Title: An Insightful Perspective on the Upcoming Artificial Intelligence Wave
Significant advancements in technology have historically triggered considerable economic disruptions. Starting from the Industrial Revolution, fast and flexible economies that can adjust to productivity shocks have experienced the most growth during times of swift technological transformations.
Effectively managing this transition is a complex task that demands a fine equilibrium between fostering innovation, mitigating job displacement, and ensuring the macroeconomic environment is primed to reap the long-term benefits of technological evolution. The imminent artificial intelligence (AI) revolution will be no different.
Forecasting the exact impact of new technologies on structural changes is a challenging endeavor. The influence of such innovations has often been overestimated and underestimated in the past. For instance, everyday appliances like the microwave were initially anticipated to revolutionize our lives. Conversely, renowned economist Paul Krugman famously suggested that the internet might have the same productivity effect as the fax machine.
While it’s still too soon to determine if AI will be more akin to the microwave or the internet, the rapid pace of advancement indicates that even if its full impact is restricted to a sector of the economy, the productivity boost it brings will be significant. AI also has the potential to enhance productivity in the service sector, which traditionally trails behind the goods sector in productivity growth. This could rejuvenate economies like Japan and the eurozone, which are currently stagnating due to significant demographic challenges.
This week’s main article by Amit Singh and Adam Triggs posits that AI’s disruptive potential is primarily a macroeconomic challenge, not just a technological one. Their projection of an AI-driven productivity surge highlights some crucial policy imperatives. These include increasing the investment capacity of national economies, implementing reforms that make financial markets more efficient, and ensuring that labor can adapt and skilled workers can easily relocate to areas where their skills are most needed. It offers a persuasive roadmap for policymakers in the Asia Pacific region to navigate what will likely be a turbulent decade.
Singh and Triggs iterate that ‘upskilling the workforce is crucial’. The AI surge creates new jobs and higher wages, especially in STEM fields, which will motivate more individuals to acquire skills in these areas. However, it is vital to stay ahead of the curve and use direct subsidies to quickly upskill in STEM capabilities. Developed economies need to boost skilled migration, not reduce it. If businesses can’t grow due to a shortage of skilled workers, the economy won’t reap the full benefits of the AI surge. As the Huguenot refugees in England provided the skilled labor necessary for the first Industrial Revolution, skilled migrants will play a crucial role in building capacity in AI. The escalating global backlash against immigration will only hinder economies from building the workforce they need.
Singh and Triggs also emphasize the importance of access to savings. They argue that countries with deeper capital markets and robust fiscal policies will be best positioned to capitalize on AI-driven growth. This requires policymakers to resist a strong protectionist and regulatory current, which has become more perilous with the re-election of US President Donald Trump. The mood in Europe as well as Washington is darkening, and the global economy is at risk of fracturing along geopolitical and economic lines.
However, technological revolutions like AI do not recognize national borders. Policymakers in Asia will need to be fearless in rejecting the isolationist turn of the North Atlantic economies.
If the global economy fractures into competing blocs, access to AI-related technology, talent, and capital may be determined more by geopolitical alliances than by market forces. Addressing the deteriorating institutional environment and the AI boom should both point in the same policy direction — strengthening of the liberal economic order among countries where it is an economic necessity and the pursuit of sound macroeconomic policy.
On the domestic front, labor mobility will be key. Removing barriers to that mobility — such as non-compete clauses and occupational licensing restrictions — are tangible reforms that can help. But the real challenge will be in managing the social and political aspects of AI-driven structural change.
It’s too premature to predict the form this labor market disruption might take, but the experience of the United States during the ‘China shock’, where flawed tax and transfer systems did little to cushion the economic blow for workers in manufacturing, suggests that a failure to manage the politics of economic change could have significant long-term political implications.
For policymakers, this is a marathon, not a sprint, as Singh and Triggs suggest. Policy needs to be responsive to new developments but also offer stability for investors. This is a tough challenge, made more daunting by a world that seems to be retreating into isolation due to perplexing policy decisions in Washington. But for leaders who value economic growth and social cohesion, Singh and Triggs provide a comprehensive blueprint for getting policy settings right for the next major technological revolution.
The EAF Editorial Board is based at the Crawford School of Public Policy, College of Law, Policy and Governance, The Australian National University.
The original article An Intelligent Approach to the Artificial Intelligence Boom, was first published on East Asia Forum.
