Will the AI Revolution Lead to Greater Prosperity?

Sep 8 , 2024
By Diane Coyle

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Many hope technological innovation is a potential solution as global economic growth slows. The International Monetary Fund’s (IMF) latest World Economic Outlook, for example, highlighted the potential of artificial intelligence (AI) to boost productivity and GDP. But the report also warns that given the uncertainties surrounding the extent of AI’s impact, such forecasts should be approached with a dose of caution.

While AI could usher in an era of prosperity, this outcome depends on how these emerging technologies evolve.

The current wave of techno-optimism, along with anxiety about emerging technologies’ potential implications for labour markets, can be attributed to the notion that AI is what economists call a “general-purpose technology.” Such innovations permeate the entire economy rather than being confined to a single sector. General-purpose technologies can be divided into two broad categories: those that revolutionised energy, such as the steam engine and electricity, and those that transformed communications, like the printing press and the telephone. Although such innovations often take years, even decades, to realise their full potential, they can lead to a surge in productivity and rapid economic growth.

The world is in the midst of two technological revolutions: the transition to a net-zero economy and the rapid rise of AI and other digital technologies. Together, these revolutions are poised to reshape our economies and change how we work, the goods and services we produce and consume, and the structure and dynamics of financial markets.

But the question remains: Will these sweeping changes translate into faster economic growth?

History offers valuable insights into how these transformations might unfold. One key lesson is that while technological advances often seem incremental and superficial as we experience them, their long-term effects can be sweeping and profound. The contribution of steam power and railways to GDP growth in the 18th and 19th centuries is surprisingly difficult to quantify; yet, there is a reason we refer to that period as the Industrial Revolution.

These developments, memorably captured by novelists like Charles Dickens and Emile Zola, affected every aspect of people’s daily lives, both at work and home.

Technological advances do not always lead to immediate improvements in living standards and may involve tremendous disruption. Johannes Gutenberg’s invention of the movable type printing press in the mid-15th Century is a prime example. By enabling the Bible to be translated into local languages and making copies affordable for ordinary people, it set the stage for far-reaching social and cultural shifts.

The resulting disruption of monastic control over religious texts fueled the rise of Protestantism, which, in turn, led to a series of brutal religious wars. Max Weber famously argued that the Protestant work ethic lies at the heart of capitalism. Though scholars have challenged this theory, the printing press and the proliferation of affordable books undeniably boosted literacy rates and laid the groundwork for the Enlightenment.

The printing press also played a pivotal role in facilitating the Industrial Revolution, triggering an unprecedented wave of experimentation and fostering a spirit of scientific inquiry. While it may be challenging for academic economists to draw a direct causal link between the printing press and economic growth, it is abundantly clear that without its invention, the world as we know it would not exist.

This suggests that we should temper our expectations about AI’s economic impact, at least in the foreseeable future. Although the AI industry itself is poised to grow rapidly, there is little reason to expect that it would significantly boost GDP growth in the short or medium term. The social and political upheavals caused by the AI revolution could very well eclipse its direct economic impact. While economists have explored AI’s potential effects on the job market, and political scientists have examined the destabilising power of disinformation and deepfakes driven by large language models, information and communication technologies can also affect norms and institutions in subtle but meaningful ways.

Consider, for example, the development of the rail network, which made it easier to transport people and goods, thereby accelerating the growth of densely populated, economically prosperous cities. Similarly, the advent of television redefined consumer aspirations and challenged established norms about women’s participation in the workforce.

To be sure, such changes are inherently unpredictable. But that is all the more reason to think carefully about the kind of society we want to create and how we can harness technology to achieve it. All general-purpose technologies, including electricity and sewage systems, are shaped by political and social debate. Although we cannot reverse or slow the development of AI, leaders and policymakers should ensure that these powerful technologies serve the greater good, whether or not they lead to measurable economic growth.

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PUBLISHED ON Sep 08,2024 [ VOL 25 , NO 1271]

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