What is productivity?
Productivity, in its most simple terms is the amount of work required to create £1 of GDP. As a result, it is effectively the measure of a good economic efficiency, doing less to create more. Good productivity is crucial for a successful business on a micro level, and hugely important for an economy on a macro level. But there’s a problem, in the developed world and especially the UK, productivity growth has stagnated.
Why has productivity flatlined in the UK?
Globally, productivity has grown little over the past couple of decade or so, particularly in the UK. The period of lacklustre productivity growth was initially triggered by the Financial Crisis in 2008, which caused a shock to economic growth throughout the world. Reasons for this are widespread and complicated, which is why the problem is often referred to as the ‘productivity puzzle’.
One of the most crucial factors for lacklustre productivity in the UK and around the world is a notable lack of investment, which directly influences productivity levels. This is a structural issue in the UK economy that economists have been trying to solve for decades. Public investment in the UK collapsed from 4.5% of GDP between 1949-79 to just 1.5% after 1979, with it staying more or less at this level ever since. Successive tax cuts in the last 15 years, with the UK currently having one of the lowest rates in the G20, have been relatively fruitless, especially since foreign investors seem to have lost some faith in the government and its handling of public finances.
This structural underinvestment has been a chronic issue for a significant period of time, meaning that while one off events such as Brexit may have spurred on a reluctance to invest in the UK, the true issue is institutional and as such, productivity levels have been low for a number of decades and have had a significant impact on the UK economy.
Any economist will tell you that in an ideal world if we can increase the supply of goods and services without requiring additional hours of labour then we will see both an increase in output (GDP) and a decrease in inflation, which is pretty ideal in the current economic climate, where we have seen the opposite over the past few years. Ultimately, productivity allows us to achieve more with fewer resources. That is why anything that can enhance this, such as AI and technology, is so valuable.
What is AI?
A blunt definition of artificial intelligence is the simulation of human intelligence through machines and technology. This means creating technology that can think in the way a human would, and as such, not only complete complex tasks, but even learn and increase its knowledge without human influence.
This may sound terrifying, especially when factoring in the memories of sci-fi films such as Westworld and Ex-Machina, which depict the destructive impact of out-of-control AI. Nevertheless, when regulated, it also presents an opportunity, allowing us to automate menial tasks, and increase our work output. While AI technology is still very much in its infancy, it is already present in much of our everyday lives, such as in search engines, chatbots and autocorrect. The growth of AI technology will also be exponential, through the combination of human influence and the AI’s ability to teach itself. Anyone who has been exposed to the capabilities of ChatGPT knows that it is an incredibly powerful and useful form of technology. As such it is clear that AI is coming and is here to stay. It may just be the answer to the UK’s ‘productivity puzzle’.
Examples in real life.
AI technology will bolster the workforce and increase productivity; Microsoft recently announced that it will add AI-enhancements to its Office software by adding what they call an AI ‘co-pilot’, which will allow its customers to speed up and automate tasks, such as the creation of draft documents and graphs, and artwork generation. This would promote more efficiency and a greater output in the workplace, having a significant impact on overall productivity.
More specifically in relation to the finance sector, there have been a number of firms looking to use AI and Zurich have been experimenting how ChatGPT can be used to assist with insurance claims and data mining. Zurich’s chief information and digital officer, Ericson Chan, explained to the Financial Times that ChatGPT’s primary role was as a co-pilot, with its main use being extracting claims data from documents in order to improve Zurich’s underwriting capabilities. In China, the banking arm of Chinese lender Ping An, uses micro-expression technology in video communications in order to check the authenticity of customer claims, by analysing the customer’s non-verbal cues.
AI is rapidly becoming more embedded in our culture and day-to-day life. It is already taking hold in major businesses and firms throughout the world, with the ever-increasing role it will have in our society seeming simply inevitable.
How AI will solve the productivity problem?
AI could be the key to solving the productivity problem in the UK, especially since tech booms tend to have a positive impact on economies, increasing efficiency, and quality that will ultimately boost productivity.
In terms of productivity-boosting factors, PwC predicts that the UK GDP will be 10.3% higher in 2030 due to the effects of AI, through a combination of increasing product quality, a greater variety of goods, and the augmentation of the labour force.
This increase is mainly due to the fact that as productivity increases, real wages will rise, meaning consumers have more disposable income to spend on products, in turn bolstering the UK economy. Another side-effect of AI will be employees working shorter hours, most likely on similar wages, freeing up more time for relaxation and leisure, presenting greater opportunities for consumerism and expenditure.
There is still much that is unclear about how AI will affect fully affect the ‘productivity puzzle’. But broadly speaking, the current outlook is mostly positive, indicating a significant boost in GDP and significant productivity increases in the workplace, while also reforming labour prospects and the work establishment. As the tide shifts towards greater automation, the introduction of AI may even insert more comfort in our lives.
So far we have seen some very basic examples of how AI will be able to transform our working life so we are really just scraping the surface. In a decades time we will look back at ChatGPT as one of the first examples of how AI could be applied to our daily lives, but ultimately we will view it as slow, clunky and buggy, just like we did with the first computers, or factory machines. Make no mistake, AI will transform the world as we know it today and the technological development will be on a par with the industrial revolution and the introduction of the internet. Whilst there will no doubt be a number of political and moral issues caused by the integration of AI into our daily lives, the advance of human civilisation will be extraordinary and if we can find a way to ensure it is done safely, it could significantly improve prosperity and revolutionise the way we go about our daily lives.
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