In "The AI Economy," economist Roger Bootle takes a pragmatic look at the impact of artificial intelligence and robotics on our future. As AI and robots become increasingly sophisticated, many people worry about mass unemployment and economic upheaval. However, Bootle argues that while AI will certainly bring major changes, its effects are likely to be more gradual and less extreme than some predict. By examining the history of technological revolutions and applying economic principles, he provides a balanced perspective on how AI may shape our economy and society in the coming decades.
The Fourth Industrial Revolution
Bootle frames the rise of AI and robotics as part of a "Fourth Industrial Revolution," following three previous waves of technological change that transformed the global economy:
- The First Industrial Revolution in the late 18th century, marked by steam power and mechanization
- The Second Industrial Revolution in the late 19th century, driven by electricity and mass production
- The Third Industrial Revolution in the mid-20th century, centered on computers and automation
While each of these revolutions caused major economic and social shifts, they ultimately led to increased productivity, higher living standards, and new types of jobs to replace those made obsolete. Bootle argues that the AI revolution is likely to follow a similar pattern.
Gradual Change, Not Sudden Disruption
Despite the hype around AI, Bootle cautions against expecting sudden, dramatic changes. He points out that while AI has made impressive strides in some areas, it still struggles with many tasks that humans find easy. For example:
- Google's DeepMind AI beat the world champion at the complex game of Go
- But it took 16,000 computers for an AI to identify a single cat in YouTube videos
AI excels at processing vast amounts of data and recognizing patterns. However, it still lags far behind humans in creative thinking, emotional intelligence, and manual dexterity. This suggests the transition to an AI-driven economy will be more gradual than some predict.
Long-Term Economic Benefits
Looking at past industrial revolutions, Bootle notes that while there were often short-term disruptions, they ultimately boosted productivity and economic growth dramatically. Global per capita GDP in 2000 was over 30 times higher than in 1800.
If the AI revolution follows a similar pattern, we can expect it to drive significant economic growth and improvements in living standards over time, even if the transition period is challenging for some workers and industries.
Job Losses and Job Creation
One of the biggest concerns about AI is its potential to eliminate large numbers of jobs. However, Bootle argues that while some jobs will certainly be lost, the overall impact on employment may be less severe than many fear.
Jobs at Risk
According to estimates from the McKinsey Institute:
- In developed countries, only about 14% of jobs are "highly automatable"
- Only about 5% of jobs are "entirely automatable"
- By 2030, between 375 million and 700 million jobs globally could be made redundant by AI and robots
Jobs most at risk include:
- Cashiers
- Grocery baggers
- Check-in assistants
- Routine legal work
- Basic accounting and analysis
- Simple translation jobs
New Job Creation
However, as in past technological revolutions, the loss of some jobs is likely to be offset by the creation of new ones. The World Economic Forum estimates that by 2026, 12.4 million new jobs will be created in the USA alone.
New jobs are likely to fall into several categories:
- Direct AI/robotics jobs: Developing, building, and maintaining new technologies
- Indirect jobs: New roles created as a result of AI freeing up human workers
- Enhanced human jobs: Positions where AI augments human capabilities rather than replacing workers entirely
Bootle gives several examples of how this job creation and transformation might play out:
- Self-driving cars are developing more slowly than expected, with fully autonomous vehicles still limited to restricted routes. Human drivers will likely be needed for the foreseeable future.
- Humans excel at creative work, flexible thinking, and jobs requiring manual dexterity (like plumbing or gardening). These fields are less likely to be fully automated.
- In medicine, surgical robots are enhancing human doctors' capabilities rather than replacing them entirely.
The Cost Factor
Another important consideration is that robots and AI systems are not free to implement and maintain. The average industrial robot costs around $100,000 to purchase and up to four times that amount to maintain over its lifespan. For many companies, human labor may remain the more cost-effective option, at least in the short to medium term.
The Potential for Increased Leisure Time
As AI and robotics boost productivity, Bootle suggests that human workers may have the opportunity to choose more leisure time over increased work hours. This could manifest in several ways:
- Shorter workdays
- Shorter workweeks
- Longer vacations
- Earlier retirement
There are several arguments in favor of embracing more leisure time:
Job dissatisfaction: Studies show that up to 80% of people dislike their jobs. Reducing work hours could improve overall life satisfaction.
Happiness research: Countries with shorter average work hours, like Denmark, consistently report higher levels of happiness than those with longer hours, like South Korea.
Volunteering and community engagement: Nations with shorter work weeks tend to have higher rates of volunteerism.
Historical predictions: Thinkers like Benjamin Franklin have long predicted that technological progress would eventually allow for dramatically reduced work hours.
Some early signs of this shift are already visible. For example, the German metal workers' union recently negotiated a 28-hour work week for nearly 900,000 employees.
