A report by Goldman Sachs, an investment bank, claims that Artificial Intelligence (AI) could replace up to 300 million full-time jobs.
After the rise of "Generative AI", or Artificial Intelligence capable of creating pieces of work indistinguishable from human effort, many potential benefits for the economy as a result of the development of artificial intelligence have been considered - as well as many concerns.
What benefits can the growth of Artificial Intelligence bring?
Generative AI tools, such as ChatGPT, have permitted users to carry out comparatively difficult tasks (such as writing essays or articles) as well as finding solutions to certain questions in a matter of mere seconds.
The short time-span required to carry out this service may suggest that in the future, with the further development of AI, waiting times for certain services will be significantly shorter. This brings many benefits, especially in the health sector where long waiting times have created more distrust from consumers against employees, longer suffering, as well as a worsening of the patient's overall health if they cannot be healed quickly. Thus, by lowering waiting times, not only will all of these effects be nullified but the economy may see a steep rise in its productive capacity (and thus see a shift to the right of the PPF curve[i]) as workers who have left the workforce temporarily (due to a lack of ABILITY to work) can be brought back into the workforce quicker. This means that the amount of potential real output that the economy misses out on is lower, resulting in increased real output compared to if waiting times were longer in the economy and so, increased economic growth is seen.
Furthermore, as technological capital is typically more productive than human labour, the development of AI may provide the solution to the UK's productivity puzzle[ii], a problem which has been haunting the British economy since the 2008 financial crisis and according to Diane Coyle (a professor of public policy at the University of Cambridge), the economy's productivity is yet to fully recover from this. This may suggest that the answer to the productivity puzzle plaguing the UK is the development of AI, and may finally help the UK overtake its G7 Nation[iii] counterparts in terms of productivity. This boost in productivity would result in an increase in real output produced by the economy and thus, a boost in economic growth would be seen.
Many producers and employers would see the benefits of utilising Artificial Intelligence as well, as increased productivity means there is more output to be sold, thus increasing the revenue generated by these firms. Furthermore, costs of production will be cut if firms rely on artificial intelligence as employers no longer need to pay wages to workers, and may only have to pay costs of maintenance for technological capital (typically lower than wages). This also means that an increase of the National Minimum Wage (a price floor[iv]) is unlikely to impact these producers who do not have to pay wages to their employees anyway, and may even help these producers be more price competitive against firms that do not employ AI as they can afford to decrease prices of their products. This may increase the overall level of profit gained by these producers as a result of increased revenue and decreased costs (profit = total revenue - total costs), leaving them with more funds to re-invest back into their firm.
This increase in profits seen by producers may also incentivise the government to increase corporation tax[v], thus acting as a benefit as the government can make more revenue and thus, lower the budget deficit[vi] faced by the British government currently. This leaves the government with more funds to pay off National Debt[vii] and can also increase spending on public goods and services, which may further increase the productivity of the British economy in the future.
The development of AI may also see benefits being brought to consumers. If AI increases the productive capacity of the economy, this means that there will be more real output and thus, more stock. Consequently, the likelihood of supply shortages are reduced which increases consumer satisfaction if they can purchase the products they desire lowering shoe leather costs[viii], as well as having a lower effect on inflation if prices do not rise as a rationing measure due to ample stock being available. Use of AI may also ensure increased product quality, which boosts consumer utility[ix] if the products that they consume are longer lasting and thus, bring more benefits to the consumer.
What are some concerns raised over the development of AI?
With the many benefits that the development of AI may bring to the economy, there have also been many concerns raised on its potential impact.
Firstly, if AI replaces human labour, this means that less workers will be earning sustainable wages which lowers consumer utility as they now have less disposable income to spend on goods and services. In the long-term, this may result in many consumers finding it very difficult to survive if they do not have high enough savings to rely on, or alternative sources of income to ensure survival, significantly reducing quality of life as well as subjective happiness of these consumers. Although some sectors like construction and maintenance have a small percentage of tasks that can be automated (6% and 4% respectively), administrative and legal sectors are impacted the most with 46% and 44% of tasks (respectively) predicted to be automatable.
Although in the short-term, many producers relying on AI may see an increase in profit due to increased revenue and lower costs, in the long-term they may see their profit stagnate or even decline. This is because workers are consumers as well, thus if there are less workers earning a sustainable income, this means there are less consumers with a high enough amount of disposable income. This results in demand for goods and services in the economy falling and as a result, producers make less revenue and profit.
Finally, although the government can increase corporation tax to make the most out of increased profit from producers which may happen as a result of a boost in AI development, they lose out on a large proportion of income tax due to a loss of human labour to AI. This is considerably impactful considering the government's highest source of revenue is income tax, thus a loss of this would cause lower government revenue which may further widen the budget deficit faced by the government, ceteris paribus. This is also worsened by the fact that if there are more workers displaced due to the development of AI and thus put in unemployment, the government will have to increase spending on state welfare benefits such as unemployment benefits, as well as increase spending on education and training programs if long-term unemployment causes deskilling of these workers. This may overall result in the government implementing policies to balance the amount of AI used as labour as well as human labour in order to "make sure that AI is complementing the way we work in the UK, not disrupting it" (in the words of Technology Secretary Michelle Donelan). However, following such policies may bring administrative costs to the government which will only increase spending further and consequently, increase the budget deficit as well.
Footnotes:
[i] PPF Curve - Production Possibility Frontier Curve, a microeconomic curve giving a graphical representation of all the possible options of output. A shift to the right of this curve represents increased productivity.
[ii] UK's Productivity Puzzle - A term in Economics used to describe the stagnation of the UK's productivity following the financial crisis of 2008.
[iii] G7 Nations - An intergovernmental political forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
[iv] Price Floor - A government imposed price limit on how low certain prices can be charged.
[v] Corporation tax - A compulsory payment to the government given by businesses.
[vi] Budget deficit - Where government expenditure is higher than government revenue. A budget surplus is when government revenue exceeds government expenditure.
[vii] National Debt - The amount of money the British government is yet to pay back.
[viii] Shoe Leather Costs - When people spend less of their disposable income in order to survive high rates of inflation. "Shoe leather" is a reference to people metaphorically walking or searching more in order to find the cheapest prices possible during times of high inflation.
[ix] Consumer utility - a term in Economics describing the amount of satisfaction a consumer gains from consuming a good or service.
Bibliography:
AI could replace equivalent of 300 million jobs - report BBC
