AI: The Wealth of Nations

Originally Published on Medium

The Wealth of Nations, by Adam Smith, should be a required reading for every head of state. What took 17 years to be written and transformed the whole world, takes only a few days to read it. Right in the first page Smith asserts that the wealth of

“every nation… [is] regulated by two different circumstances; first by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour,”

Smith also notes that the first circumstance, skilled labor, is more important than the second, employment rate. While other nations and leaders prepare for the Autonomous Revolution on the job market, the U.S. government has done very little. China, South Korea and other countries have been making massive investments in Artificial Intelligence and made it a priority. In this article, I will discuss why the wealth of nations depends on the workforce’s skill-sets, and how the Autonomous Revolution will lead to increased output.

Smith asserts that the second driver for wealth creation is the number of people employed (employment rates) since labor produces wealth. More people working, more goods and value is created. Jobs are one of the favorite’s campaign promises. Two factors explain this obsession: 1) voters expect the government to stimulate the economy and create jobs, and 2) it is a relatively easy promise for the government to fulfill. Creating jobs is a relatively easy task for the government because it can increase government spending, hire more people on the public sector, decrease interest rates, and reduce taxes (of course, often times, with harmful consequences). We all need a job, and we all want to work (surprisingly, including wealthy people who could afford to live without a job). Part of a fulfilling life is to create and produce value for ourselves and society. Politicians love to discuss “bringing home” and “creating” more jobs even when there is no room for it. In 2016, the unemployment rate was around 5% which is considered full employment according to OCDE. Nonetheless, job creation was a priority for the candidates on the last presidential campaign.

Promising more jobs to a full employed population seems absurd. And in fact, it is. The only candidate who was able to shape the “create/bring jobs” conversation in the 2016 elections was Donald Trump, who moved away from purely creating jobs to what kind of jobs would be created, and whowould be entitled to. The types of jobs to be created, according to Trump, were the traditional manufacturing jobs (coal, steel, etc) and ought to be given to American citizens. For the economy, these were two irrational ideas because these jobs were already replaced by low-skilled workers overseas creating an incredible opportunity to continue increasing the presence on high-skilled jobs. However, candidates do not pay enough attention to how the shifts on the job market affect the economy.

According to Smith, the first and most important circumstance for the wealth of nations is “skill, dexterity, and judgment with which its labour is generally applied;” If two nations have similar population and natural resources, the only differences on the products they produce depend on their people’s skills, and the governmental institutions. Having a highly skilled workforce creates more output and wealth. If country A employs most of its workforce on mining and agriculture, while country B on engineering and robotics, it is clear that country B has substantial more efficiency, therefore increased GDP. Country B has two notable advantages. Firstly, its workforce will produce machinery to automate production (which will directly increase output). Secondly, with the same workforce size, workers from country B have more free time to further improve their skills.

The first capitalist revolution was called Industrial Revolution, in which the United Kingdom, France, Germany, Japan, and the United States have benefited the most by shifting from manual to machinery-aided production. The second one will be called Autonomous Revolution, and are likely to come from China, South Korea, Singapore, and Japan due to their commitments and investments. In the Autonomous revolution, robots using Artificial Intelligence will replace the remaining manual tasks that humans are still performing. Transitioning from low-skilled labor to high-end technologies requires enormous effort and proper incentives. It demands politicians that understand the importance of this change.

Capitalism will invariably lead to the Autonomous Revolution. In the 21st century, there are only three things that can create more wealth: nature, humans, and machines. Nature produces ‘spontaneous’ wealth such as crops and livestock, but it is extremely hard to control (increasing rainfalls would increase production output). Also, animals such as horse mills, have helped increase output in the past but (fortunately) they were replaced by engines. Human labor, can produce significant wealth, however, labor is expensive and, paradoxically, incompatible with capitalism, since it seeks to reduce costs. The cost effective option is, therefore, efficient and autonomous machines.

The International Labour Organization expects global unemployment levels of around 192 million people for next year, which is a stable, but high trend.Machines and robots will not replace humans in the short term, but wages are expected to shrink even further for low-skilled employees. China is committed to being a global leader in Artificial Intelligence. South Korean government is investing over $6 billion on robots and AI.

Although the U.S. remains among global leaders in technology and scientific research, it is mostly fueled by the private sector. Large tech companies such as Facebook and Google are heavily investing in AI software because they understand that in order to automate the machines, we need to understand AI. Building advanced AI technologies can be compared to building railroads across the country. It will take large investments, small building blocks, but once it is complete it increases output exponentially.

The government should be working on programs to train people, increase research for non-military purposes and create a competing autonomous industry. The Autonomous Revolution will transform the way we live and work. Anticipating these changes will enable us to move to the right direction and reduce the risks of misuse of technologies. AI can significantly improve the standard of living of everyone, automating not only repetitive tasks, but actions that requires decision-making. To keep up with the progress of this new sector, the government should step up and increase investments and economic incentives. China is predicted to be the world’s dominant player in AI by 2030. That will put China in another wave of exponential growth with intellectual property rights. Building robots are easier than giving them a brain and that is AI is the next wealth of nations.

Posted in Economics

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