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“AI may determine who leads and who lags in the Fourth Industrial Revolution. Benefitting from AI in the coming years requires smart policy decisions now.”, asserts PWC, a global consulting firm, who have publicly announced they are working with governments to maximise the beneficial impacts of AI in various ways, including: creating AI-powered simulation models to assess policies, improve forecasts, to help shape regulations to attract investment, and encourage responsible AI.
The Fourth Industrial Revolution (4IR) refers to the ongoing transformation of traditional industries through the integration of digital technologies, artificial intelligence, robotics, and other new technologies (McKinsey, 2022). As technological evolution and the digital landscape is constantly evolving, both fear and excitement is endured by citizens with urges for appropriate actions by governments to navigate ethical and regulatory challenges, ensuring a balance between innovation, safeguarding societal values, and privacy.
Predicted Positive influence on the Global Economy:
Increased Productivity:
AI technologies can enhance efficiency and productivity across various industries through automation and optimization of tasks, leading to higher output with the same or fewer resources and increased competition between firms. Goldman Sachs has predicted Generative AI could raise global GDP by 7% and lift productivity growth by 1.5 percentage points over a 10-year period. Two important factors for increased economic growth can be understood by looking at how AI enhances decision-making for users.
Enhanced Decision-Making: AI-driven analytics and decision support systems can provide businesses and governments with better insights. This is done by enhancing data analysis capabilities, enabling faster and more accurate decision-making more info which can positively impact economic outcomes.
Supply Chain Optimization: The improving of logistics, reducing waste, and minimizing disruptions through better data analysis contributes to more resilient and efficient global trade networks further stimulating global economic growth.
Cost Reduction: AI applications can help businesses cut costs by streamlining operations, reducing errors, and optimizing resource utilization, contributing to improved profit margins and economic growth.
Financial Sector Improvements:
AI technologies in finance can enhance risk management, fraud detection and customer service (Latinne, 2023), leading to a more stable and efficient financial system, which is crucial for global economic growth. For example, the creation of AI-powered chatbots incorporated with Natural Language Processing (NLP), enable engagement and interactions with customers 24/7 and enhance the personalisation of conversations and financial services. Furthermore, enhanced AI components are being added to the existing fraud systems to optimally identify previously undetected transactional patterns, data anomalies and suspicious relationships between individuals and entities; preventing fraud before it happens rather than after. (Deloitte)
Potential negative channels of influence
Job displacement
Job displacement refers to the process in which human labour is substituted or replaced by automation, artificial intelligence, or technological advancements. This can lead to changes in job roles, tasks, and employment dynamics within a given industry or sector. Job replacement is often a result of businesses adopting technologies to streamline processes, increase efficiency, and reduce costs (i.e. labour market responds to shifts in demand for workers). While it can lead to increased productivity, it may also result in job displacement for certain roles, requiring affected workers to adapt or transition to new positions.
McKinsey analysts estimate that between 400 million and 800 million individuals could be displaced by AI and need to find new jobs by 2030 globally and out of the total displaced. 75 million to 375 million may need to switch occupational categories and learn new skills, highlighting how policymakers will most likely need to invest in workforce reskilling to adapt to the evolving job market.
In the UK specifically, net employment reductions are projected in wholesale and retail, finance, and public administration areas. Health and social care sectors have the largest estimated net employment increases from AI over the next 20 years partially because applications of AI in healthcare are predicted to be complementary to human labour rather than substitutes. New jobs will become available due to new markets and innovation that results from the development of AI (like genomic analysis and treatment personalisation). (Gov.UK, 2021)
Widening economic inequality
With there already being substantial disparities in income, access to resources, and opportunities among different regions and populations worldwide, it would be ideal that AI would promote a more balanced and equitable global landscape. However, predictions for domestic and global equality suggest otherwise (with nuances within industries that also need to be understood).
Globally: Analysts at McKingsley and Company predict Leaders of AI adoption, which are mostly in developed countries, could increase their already massive lead over developing countries. Leading AI countries are estimated to capture an additional 20 to 25 percent in net economic benefits, compared with today, while developing countries are predicted to capture only about 5 to 15 percent.
In the UK: A government report by PWC for the Department for Business, Energy and Industrial Strategy found that there were more positive net effects in higher income areas such as London and the Southeast and more negative net effects in some cities in Northern England and the Midlands. They also discovered that net employment effects of AI will tend to be more positive for higher paid occupations on average, and more positive for graduates than for lesser educated groups. This suggests that AI will exacerbate existing inequalities, as the levels of investment, the levels of education and technological infrastructure within particular regions affects its ‘regional readiness’ for adapting to AI.
However, interestingly, a recent article by the Financial Times suggests that AI will actually negatively affect wealthier individuals: “jobs most at risk from the new wave of AI are those with the highest wages, and that someone in an occupation that pays a six-figure salary is about three times as exposed as someone making $30,000”. The article argues that generative artificial intelligence is being developed to replace ‘expertise’ which is supported by a study by Harvard Business School. The study found that consultants using AI completed 12.2% more tasks on average, completed tasks 25.1% more quickly, and produced significantly higher quality results.
For more details on the effect of AI on UK Employment and demand for skills: https://www.gov.uk/government/publications/the-potential-impact-of-ai-on-uk-employment-and-the-demand-for-skills
Image: PantherMedia, 2011 // CC0
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