The Impact of AI on the Economy

The roll out of ChatGPT and a host of other forms of artificial intelligence has led to a dramatic increase in interest and awareness of artificial intelligence. Despite the fact that these tools had been in development for many years, the capabilities of some of these AI tools have generated shock, awe and curiosity. For example, while it took Instagram 2.5 months and Facebook ten months to reach one million users, it took ChatGPT just five days to reach this milestone. If the world wasn’t aware of artificial intelligence beforehand, it sure is now.

 

Given the powerful and wide-ranging capabilities of artificial intelligence, there is little doubt that AI will have a profound impact on most areas of our lives for the foreseeable future. The one area that I want to focus on in this article is artificial intelligence’s impact on the economy. On one hand, AI has the capability to solve some of the long-term problems that are facing the global economy. On the other hand, AI also has the potential to be so disruptive as to sow chaos and destruction. How we manage AI will go a great way towards determining our long-term economic future.

 

For years, I have been arguing that the only path to long-term economic expansion and prosperity is through higher rates of productivity growth. With population growth slowing in our region and around the world, and with trade and investment levels that are much lower than in the past, our only means of generating higher rates of economic growth will be through higher levels of productivity growth. Unfortunately, productivity growth in most major economies has been trending downwards for many decades now and there seemed to be no end in sight to this decline. 

 

However, the emergence of artificial intelligence has raised hopes that productivity growth can be revived on the back of AI-based tools and processes. Some economists believe the artificial intelligence can eliminate many of the bottlenecks that are currently constraining productivity and economic growth. If so, AI could prove to be a positive game-changer when it comes to generating economic growth in the future.

 

Another factor that has been hampering economic growth around the world is the fact that labor shortages continue to worsen for most sectors of the economy. Worse, recent demographic trends indicate that these labor shortages are not only here to stay, but that they will worsen dramatically in the future. As such, this is another area in which artificial intelligence could solve a pressing economic problem, for AI could dramatically reduce the demand for labor in many sectors of the economy. 

 

At the same time, like other new technologies in the past, artificial intelligence could create many new jobs and occupations that have not existed in the past. For example, 60% of today’s workers are in occupations that did not exist in 1940. Therefore, it is widely expected that AI will not only solve labor shortages in many sectors of the economy, but will also create a variety of new jobs that do not yet exist. Furthermore, these new jobs are likely to be much more productive than the jobs that will be replaced by various forms of artificial intelligence.

 

Some of the sectors of the economy that are expected to realize significant improvements in productivity thanks to artificial intelligence are professional services, manufacturing and healthcare. For many regions, this presents a unique opportunity as these sectors are the foundations of these regions' economies. As labor shortages remain the leading constraint on growth for many economies, artificial intelligence has the potential to mitigate the economic impact of the world's demographic decline and allow these sectors to continue to flourish. In fact, artificial intelligence has the potential to completely transform the global economy for the better, possibly ushering in a new era of growth for a global economy that has slowed in recent decades.

 

Many economists believe that artificial intelligence has the potential to drive much higher rates of economic growth in the coming years. Other economists believe that any positive impact on the economic from artificial intelligence will only be realized over the longer-term. Furthermore, there are many experts who warn that the spread of artificial intelligence could lead to widespread social and political unrest that could actually harm the economy rather than benefit it. Regardless, there is little doubt that artificial intelligence will transform many sectors of the global economy. As such, it appears that we are on the cusp of a major economic revolution, much like the Industrial Revolution of the late 18th and early 19th centuries. This will transform our world, and our region, hopefully for the better.