost-price-income – is a threat as much as opportunity. Firms that can lead down the cost curve, maintain relative advantage, lower prices and capture market share will be winners – at the expense of those who cannot,” he added.
However, some disruption in the labour market is still expected.
The Goldman Sachs’ research report, written by its economists Joseph Briggs and Devesh Kodnani, showed that shifts in workflows triggered by AI advances could expose the equivalent of 300 million full-time jobs to automation.
But not all that automated work will translate into lay-offs.
“Although the impact of AI on the labour market is likely to be significant, most jobs and industries are only partially exposed to automation and are thus more likely to be complemented rather than substituted by AI,” they said.
Even when there is disruption, jobs displaced by automation and mechanisation have historically been offset by the creation of new jobs, and the emergence of new occupations.
For example, information-technology innovations introduced new occupations such as webpage designers, software developers and digital marketing professionals.
There were also follow-on effects of that job creation, as the boost to aggregate income indirectly drove demand for service sector workers in industries like healthcare, education, and food services.
About 60% of today’s workers are employed in occupations that did not exist in 1940. This also implies that more than 85% of employment growth over the last 80 years is explained by the technology-driven creation of new positions. — The Straits Times/ANN
Ovais Subhani is a senior correspondent for The Straits Times Singapore. The views expressed are the writer’s own.
