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AI, productivity & the case for deregulation

    The development of artificial intelligence provides a difficult situation for policy-makers moving into the future. Moore’s law of computing power and the exponential improvement of technology have led to states of tension across the globe as job security falls away with new disruptive technologies. Factors contributing to this situation can often be traced back to one critical term; productivity. 

    Viktor Shvets, Global Equity Strategist at Macquarie Group, discusses a concept he calls the ‘declining return on humans’. This refers to the inferior capacity of humans to achieve productivity growth compared to machines, therefore restricting of high wages and jobs for humans.  A case for this automation is Walmart’s sales revenue per employee, which is USD $220,000 compared to Amazon’s sales revenue per employee, which is over USD $1million. Shvets goes on to describe that around the world, this shift towards automation, has created an overcapacity to produce products.  The dynamics of worker’s relationship with machines in the economy will continue to change, but there is one machine category in particular that the world is collectively bracing for, yet does not know when exactly it will fully arrive. 

    Enter artificial intelligence. Machine intelligence, which is essentially an optimisation system, is still in its infancy, but has almost unlimited potential. Artificial intelligence uses algorithms that learn from raw perceptual data in a process loosely comparable to that of a human infant.  These systems are able to learn in more than one domain and are not limited to the same mass of biological tissue that humans are.  This means that instead of the space that humans have to store a brain, these optimisation systems can be enormous and stored in warehouses. This sets machine intelligence and productivity on a path far beyond that of merely reaching the same level as humans. 

    Research by Accenture estimates that integration of artificial intelligence could almost double economic growth rates in 12 countries by 2035.  Technologist and philosopher Nick Bostrom also believes that machine super intelligence is the last invention the human race will ever need. The point in time at which total superiority to humans is achieved is the big question, but nobody can predict an exact date.  Research from McKinsey and Company has anticipated that the shift in the activities in the labor force will be similar to the long-term shift away from agriculture in the United States, which was accompanied by the creation of new types of work not foreseen at the time. McKinsey and Co analysed 2,000 work activities across 800 occupations and believe that 5% of occupations can be automated entirely and about 60% of all occupations have at least 30% of involved activities that could be automated. The research also assumed that more occupations will simply change rather than be automated away. Job safety will most likely be found in areas where artificial intelligence and machines can augment human performance. 

    For jobs to be created, productivity is essential.  Productivity is best created through the efficient combination of labour and capital that can generate significantly greater outputs than inputs.  Artificial intelligence will only enhance this process and provide job opportunities as a by-product if it is not impeded by regulatory costs. Bill Gates has suggested that robots replacing humans should pay taxes. Consumers and businesses would be the groups paying that tax which would raise the price of goods and services in any industry attempting to innovate, stagnating productivity and hurting job prospects. The United States is the only country in the world to have produced a host of dominant tech giants.  Why is this the case?. It is partly due to the fact that the country’s government introduced the Telecommunications Act in 1996. The goal of this law was to “let anyone enter any communications business - to let any communications business compete in any market against any other.” In creating this highly competitive market environment, the world has witnessed an epic period of innovation in the United States based around the internet and information services.

    Governments must deal with the inevitable job displacement that machine intelligence will inevitably cause by supporting the innovation and provision environments in which technological innovation can be naturally incentivised through the existence of a competitive and profitable environment. The United Kingdom has the opportunity, especially with Brexit, to create attractive environments for innovation. If this doesn’t happen, the United Kingdom also runs the risk of losing its innovators to countries like the United States.  With a skilled workforce, world class research organisations, and significant history of technological achievements the United Kingdom is well equipped. There is nothing stopping the business talent of the United Kingdom from building fantastic new businesses, except regulation. The United States is a fantastic case study for the internet, but why should the UK not go a few steps further? Artificial intelligence, driverless cars and drones are only a few areas in which, with the right regulatory environment, the United Kingdom could succeed in producing brilliant new businesses and jobs.


    DISCLAIMER: The views set out in CPS blog posts are those of the individual authors only and should not be taken to represent a corporate view of the Centre for Policy Studies.

    James Walker is one of the CPS' economic research interns for summer 2017. James comes to us through the Mannkal Economic Education Foundation, which offers international scholarships to students from Western Australia. James is a second-year science student who aims to work in finance and investments.

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    Anonymous - About 1430 days ago

    "There is nothing stopping the business talent of the United Kingdom from building fantastic new businesses, except regulation."
    Please explain this. Otherwise why not write...
    "There is nothing stopping the business talent of the United Kingdom from building fantastic new businesses, except tigers."

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