However, Bootle notes that whether people choose to work less will depend on cultural factors and individual preferences. A society that places high value on economic success may see people continue to work long hours even when it's not strictly necessary. Conversely, a culture that emphasizes personal development, hobbies, and community engagement may be more likely to embrace increased leisure time.
The Challenge of Inequality
While the overall economic impact of AI may be positive, Bootle warns that it could exacerbate existing trends of rising inequality. Since the 1960s, income inequality in Western nations has been increasing, with the gap between the richest and poorest growing wider.
Potential Drivers of Inequality
The introduction of AI and robots into the workforce could accelerate this trend in several ways:
Downward pressure on wages: As in the case of outsourcing to countries with cheaper labor, the availability of AI and robotic workers could depress wages for many human workers.
Concentration of wealth: The owners of AI and robotic systems may capture a larger share of economic gains, widening the gap between capital owners and workers.
Skill-biased technological change: Workers with the skills to develop and work alongside AI systems may see their wages increase, while those in more easily automated roles could fall behind.
Global disparities: Developed nations and tech giants like China, the US, and the UK are investing heavily in AI. Developing countries, particularly in Africa, may struggle to keep pace, potentially widening global economic divides.
Mitigating Factors and Policy Responses
However, Bootle argues that rising inequality is not inevitable. Several factors could help mitigate these trends:
Productivity gains: As AI boosts overall productivity, it could raise living standards across the board, potentially "lifting all boats."
Long-term equalization: Some economists argue that while technological change initially increases inequality, it tends to reduce it over the long term as benefits diffuse throughout society.
Government policies: Smart regulations and redistribution policies could help ensure the benefits of AI are more evenly shared.
Bootle suggests several policy approaches to address inequality in the AI economy:
- Expanding and simplifying existing welfare systems
- Implementing anti-monopoly regulations to prevent excessive concentration of AI-driven wealth
- Raising taxes on the highest earners
- Improving education and retraining programs (discussed in more detail later)
He cautions against more extreme measures like a Universal Basic Income (UBI), arguing that most proposals are prohibitively expensive and could disincentivize work.
The Role of Government
Given the potential impacts of AI on the economy and society, Bootle argues that governments have an important role to play in shaping the transition. However, he advocates for a measured approach rather than drastic intervention.
Avoiding Extremes
Bootle argues against two extreme policy positions:
- Actively promoting AI adoption through subsidies and tax incentives
- Attempting to slow or prevent AI development through restrictive regulations or "robot taxes"
He contends that the effects of AI are still too uncertain to justify either aggressive promotion or active discouragement. Instead, governments should focus on creating a supportive environment for sustainable AI development while addressing potential negative consequences.
Key Areas for Government Action
Bootle identifies several crucial areas where government policy and regulation will be necessary:
Legal and Ethical Frameworks: Clear guidelines are needed to address questions of liability and responsibility in AI-related incidents. For example, who is at fault if a self-driving car causes an accident?
Data Protection and Privacy: As AI systems increasingly collect and use personal data, robust privacy laws like the EU's General Data Protection Regulation (GDPR) will be essential.
Cybersecurity: Governments must work to prevent AI-enabled cybercrime, terrorism, and the spread of misinformation.
Labor Market Policies: Measures may be needed to support workers displaced by AI and help them transition to new roles.
Education Reform: Preparing the workforce for the AI economy will require significant changes to education systems (discussed in more detail in the next section).
Anti-Monopoly Regulation: Preventing excessive concentration of AI capabilities in a small number of tech giants may be necessary to maintain competition and innovation.
Taxation and Redistribution: Governments may need to adjust tax policies to ensure that the economic benefits of AI are shared more broadly.
By focusing on these areas, Bootle argues that governments can help create a legal and economic environment that supports the positive potential of AI while mitigating its risks.
Reforming Education for the AI Age
Bootle identifies education reform as one of the most critical steps in preparing for the AI economy. He argues that current education systems are often outdated in both content and method, failing to reflect the demands of modern society and the skills needed to thrive alongside AI.
Rethinking Curriculum
There's debate over which subjects should be emphasized in an AI-driven world:
- STEM advocates argue for a focus on Science, Technology, Engineering, and Mathematics to help students understand and work with AI systems.
- Others contend that as AI takes over technical tasks, uniquely human skills like creativity, empathy, and critical thinking will become more valuable. This suggests a greater emphasis on arts, literature, history, and social sciences.
