AI readiness and economic potential

Artificial Intelligence technology currently displays capabilities of reasoning, perception, decision making, knowledge representation and natural language processing. These capabilities enable applications like search engines, visual assistants, targeted advertising, language translation and recommendation systems but also dedicated applications like autonomous vehicles, medical diagnosis, or supply chain management. AI is a technology with a high potential to improve the well-being of people while enhancing productivity across all economic activities, empowering innovation, and even helping address key global challenges by providing for better decision-making processes through large data sets analysis.

The potential for economic growth by AI lies in the productivity gains of firms following the automation of processes and the support of the workforce with AI technologies but also in the increased consumer demand stemming from the customized and higher quality products and services. The use of AI can provide a competitive advantage to the firms and economies with financial and societal benefits for all industry sectors and social activities, especially in high-impact sectors, however, the same elements that drive the socio-economic benefits of AI can also create new risks or negative consequences for society.

AI impact on countries, firms, and individuals

The potential of AI for economic growth is significantly affected by the structure and the state of a country’s economy but also its technological readiness. Developed countries are in a better position to lead in AI adoption which can increase the gap to developing countries[1]. Leading countries could increase their net economic benefits in 2030 by an additional 20-25% compared to 2018, while developing countries only by 5-15%. The global GDP is estimated to increase by 14% by 20302, but the regions that will benefit the most are China which is projected to have the highest GDP growth (26.1%) followed by North America (14.5%). The GDP of southern Europe is estimated to increase by 11.5% and Northern Europe’s GDP by 9.9%. EU considers[2] AI a strategic technology and has acknowledged its structural disadvantage caused by the lack of a unified data pool. In addition, only 7.9% of EU enterprises used at least one AI technology in 2021 while investments and patent numbers on AI are lagging to the USA and Asia.

The impact will be diverse across different economic sectors. This impact mainly depends on the technological intensity of each sector. A firm today may apply AI for different purposes like text mining, speech recognition, natural language generation, image recognition and processing, business processes automation or to enable autonomous robots and self-driving vehicles. The sectors[3],[4] of information and communication, manufacturing, financial services, wholesale and retail as well as the transportation sector are projected to have the highest increase in profitability. AI deployment changes the way firms compete and the benefits will not be equally distributed. The front-runner firms in adopting AI, which tend to be technology intensive and seek to invest in AI, will benefit disproportionately compared to nonadopter firms. Early adoption can lead to significantly higher benefits than a later adoption while nonadopter firms will most likely face losses mainly caused by the intense competition.

The positive impact of AI to individuals and society also comes with new risks and raises challenges, including concerning data protection, digital rights, and ethical standards. AI will profoundly affect the labor market. AI adoption can cause the replacement of workers by robots or algorithms while, on an international level, will bring socio-economic risks due to job losses more so in developing countries. AI deployment creates the need for upskilling and reskilling of the workforce but equal access to technologies and AI training is still not a universal right. The effect differs in skilled and unskilled labor but besides the job losses AI will also create new jobs. More than 300 million jobs[5] will be affected in 2030 but it is still unclear whether the job losses will be greater than the new job positions created -directly through the requirements of training, utilizing and advancing the technologies, or indirectly through the economic growth. The jobs to benefit the most are among others related to ICT security, organization of business administration processes, marketing or sales, production processes and management of enterprises. The percentage of jobs at a high risk of replacement varies significantly across countries and economic sectors. North America and Europe have the highest percentage of jobs at high risk varying between 23% and 76%.

The diverse effects of AI

AI has altered business models, the decision making and risk management processes, and the overall performance of firms with substantial economic and social benefits but has also major implications for society. The swift to this new paradigm has many advantages but also brings new risks and possible negative consequences in a disproportionate way that depends on AI readiness. The deployment of AI is ongoing so there is an urgent need for a carefully designed policy framework with respect to human rights and values. Such a framework must also consider the increase of the gap between adopters and nonadopters and the possible deepening of inequalities among individuals, firms and countries. It matters how policy issues are addressed to resolve ethical and legal conflicts, and how much transparency is required in AI and data analytic solutions since, software development depends on human choices, and these immensely affect the AI outcomes and their integration into operational processes.

[1] https://www.mckinsey.com/featured-insights/artificial-intelligence/notes-from-the-ai-frontier-modeling-the-impact-of-ai-on-the-world-economy

[2] https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/637967/EPRS_BRI(2019)637967_EN.pdf

[3] Accenture Report: Artificial Intelligence Has Potential to Increase Corporate Profitability in 16 Industries by an Average of 38 Percent by 2035. June 21, 2017.

[4] https://www.pwc.com/gx/en/issues/analytics/assets/pwc-ai-analysis-sizing-the-prize-report.pdf

[5] https://www.pwc.co.uk/economic-services/assets/macroeconomic-impact-of-ai-technical-report-feb-18.pdf

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