The UK economy is uniquely positioned to benefit from the roll out of artificial intelligence. Politicians on all sides should be championing policies that help secure these benefits as soon as possible, Chris Dorrell writes
Amid a slew of warnings about slow growth and rising national debt, it was easy to miss that the International Monetary Fund (IMF) had some good news for the UK economy last week.
Modelling the potential impact of artificial intelligence (AI) on both UK productivity and output, it suggested that the size of the UK economy could grow by an enormous 16 per cent.
Perhaps more striking, the IMF suggested that these gains would take place “primarily in the first decade of transition”. Productivity gains from AI were expected to range from 0.9 to 1.5 per cent a year, compared to a global average of between 0.1 per cent and 0.8 per cent.
If you believe the IMF, then the UK is on the cusp of a new golden age of growth thanks to AI. Explaining why, the IMF praised the UK’s “robust digital infrastructure, skilled labour force, innovation ecosystem, and regulatory framework”.
As the research suggests, there’s no doubt that AI could be a game-changer for the UK economy.
Productivity growth has slowed dramatically since the financial crisis, contributing to the longest stagnation in wages since the Napoleonic Wars.
Restoring productivity growth to its former levels would have huge knock-on effects for the wider economy, and AI seems to be the best bet for doing just that.
Chancellor Jeremy Hunt, to his credit, has recognised this, and in the Spring Budget announced plans to invest hundreds of millions of pounds in helping public services benefit from AI.
Why is the potential of AI so great? As Jonathan Haskel – a Bank of England rate-setter and expert on the digital economy – put it, AI is an “innovation in the process of innovation”.
That means its applications are extremely widespread, particularly in the areas of the economy which now make up the majority of economic activity in the UK.
One of the main reasons productivity growth has slowed in advanced economies is that productivity enhancing investments have been concentrated in manufacturing, which has steadily shrunk as a proportion of the economy.
AI clearly has as many applications in the services sector as it does in manufacturing.
This is not to say there are no difficulties. The IMF notes one, suggesting it could lead to a big increase in income inequality. Although incomes for all workers increase, they will only rise 2 percent for low-income workers while almost 14 percent for high-income workers.
This is not surprising. New technologies create winner-takes-all dynamics, benefiting the firms and workers who are able to adapt quickly while depressing the wages of those who cannot.
There’s also legitimate concerns that the rapid roll-out of AI could put millions of people out of work. A recent report suggested that as many as 8m jobs in the UK could be put at risk.
So how should the UK economy go about the AI transition?
As implied above, addressing the potential impact on the workforce is a major priority. If as many jobs are put at risk as some reports suggest, then the social costs of failing to help the workforce transition would be immense.
This should not be seen as a reason to hold back – failing to move quickly has costs too – but it does mean the government needs to create a workforce that can adapt to AI, be it through the schooling system or retraining later in life.
The other related policy is ensuring that the broad swathe of firms can capitalise on AI. Looking back at the UK’s adoption of new technologies, the Tony Blair Institute (TBI) argued that the problem has been “the lack of development and diffusion of tech from the frontier to the rest of the economy”.
In other words, the UK’s top-performing firms have been able to capitalise on new technologies, but a long tail of under-performing firms have not. Ensuring the benefits of AI are felt by those firms is the key challenge for generating a productivity boon with a broad-base.
The TBI suggested that the government needed to establish “regional innovation clusters” centred around the country’s top universities, but also bringing together businesses and policymakers.
Similarly, it called on regulators to create ‘sandboxes’, which would allow firms to trial new products in a range of sectors under controlled conditions. These would help ensure that new ideas could move quickly into the commercial space.
It’s impossible to tell exactly when the impacts of AI transition will be fully felt. But the next government can and should take an active role in trying to secure the benefits as soon as possible.
By CityAM
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