What happened to the artificial-intelligence revolution?

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What happened to the artificial-intelligence revolution?

The Economist | July 2, 2024

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In the world’s tech capital it is taken as read that AI will transform the global economy. But for AI to fulfil its potential, firms everywhere need to buy the technology, shape it to their needs and become more productive as a result. Investors have added more than $2trn to the market value of the five big tech firms in the past year—in effect projecting an extra $300bn-400bn. For now, though, the tech titans are miles from such results. Even bullish analysts think Microsoft will make only about $10bn from generative-ai-related sales this year. Beyond America’s west coast, there is little sign AI is having much of an effect on anything.

One problem is the rate of adoption. Reputable companies are putting out startling estimates of how many people are using generative AI. Close to two-thirds of respondents to a recent survey by McKinsey, a consultancy, say that their company is “regularly using” the tech, nearly twice as many as the year before. A report by Microsoft and LinkedIn, an online platform for professionals, finds that 75% of global “knowledge workers” (folk who sit in front of a computer all day) use it. People are, by such accounts, already in an AI world.

And in a sense, they are. Almost everyone uses AI when searching for something on Google or picking a song on Spotify. But the incorporation of AI into business processes remains a niche pursuit. Official statistics agencies pose ai-related questions to firms of all varieties, and in a wider range of industries than Microsoft and LinkedIn do. America’s Census Bureau produces the best estimates. It finds only 5% of businesses have used AI in the past fortnight . Even in San Francisco many techies admit, when pressed, that they do not fork out $20 a month for the best version of ChatGPT.  It is a similar story elsewhere. 

Concerns about data security, biased algorithms and hallucinations are slowing the roll-out.  Firms are holding off on big projects because AI is developing so fast, meaning it is easy to splash out on tech that will soon be out of date.  Companies that are going beyond experimentation are using generative ai for a narrow range of tasks. Streamlining customer service is perhaps most common. 

Indeed, there is no sign in the macroeconomic data of a surge in lay-offs. Unemployment across the rich world is below 5%, close to an all-time low. Workers are not moving between companies faster than usual, as would probably happen if lots of jobs were disappearing.  Macroeconomic data also show little evidence of a surge in productivity. The latest estimates, using official figures, suggest that real output per employee in the median rich country is not growing at all. 

In time, businesses may wake up to the true potential of AI. Most technological waves, from the tractor and electricity to the personal computer, take a while to spread across the economy. Indeed, on the assumption that big tech’s AI revenues grow by an average of 20% a year, investors anticipate that almost all of big tech’s earnings from AI will arrive after 2032.

3 key takeaways from the article

1. In the world’s tech capital it is taken as read that AI will transform the global economy. But for AI to fulfil its potential, firms everywhere need to buy the technology, shape it to their needs and become more productive as a result. 
2. Concerns about data security, biased algorithms and hallucinations are slowing the roll-out.  There is no sign in the macroeconomic data of a surge in lay-offs. Unemployment across the rich world is below 5%, close to an all-time low.   Workers are not moving between companies faster than usual, as would probably happen if lots of jobs were disappearing.  Macroeconomic data also show little evidence of a surge in productivity. 
3. Most technological waves, from the tractor and electricity to the personal computer, take a while to spread across the economy. Indeed, on the assumption that big tech’s AI revenues grow by an average of 20% a year, investors anticipate that almost all of big tech’s earnings from AI will arrive after 2032.

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Topics:  Technology, Artificial Intelligence, Employment, Global Economy, Productivity