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Innovation, Artificial Intelligence and the Economy

John Ptacek John Ptacek  |  
Jan 12, 2017
 
May you live in interesting times is an old curse. Well, we certainly are living in interesting times! Over the last 5-10 years, we have seen enormous growth in computing power driven by cloud infrastructure and mobile phones. This has resulted in tremendous economies of scale; driving down the cost of consuming and utilizing computational resources. As a result, the goals of Artificial Intelligence become realized at a much greater pace than the vast majority of people have anticipated, and it will bring changes.
 
I have written in the past about Google’s DeepMind and the Game of Go. It was long thought that a computer being able to beat a champion Go player was, at most, a decade or two away. However, this happened last summer with Google’s DeepMind platform.
 
Google built on the success of DeepMind and utilized it with their language translation service, Google Translate. This has resulted in order of magnitude increases in the ability to translate between languages. Google stated that the night they turned on Deep Mind for their translation platform, they saw a greater increase in fluency than they had in the previous 10 years of improving the platform. In fact, Google now believes their DeepMind platform has created its own, intermediary language that it uses to translate between different languages, independent of programmers telling it to. It did it on its own. This is crazy Sci-Fi stuff!
 
So, what happens when Sci-Fi becomes part of the real world? Disruption, always lots of disruption. If you look at the economic impact of the Information Revolution, it is amazing. In the 1970s General Motors employed 800,000 workers around the world. Today, they are still the largest car manufacturer, but employ 250,000 people, a fraction of the number in the 70s. Also, their market cap has reduced greatly and they are no longer the largest company in the globe. Manufacturing companies across the world share similar stories.
 
Part of the reason for this change is automation. Technology has invaded manufacturing facilities and has reduced the number of humans involved in creating physical objects. This trend is only continuing. Foxconn, which manufactures iPhone for Apple and is the one of the largest electronic manufactures in the world is hard at work on factory automation. Recently, in a Foxconn facility in Kunshan, they reduced the workforce at their plant from 110,000 to 50,000 people, 60,000 workers. In fact, Foxconn is working on automating their entire assembly line, resulting in numerous workers losing their jobs.
 
So, we can see the impact of large investment in automation and technology driving down manufacturing costs and reducing headcount. In the recent United States election, one of the big tenets of President-elect Trump’s campaign was to bring back manufacturing jobs and repeal or modify trade deals like the North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP). The issue though, those jobs have in many instances disappeared, not because of trade deals, but because of automation. Manufacturing jobs peaked in 1979 at 19.5 million and currently sit around 12.3 million. Apple is currently rumored to be exploring manufacturing iPhones in the US with a partner like Foxconn. If those jobs though are automated, employing very few people than traditional manufacturing, have we done anything more than make ourselves feel good?
 
If we look at our current economy and take a company like Google, which battles back and forth with Apple for the largest market cap in the world, employs 60,000 people, an order of magnitude less than GM did when it was the world’s biggest company in the 70s. Further, consider a company like Whats App, which Facebook bought for 22 billion dollars several years ago. At that time, Whats App was a 55 person company. The idea of a company being worth 22 billion dollars and employing 55 people was a ludicrous proposition only two decades ago.
 
Okay, the economy is changing, manufacturing jobs are disappearing and being replaced by technology and automation. Where does Artificial Intelligence fit into this? Well, how technology replaced jobs held by blue collar workers, Artificial Intelligence has the ability to do the same to White Collar/Knowledge worker jobs.
 
If one looks at the finance industry and the massive recession that hit in the late 2000s, a lot of that was driven by computers. How so you ask!??! Many of the large trading houses have automated programs that are responsible for trading based on market conditions. The complexity involved in the housing market of the late 00s was too much for people to understand or trade. Wall Street firms hired exceedingly smart folks in Physics and Mathematics and had them develop automated trading programs. These people, called quants, created programs that in many cases replaced traders on the floor. They moved quicker, don’t let emotion get in the way and their decisions were made on data. They also created complex financial models, for example derivatives, that helped drive the Great Recession of the 00s.
 
With the quickly realized gains in AI, the cost of implementing the technology will be reduced, and the way AI disrupted Wall Street firms is going to be heading into more and more industries. It is possible, that computer programmers of the future will be replaced by AI jobs. If AI apps can build a better Go To Market program for a product brand, will organizations continue to employ numerous brand manager employees when a computer is better able to execute? Will the knowledge worker of today, who creates the program, be replaced by the AI program of tomorrow, with the role of the (much fewer) knowledge worker being setting the conditions for the AI program. It is quite possible.
 
What does our world economy look like if what happens to manufacturing jobs happens to white collar jobs? To be honest, it looks pretty scary. Obviously, just as the Information revolution created new opportunities and new job types, these will emerge in an AI world. However, the world’s largest business employed 800K people and 30 years later, the world’s largest company employs 60K workers, it is quite possible there will be a lot fewer jobs.
 
College has always been a path for the American dream and a way to get into White Collar jobs. What happens though if there just aren’t jobs for the college educated? Folks like Elon Musk have started thinking about it… One of the ideas being floated around is that we have a universal income for each citizen. Finland just rolled out a two year basic income trial for unemployed citizens. Switzerland also recently had a ballot initiative for a universal income, that failed by a large margin, but it has started a conversation. The income could be created by different taxation policies for large companies generating lots of wealth, without employing lots of people. Countries, especially here in the US, are a far from having this conversation. However, as the demand for good paying jobs increases, and the economy, through automation creates less demand, there are societal problems that are going to need to be addressed.
 
In the states, we have just left an election cycle where President-elect Trump very successfully campaigned to bring manufacturing jobs back to the US. In England, they recently voted for to leave the European Union, with one of the tenets of the Brexit campaign to bring back jobs to England. When we talk about bringing back manufacturing jobs that have not moved overseas, but disappeared, we all have a long journey in front of us. When the technological innovation that has reduced manufacturing jobs begins to happen to knowledge workers…. well, may you live in interesting times!
 
Would love to hear your thoughts or ideas to address this changing world. Hop on the comments below.
 

 

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