Bootle argues for a balanced approach that includes:
- Core technical literacy to understand AI systems
- Strong emphasis on creativity, critical thinking, and emotional intelligence
- Ethical considerations surrounding new technologies
- Information literacy skills to navigate an increasingly data-rich world
Lifelong Learning and Retraining
The rapid pace of technological change means that education can no longer be confined to traditional school and university years. Bootle advocates for systems that support lifelong learning and retraining, such as:
- Online courses like those offered by platforms like Coursera or edX
- AI-enabled personalized learning systems
- Employer-sponsored training programs
- Government-supported adult education initiatives
AI in the Classroom
Paradoxically, AI itself may play a crucial role in transforming education. Potential applications include:
- Adaptive learning software that tailors content to individual students' needs and learning styles
- AI teaching assistants to help with routine tasks, freeing up human teachers for more personalized instruction
- Virtual and augmented reality experiences to enhance learning
Addressing Inequality Through Education
Bootle argues that a more flexible, personalized education system could help offset growing economic inequality by:
- Ensuring all students develop a well-rounded skill set
- Providing opportunities for workers to retrain and adapt to changing job markets
- Fostering creativity and entrepreneurship, potentially creating new economic opportunities
By reimagining education for the AI age, Bootle believes we can better prepare individuals and society as a whole to thrive in the new economy.
Economic Outlook for the AI Age
Despite the challenges and uncertainties surrounding AI, Bootle presents a generally optimistic view of its potential economic impacts. He argues that the AI revolution is likely to drive significant economic growth and improvements in quality of life, albeit with some important caveats.
Productivity and Growth
AI and robotics are expected to boost economic productivity in several ways:
- Automating routine tasks, allowing human workers to focus on higher-value activities
- Enhancing human capabilities through AI-assisted tools and decision-making
- Enabling entirely new products, services, and business models
Physics professor Jim Al-Khalili estimates that AI could raise worldwide per capita GDP by 150% over the next three decades. While this figure may be optimistic, it reflects the significant potential for AI-driven growth.
Investment and Demand
The development and implementation of AI technologies is likely to drive a surge in investment across many industries. This could help maintain strong overall economic demand, potentially pushing interest rates and bond yields back to pre-2008 financial crisis levels.
Booming Industries
Bootle identifies several sectors likely to see significant growth in the AI economy:
- Healthcare: As populations age and AI enhances medical capabilities
- Leisure and entertainment: Reflecting increased free time and disposable income
- Personal services: Such as coaching, fitness, and wellness
- Education and training: To support lifelong learning and reskilling
Quality of Life Improvements
Beyond pure economic measures, Bootle suggests that AI could lead to substantial improvements in quality of life:
- Reduced working hours and increased leisure time
- Better healthcare outcomes
- More personalized products and services
- Elimination of many tedious or dangerous jobs
Potential Downsides and Mitigating Factors
While generally optimistic, Bootle acknowledges several potential challenges:
Rising inequality: As discussed earlier, the benefits of AI may not be evenly distributed without deliberate policy interventions.
Job market disruption: Even if new jobs are created to replace those lost to automation, the transition period could be difficult for many workers.
Privacy and security concerns: The increasing use of AI systems raises important questions about data protection and cybersecurity.
Ethical considerations: As AI becomes more advanced, society will need to grapple with complex ethical issues surrounding its use and limitations.
To address these challenges, Bootle emphasizes the importance of:
- Proactive government policies to manage the transition and address inequality
- Robust legal and ethical frameworks to guide AI development and use
- Significant investments in education and retraining programs
- Ongoing research to better understand and anticipate the impacts of AI
Conclusion
In "The AI Economy," Roger Bootle presents a nuanced and largely optimistic view of how artificial intelligence and robotics will reshape our economic future. While acknowledging the very real challenges and potential downsides of this technological revolution, he argues that with proper management and foresight, the benefits are likely to outweigh the costs.
Key takeaways from Bootle's analysis include:
The AI revolution will be more gradual than some predict, following patterns similar to previous industrial revolutions.
While some jobs will be lost to automation, new jobs and industries will emerge to replace them.
AI has the potential to significantly boost productivity and economic growth, potentially raising living standards across the board.
Increased productivity may allow for reduced working hours and more leisure time, improving overall quality of life.
Rising inequality is a serious concern, but can be mitigated through smart government policies and regulations.
Education systems must be reformed to prepare workers for the AI economy, emphasizing creativity, critical thinking, and lifelong learning.
Governments have a crucial role to play in creating legal and ethical frameworks to guide AI development and ensure its benefits are broadly shared.
Bootle's measured approach serves as a counterpoint to both overly pessimistic views of AI-driven economic collapse and unrealistically utopian visions of a workless future. Instead, he presents a future where humans and machines work alongside each other, with AI augmenting and enhancing human capabilities rather than wholly replacing them.
The path to this future will not be without challenges. It will require careful planning, investment in education and infrastructure, and a willingness to adapt our economic and social systems to new realities. However, if managed well, the AI revolution has the potential to drive unprecedented economic growth and improvements in human welfare.
As we move further into the age of AI, it will be crucial for policymakers, business leaders, and individuals to stay informed about these developments and actively engage in shaping the future we want to see. By understanding both the opportunities and risks presented by AI, we can work to create an economy that harnesses its power for the benefit of all.