Opinion: The Artificial Intelligence ‘revolution’ is real, but it need not be disruptive

While the ethical and philosophical, moral and practical implications of Artificial Intelligence (AI) continue to be debated,  it would appear that AI is not only being taken seriously by governments across the world but also taken to with vigour. Roughly, and reductively, AI is the simulation of the human mind’s cognitive functions. In theory and perhaps even practically, if AI develops network effects and, from a broader perspective, economies of scale and scope, then its potential is enormous are its consequences and implications-especially for developing countries, in terms of their growth and development potential and strategies thereof.
 
Historically, excluding the effect of globalisation induced conceptual and structural changes in the process(es) of economic growth and development,  it was  the Rostowian  linear stages growth model complemented by the structural change theory that , in the main, influenced and formed the gravamen of development economics. These informed much of the strategies that developing countries adopted. The linear stages model, pioneered by Walt Rostow posited, among other things, sequential growth for developing countries. And, the structural change theory which among other things, stated that surplus labour of these countries could spur industrialization and therefore economic growth. (Admittedly, this description is snapshot view of either models).
 
Generally and to an extent, developing countries did correspond to the stages and ideas posited by both Rostow and structural change model till globalisation became an intervening variable.  The large macro trend, in its economic and even financial avatar, disaggregated production and consumption and internationalised both. Disaggregation of production and the gradual popularisation of global value and supply chains was a boon for developing countries that had tapped into the sinews of globalisation. (It was not a zero sum game developed countries benefited too . They specialised in R&D and retained the core, high end aspects of the chains). Manufacturing became global, or more accurately, internationalised. Perhaps the core benefit emanating from these structural trends for developing countries (especially early globalisers) was that their economic development accelerated, by leaps and bounds, throwing a bit of a spanner into the linear stages growth  and the structural change models.
 
In the meantime, world trade grew more than output countries opened (some gradually and others not so gradually) their current and capital accounts, capital flows increased exponentially as the world became enmeshed in financial, people and technological flows.
 
But, now two trends- one structural and the other perhaps ephemeral – threaten this rather “happy” saga. The latter, in the form of populism, which bodes a mercantilist protectionist world and, the latter in the form of Artificial Intelligence(AI),  have the potential to upend  perhaps the very nature of development economics, and thereby the development trajectories of countries.
 
Given that the Focus here is on AI, the question is why and how?
 
The answer might lie in the nature, patterns and structures of manufacturing and the direction of trade flows. If AI revolutionises manufacturing (which it will, if adopted vigorously),  then it will reverse. That is, manufacturing will revert to the developed world. If the logic of outsourcing, contract manufacturing and so on was lower costs, effectiveness and efficiency, then evidently, AI will do all this, at home, so to speak. There will be no need of hiving manufacturing and disaggregating it. Naturally, this potentially will throw out of kilter the economic development and growth strategies of developing nations. Does, the question now is, this mean the end of the growth process of developing countries?
 
No. Not really
 
While early adopters of AI will have a “first mover” advantage, but key for developing countries would lie in taking to AI as well. Of course, given the technological backwardness of developing countries, it would mean the “low” end of the AI spectrum and its uses in social and other domains, other than business, trade and manufacturing. What would accrue from this scenario is an AI determined global value chain. But, this too has a downside. AI, unlike automation, will not only cannibalise jobs but also destroy them vigorously. Can developing countries cope up? If yes, how?
 
The answer is yes. The AI “revolution” will not decimate other factors of production but will devalue them to an extent. But, what it will do is put a premium on skills. (This does not constitute an insight it is, given the nature of the “beast” self evident). By virtue of this, human capital and its  vigorous development will become critical for all countries, especially developing ones. All in all then, the race for and of AI has begun. But, to paraphrase and eminent political economist, it need not be a race to the bottom. Let developing countries brace themselves and get ready for the future that beckons.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)