Nirali DasJust now·6 min readAInomics — Artificial Intelligence driven Economics and its impact on Labour, Productivity & Wealth CreationArtificial Intelligence (AI) has been impacting global economy in a significant way by driving new innovations to make decision making, marketing, financial management, manufacturing, supply chain, resource planning — faster, precise, optimized and more predictable. Artificial Intelligence has spurred various economic activities by additional job creations, increased revenue, increased profitability, development of AI based tools/appliances/ systems/machines/ Robots/vehicles etc.AI Driven economics is fast becoming an area of interest for economists, thought leaders and financial/investment professionals. In this paper, it is chosen to call this area of economics as “AInomics” and looking forward for economists to do more research work in this area in near future as this will be a game changer for the world.Increasing ability of Artificial Intelligence to autonomously solve complex problems and tasks will fundamentally reshape our economies and society. With the help of AI, we can model human behaviour and can estimate its impact on the real world. This will make it easier to identify financial bubbles, risks, and potential vulnerabilities in the economy. The impact of AI may not be linear but may build up at an accelerating pace over years. AI technologies could boost productivity levels and increase GDP growth.Global macro-economic impact of AIAs per a PWC paper, it is estimated that approximately 58% of the 2030 GDP impact will come from consumption side impacts, or $9.1 trillion of additional GDP. It is also mentioned in the paper that, over the entire period 2017–2030, approximately 55% of the GDP impact will be due to productivity increases due to adoption of Artificial Intelligence.Global GDP impact by effect of AIIn North America, adoption of AI are the largest drivers of their economic impact, reflecting the region’s leading footprint on AI and its implementation. It will enhance North America GDP by 14.5% (by 2030).In China, AI uptake on productivity is the largest driver and their recent push to implement both replacement and augmenting AI technologies on a large will enhance GDP by 26.1%.The services industry that covers health, education, public services and recreation stands to gain the most — 21%, with retail and wholesale trade as well as accommodation and food services also expected to see a large boost (15%).According to an Accenture report published in December 2017, AI alone can add $957 billion, or 15% of the current gross value added, to the Indian economy by 2035. AI can make an important contribution by boosting innovation that can then be applied to improve current products and services and create entirely new offerings. AI is likely to have transformative impact like the development of an entirely autonomous road transportation system.The global net impact of $13 trillion of additional value compared with today’s global GDP is likely to develop over a longer period (see in the below picture).How the World Labour & Jobs will be impacted by AI?Unskilled jobs will be impacted the most and skilled jobs will tremendously increase so Artificial Intelligence will have a bias towards skilled labour. Lower-skilled jobs that include routine manual and cognitive tasks tend to be the most likely to be automated due to AI.AI will continue to benefit higher-skilled workers who have creativity, analytical and strong problem-solving skills. With the quick progress in AI, robots may increasingly displace highly educated and skilled professionals also. As per Mckinsey, automation of labor could add up to about 11 percent or around $9 trillion to global GDP by 2030.Those unemployed will likely find work in new areas of the economy as new AI augmented jobs are created.Percentage of jobs at high risk of automation by 2030, by geographic region and industry sectorArtificial intelligence will help in creation of jobs that would not have existed without AI both through the economic upliftment that it will provide to productivity and consumer demand, and through the requirements of training, explaining and sustaining the technologies.AI driven Economic Predictions:Usually Economists are terrible at forecasting. Prakash Loungani’s (IMF) analysis, for instance, revealed that economists had failed to predict 148 of the past 150 recessions. AI driven predictive analytics will overcome some of the challenges present in economic forecasting. By implementing AI techniques in behavioural economics, economists will be able to estimate the impact of human perceptions and behaviour more precisely on the actual situation.Already many financial institutions are using Deep Learning (Generative Adversarial Network — GAN) for predicting Value At Risk (VAR) of their assets.AI algorithms/models are analysing how media headlines influence sentiments about the economy. Central banks/fiscal authorities of countries, by knowing when a recession hits, will be more effective and rapid in enacting monetary and fiscal tools, thereby mitigating the effects of business cycles.The impact of AI on Productivity:A net productivity effect builds up over time — modest within five years to material by 2030. As a result, AI’s contribution to growth may be three or more times higher by 2030 than it is over the next five years.Company’s productivity is expected to be significantly impacted by AI. There are two main strategies showing impact of AI on productivity:a) ‘Human-in-the-loop’ technologies: investing in software, systems and machines that ‘assist’ or ‘augment’ the workforce, helping them to perform their tasks better and more efficiently and freeing up their time to focus on higher value-adding activities.ORb) ‘No-human-in-the-loop’ technologies: automating processes with robotics or othertechnologies, or creating autonomous agents, removing the labour input altogether.But it is likely that many businesses will implement a combination of autonomous intelligence and technologies that include humans ‘in-the-loop’.Below are some of the use cases which shows the impact of AI at each stage of a company’s value chain:1) Simulating market conditions for production forecasts and pricing strategy. This reduces the risk, time and capital expended in the process of moving from strategy to execution.2) Robotics automating assembly lines which provides more output with better quality.3) On-demand manufacturing: adjusting to produce goods based on order specifics or turning on/off autonomously.4) Auto-ordering raw materials based on sales patterns and known lead/production times. This reduces the time and resources required.5) Routing emergency vehicles to hospitals based on case criticality, staffing, expertise, traffic and patient load. This reduces the time and resources required.6) Personalised recommendations of products and services. This reduces the information asymmetry between producer and consumer with tailored messaging.7) AI chatbot customer service agents. This provides tailored messaging.AI Impact on Wealth Creation and Reinvestment:As AI contributes to the higher productivity of economies, there will be increased output from efficiency gains and innovations which can then be passed to workers in the form of wages, shares and dividends/profits. Increase wealth will have a cascading effect and will spur economic growth. Workers’ incomes will rise, and they will spend more, and firms will reinvest their profit into operations, the incremental output can be channelled back into the economy in the form of higher consumption or more productive investment. All these will result in tremendous jobs growth also. The secondary spill over effects will be to enable and encourage reinvestment into the domestic economy boosting the IT sector.REFERENCES:1) How Artificial Intelligence is Changing the Global Economy — Daniel Wagner of Country Risk Solutions2) The growth economics of artificial intelligence — August 30, 2019 in Financial Express3) AI will bring economics closer to being a true science by Sukhayl Niyazov in Towards Data Science4) Assessing the Economic Impact of Artificial Intelligence — The International Telecommunication Union (ITU)5) Macroeconomic impact of AI in https://www.pwc.co.uk/economic-services/assets/macroeconomic-impact-of-ai-technical-report-feb-18.pdf6) Modelling the Impact of AI on the World Economy by McKinsey in September,2018Author : Nirali Das, Delhi Public School, Hyderabad, India
Read More
