Cover Increased productivity is ultimately pointless if there is no market for the goods and services being produced (Photo: Getty Images)
Increased productivity is ultimately pointless if there is no market for the goods and services being produced (Photo: Getty Images)
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Economics has good news for workers fearing joblessness due to the rise of AI—only labour consumes, and the value of consuming populations is growing
The question is one of increasing urgency: What will workers do when technology does most of the work?
In April, tech titans Google, Microsoft, IBM, Cisco and SAP, employment website Indeed, along with professional services major Accenture, among others, formed a consortium to explore the impact of Artificial Intelligence on IT job roles. The joint effort will enable workers to find and access relevant training programmes and, according to the companies, is expected to help more than 95 million people around the world over the next 10 years.
The jobs that AI can do are multiplying by the day. While this may be frightening for some workers, economics, which is often called the “dismal science”, does offer a rosy outlook. While advancements in AI potentially herald a future with no limits on production and income, the implications for workers, may not be as scary as initially feared.
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Above Advancements in AI could herald a future with limitless production and income (Photo: Getty Images)
Advancements in AI could herald a future with limitless production and income (Photo: Getty Images)
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In an economy-wide view (economists call this “general equilibrium”), all resources of capital and labour combine to produce all goods and services. Technology then boosts productivity, removing the limits set by resource constraints. However, a study of consumer demand (so-called microeconomics) says that consumption depends on an individual’s income, and only “labour” consumes.
The crux is this: Increased productivity is ultimately pointless if there is no market for the goods and services being produced.
The focus of many international managers, often reflected in statements given to the media, is thus increasingly on future consumption—and, therefore, on countries with large and growing consuming populations, including India. Author Ruchir Sharma has argued that no country can grow faster than the rate of growth of its population. Since India has a large population where consumers are expected to grow for the next decade or so, the focus of global managers seems justified.
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Yet, the data is confusing. Even in a metropolis like Delhi, the minimum salary, on average, is about INR17,500 (US$210) per month. It is lower in smaller cities and towns. While the population is large, economic theory cannot answer the quandary of where is India’s purchasing power to drive global growth.
Since 2008, the world economy has been on a limited growth path despite massive “pump priming” to stimulate spending by the US, China and other governments in a typical Keynesian response. Yet, after the Covid-19 pandemic, global growth, according to the International Monetary Fund, slowed from an estimated 6.1 per cent in 2021 to 3.4 per cent in 2022 and 2.8 per cent in 2023.
Japan and most of Europe have been on the brink of recession for a while, and New Zealand slipped into its second recession in 18 months in March. These are countries with either ageing or declining populations. China is on its way to joining this list.
So here is the conundrum. In developed countries, technological change, particularly AI, seems to indicate no limits on production. On the other hand, the future seems to lie with countries with large populations but limited purchasing power.
Above Prolonged economic weakness has left Japan and most of Europe susceptible to a recession (Photo: Getty Images)
Prolonged economic weakness has left Japan and most of Europe susceptible to a recession (Photo: Getty Images)
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Consumption requires not only income, as economist J.M. Keynes rightly noted, but also another critical element: time.
Thus, if the population is stagnant and increased production is to find consumers, technology must be time-saving. Empirically, this has been seen in North America and Western Europe where, since the 1980s, much of the technological development has been in time-saving technologies such as pre-cooked food.
In sectors like electronics, this has worked through convergence. The phone is now a communication device, a calendar, a supermarket, a travel agency etc. Thus, the demand growth in such economies depends on the extent to which technology could be time-saving.
Yet, more than time-saving technology is needed to solve the problem. With consumers having only 24 hours a day, there is a limit to which technical progress could be time-saving. This implies that while time-saving technology could deal with the asymmetry on the production and demand sides to some extent, it cannot offer a long-term demand-supply balance.
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There are two potential solutions. One is to shift consumers to where the income is generated or advanced technology is available by allowing for immigration (a political no-no). The second is to shift the production base to where consumers are in abundance via foreign direct investment which combines production, technology and global sourcing of resources.
This is why emerging market economies, such as India, matter. The “young workforce”, which consumes approximately three times as much as the older cohort, is rising in India, while it has been falling in developed markets for decades, and is falling even in China now. These trends are normally irreversible in the short to medium term.
Returning to the original question of what workers will do when technological miracles do all the work—Amazon suffered embarrassment in running “just walk out” stores with no employees when it emerged earlier this month that a thousand or so workers sitting in India were remotely doing much of the work ascribed to AI. Amazon may however eventually succeed in running such stores without so many humans being involved.
But what if there is no one to enter such stores and buy from them?
The limits to growth in the visible future seem to lie not in capital and technology but in people. So, with big apologies to Marx—people of the world procreate, you have nothing to lose except global stagnation.
Prof Manoj Pant is a former dean, School of International Studies, Jawaharlal Nehru University, and vice chancellor, Indian Institute of Foreign Trade (IIFT). Currently, he is visiting professor at Shiv Nadar University. Dr Sugandha Huria is an assistant professor, IIFT. Originally published under Creative Commons by 360info.
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