Artificial intelligence, inequality and the economy

19 February 2018

Artificial intelligence

It has been called the second industrial revolution, though it is in truth only one of a succession of developments that over the last 250 years have enabled us to construct a society where poverty is relatively rare and health and well-being are at their highest in history. Artificial intelligence or machine learning is about to revolutionise the way we work just as much as the invention of the microcomputer changed our workplaces in the 1990s. Computers and robots that are able to learn from their experience will, over the next ten years, take over the jobs, not only of the unskilled but also of craftsmen and professionals. The retail sector, including banking and some other professional services, is already reeling under the impact of the new technologies, and the trend is quickening. Some jobs, such as care for the elderly and hospitality, cannot yet be automated, and demand for these continues to grow in an ageing society, but such jobs are not well-paid. Technology is hollowing out the economy by automating middle-skill, working-class jobs first.

Shift from labour to capital

In the past, successive rounds of automation have mostly improved the lot of the working man. Many routine, repetitive jobs have disappeared but the effects on unemployment rates have been slight as emerging technologies have created new jobs and new skills. Some commentators are warning that it will be different this time. One study suggested that ’47 percent of American workers hold jobs at high risk of automation in the next decade or two.’ It is possible that so many tasks will be automated and so few new skills will be created that a serious imbalance may result. There might, in economic terms, be a marked shift from labour to capital so that even more power and wealth will migrate into the hands of those who own the technology. Inequality of income is likely to increase and a large proportion of the population could end up under-occupied and underpaid. If this proves to be the case the recent upsurge in populism to which Donald Trump’s election (among other events) is attributed will pale into insignificance in comparison with the social unrest that will ensue.

Tackling inequality of income

Inequality of income is recognised by the OECD as one of the malaises that the world has to deal with in order to maintain stability. In a report on tackling inequality published by the International Monetary Fund in October last year, it was stated that while inequalities between countries have been considerably reduced by globalisation and technology, these same forces have tended to increase inequalities within countries. Over the last three decades inequality, measured as the difference in average income between the lowest and highest earners, has increased in 53% of the world’s countries, predominantly in the so-called advanced economies.

Universal Basic Income

In a recent radio interview science historian James Burke predicted some of the impacts he expected AI to have on society, including the effects on employment patterns and income inequality. He was by no means the first to suggest that it might be solved by a system of Universal Basic Income (UBI). This is a mechanism whereby every adult, regardless of means, status or qualifications is entitled to a minimum annual income. Something like a welfare benefits system without the means testing. If this were set at, for example, the same level as the 2018/19 personal allowance (£11,500) everyone would receive this amount from government whether they worked or not. Those who worked would be taxed at a higher rate than now in order to achieve the transfer of value required across society as a whole. The system has been tried with varying levels of success but only in a few small regions.

I have to say that although the idea is worthy of consideration, it is probably unworkable for a number of reasons.

First, there would be a large number of current recipients of benefits who would actually be worse off. Secondly, there are those in society who are incapable of or unwilling to manage their finances in a sensible fashion; they would spend most of the time in penury. Thirdly, according to the OECD it would be costly; it estimates that for an advanced economy that introduced a UBI of say 25% of median per capita income, the cost would represent 6.5% of GDP.

What it means for business

I hope that you, like me, are fascinated and excited by the technical revolution that we are witnessing. But there are a couple of practical points for entrepreneurs. The first is something that you can do very little about. Just be prepared for changes in the way society works: employers will be asked increasingly to offer part-time and flexible working.

The second is that nearly every conceivable type of business will be affected by this. Even if you do not have a production line to be robotised, you will have administrative functions that may be automated or perhaps delivery vehicles that will no longer need drivers. You will need to be open to the changes and decide at what stage or series of stages to introduce AI systems. It’s not always a good idea to be an early adopter but you cannot, on the other hand, afford to lose your customers’ credibility by falling behind your competitors.

As always, the world of business is changing and those who succeed are the ones who are agile enough to change with it. We are here to listen to your concerns and to offer you the benefits of our experience. Get in touch if you would like to discuss ways to ensure that your business remains modern, relevant and profitable. Simply give me a call or contact one of your local UHY advisers to discuss your options.

Alternatively, fill out our contact form here to get in touch.