Can AI unlock productivity and growth?

If you had watched Nvidia CEO Jensen Huang’s remarkable presentation ahead of Taipei Computex two weeks ago, you’d be convinced that artificial intelligence has ushered in a new Industrial Revolution, where accelerated computing with the latest AI chips could unleash the power of doing everything faster, more efficiently, and with less energy.

In this age of intense global rivalry and competition, including military power, AI, robotics, and improved engineering promise a techno-utopian way to achieve dominance over rivals. McKinsey estimated that generative AI’s impact on productivity could add between $2.6 trillion and $4.4 trillion to the global economy annually. Roughly three-fourths of productivity will come from business improvements in four areas—customer operations, marketing and sales, software engineering, and research and development (R&D). Think about it: Instead of training everyone to learn coding, we bypass coding because AI can actually translate what you’d like done through writing the script, creating the video, and even designing the process. Just ask ChatGPT’s latest version.

The machine has the answers, but ultimately it is the human being who will either execute what is needed, or just not do anything.

The reality is that even though generative AI will have a significant impact across all industry sectors such as retail, banking, high tech, and life sciences, whether the productivity (measured as output per capita) is achieved depends on how individuals, companies, communities, and nations are driving the productivity change. Since generative AI changes the way we work by automating many individual activities, this is a social and political question. Cross-border language barriers are removed when AI can do the automatic translation, print the transcript, and even indicate the next work agenda. With estimates that current generative AI and other technologies can automate work activities by as much as 60 to 70 percent of present employee time, many in the workforce have met its adoption with resistance and reluctance to change.

The latest European Union’s (EU) ERT 2024 Competitiveness and Industry Benchmarking Report indicates how at the high level, the region is racing against the clock as its industry has been losing ground in terms of global market share. The reason is obvious—EU’s market is much more fragmented than either United States or China, being a collection of national markets rather than a single market with one currency, the Euro. In terms of market revenue of companies in Fortune Global 500, EU companies have fallen to third place between 2005-2023, at 15.5 percent, while the US leads with 31.8 percent, and China at 27.5 percent.

Europe’s adoption of 5G technology is way behind that of China and the US, especially with R&D being a key driver of innovation and technological leadership. The EU’s market share in industrial R&D investment among the world’s largest 2,500 companies has fallen to third place at 17.5 percent, overtaken by China (17.8 percent) and the US at 42.1 percent. Add to this the EU’s higher energy costs and more complex regulations that have led to more companies shifting production overseas. Labor productivity has also stagnated due to the highest social protection standards. As the report says, the EU’s regulatory environment needs an upgrade to empower and reward innovators, while its technology deployment must be enhanced with stronger public-private collaboration.

Despite being shocked by the global financial crisis of 2008, Europe has not undertaken structural reforms in the labor and corporate sectors to improve overall competitiveness. The real issue is who drives the structural changes, with the corporate sector taking the lead in the US, while in China, the government or party is at the helm while still allowing enough corporate competition aligned with national goals. The EU’s neoliberal approach of free markets has meanwhile failed, with the thinking that just passing more laws and regulations would solve social and market ills. But policies and programs are easily frustrated at the legislative or political levels, or mired in forever legal suits by vested interests against change.

Ecosystem change is complex and requires not only the construction of a common narrative of why you need change, but also concrete execution of visible projects that demonstrate determination and engender public trust. If you want the economy to change, appoint business leaders who understand how to manage institutional change that remains business-friendly. Radical change needs radical thinking, but by someone like Huang who understands both the role of technology and markets.

With AI revolution happening at frightening speed, companies and communities that adapt well will not only survive but thrive. That is the cruelness of Darwinian competition. Asia News Network

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Andrew Sheng is former chair of the Hong Kong Securities and Futures Commission.

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The Philippine Daily Inquirer is a member of the Asia News Network, an alliance of 22 media titles in the region.