Capturing the benefits of the AI revolution

Our people and our economy face a triple whammy over the next ten years or so. Firstly are the effects of globalisation we are already experiencing – the ‘elephant’ mentioned in the comments to the post below, and the uncorrected distortions from the 2008 crash that have left large cohorts of our people worse off but highly taxed. Secondly will be the whirlwind of the coming downturn, for which the banks are better prepared than a decade ago but the British people are not, now carrying record levels of personal indebtedness. As QE is winding down, China slowing, bond market manipulation reaching its peak and the Eurozone intensely vulnerable to shocks it all seems to be coming together for next year. However, if we are to have another 1931, remember it wasn’t all bad news; the boom in domestic demand for electrical goods and motor vehicles helped shift British manufacturing from steam and rivets to the industrial infrastructure needed for a war economy a few years later.

The third blow of the whammy will come from the effects of AI. I recommend a report from pwc that takes a middle course between the low and high estimates of AI impact on jobs – which range from  10% to 47%. Pwc guess that 30% of jobs will go in the next 15 years, and the report does a fair job of rationalising the losses. However, it’s what the report doesn’t say that’s important.  

Unequal impact
AI will hit those with lower levels of education and skills disproportionately – 47% of the low skilled losing their jobs in the analysis above compared to 10% of graduates. The C1,C2,D&E cohorts have already been hard hit by globalisation effects, and are coping with a purchasing power significantly reduced in the last decade. AI changes will kick these cohorts when they are already down. In addition to making the worst-hit even worse-off, AI will increase inequality between the flexible, mobile, literate metropolitan elites dominating the media, politics and public administration and the disadvantaged – the former potentially being able to take substantial economic advantage of AI.

Tax and wealth impacts
AI isn’t coming because of some sort of historical inevitability, but because it offers economic advantages in increasing productivity. Pwc and others assume blandly that the benefits of increased productivity can be captured by taxation and increased GDP, the wealthy global graduate metropolitan elites buying ever more advanced iPhones, or eating ever more diversely-sourced curries. However, no consideration is given as to WHERE these benefits are captured – and if globalisation is left unchecked, it is quite feasible that AI will be the Elephant Mark II.

The great challenge for UK governments of the next two decades will be to ringfence changes to the UK by balancing a 30% job reduction with a concomitant increase in UK GDP and UK tax-take – for this compelling need alone we must be free from EU restrictions and governance, and free to set our own tax and tariffs. Without action we will drift into a game-plan run by the global corporates for their own advantage – with the job losses and their costs borne by the UK, but the benefits, GDP and tax takes enjoyed elsewhere. The only domestic beneficiaries from ungoverned change will be the same establishment elites that have already done well from globalisation, at the expense of their fellow Britons. 

New models of social benefit 
I’ve yet to write a third in this mini-snapshot series to cover Localism, democracy and governance and don’t want to trespass on next week’s thoughts. But It’s already clear that AI impacts to the economy will need fundamental reform to the way in which we tax and spend. I’ll leave it to the Pwc report to introduce the options ..

(Social safety nets could be enhanced) by extending existing social security benefits, but more radical solutions include the idea of a universal basic income (UBI). This is an old idea, but it has gained traction in Silicon Valley and elsewhere in recent years as a potential way to maintain the incomes of those who lose out from automation and (to be hard headed about it) whose consumption is important to keep the economy going. The problem with UBI schemes, however, is that they involve paying a lot of public money to many people who do not need it, as well as those that do. As such the danger is that such schemes are either unaffordable or destroy incentives to work and generate wealth, or they need to be set too low to provide an effective safety net.

Nonetheless, we are now seeing practical trials of UBI schemes in a number of countries around the world including Finland, the Netherlands, some US and Canadian states, India and Brazil. The details of these schemes vary considerably, and it is beyond the scope of this report to review them in depth, but it seems likely that more pilot schemes of this kind will emerge around the world and that they will come on to the policy agenda in countries such as the UK as well. While UBI in its pure form may not be politically or economically attractive, some variants on it might be if they involve a greater degree of conditionality (e.g. requiring some form of paid or voluntary work, education and training, family caring responsibilities or similar activities to qualify for payments). Some aspects of the idea, such as providing a universal lifelong learning fund for each person that they could draw down when they needed it, might also be worth considering further even if a full UBI scheme is rejected.