The Economic Value of Artificial Intelligence

Wall Street Journal Blog

By

Irving Wladawsky-Berger

Oct 26, 2018 11:41 am ET

Companies slow to adopt AI-based productivity improvements be warned: Artificial intelligence is the biggest commercial opportunity for companies, industries and nations over the next few decades, according to a recent report from PxC. AI advances will increase global GDP by up to 14% between now and 2030, the equivalent of an additional $15.7 trillion contribution to the world's economy.

If PwC's predictions prove to be true, AI latecomers will find themselves at a serious competitive disadvantage within the next several years.

In the near term, around $6.6 trillion of the expected GDP growth will come from productivity gains, such as the continued automation of routine tasks. Over time, increased consumer demand for AI-enhanced offerings will overtake productivity gains and result in an additional $9.1 trillion of GDP growth by 2030.

But that's not all.

Network effects will further increase consumer demand. AI front-runners will gain an enormous competitive advantage through their ability to leverage this rich supply of customer data to shape product developments and business models, making it harder for slower moving competitors to catch up.

China is expected to see the greatest economic gains from AI, a $7 trillion or 26% boost in GDP growth. One reason is the high proportion of China's GDP that is based on manufacturing, where AI is expected to have a particularly big impact between now and 2030. Even more important over the longer term is China's higher rate of AI investments compared to North America and Europe.

In North America, the economic gains from AI are expected to reach $3.7 trillion or 14.5% of GDP growth by 2030. North America will see the fastest growth in the near term, given its current lead in AI technologies, applications, and market readiness. But China will likely begin to catch up by the middle 2020s given its accelerating AI investments.

AI is expected to drive $1.8 trillion or 9.9% of GDP growth in Northern Europe; $0.7 trillion or 11.5% of GDP growth in Southern Europe; and $0.9 trillion or 10.4% AI-based growth in the more developed Asian markets, e.g., Japan, South Korea, Taiwan, Singapore, Hong Kong. Developing economies will experience more modest GDP growth due to their lower AI adoption rates. Latin America will see $0.5 trillion or 5.4%; and the rest of the world, - Africa, Oceania and less developed Asian markets - will see $1.2 trillion or 5.6% GDP growth.

"The ultimate commercial potential of AI is doing things that have never been done before, rather than simply automating or accelerating existing capabilities," notes the report in conclusion. "Some of the strategic options that emerge won't match past experience or gut feelings. As a business leader, you may therefore have to take a leap of faith. The prize is being far more capable, in a far more relevant way, than your business could ever be without the infinite possibilities of AI."

Irving Wladawsky-Berger worked at IBM for 37 years and has been a strategic advisor to Citigroup, HBO and Mastercard. He is affiliated with MIT and Imperial College, and is a regular contributor to CIO Journal.

"Review the above article and discuss the impact of AI and technology on the economy. Include in the discussion the answers of the following questions."

How does economics measure productivity? Why is productivity the key to long-run economic growth? How is productivity driven by physical capital, human capital and technological progress? Will the pandemic change how we consume and also how we produce goods and services? How will AI impact us?

Provide references.