ECONOMICS-THE FOURTH INDUSTRIAL REVOLUTION

Artificial intelligence- A general purpose technology(GPT)

A general purpose technology is not specific to a particular industry,for example Bessemer technology to manufacturing of steel.The previous industrial revolutions in human history were all led by general purpose technology. Thus coal power led the manufacturingrevolution in England . Steam power spread from factories to steamships and affected every phase of life. Similarly the advent of electricity changed production,transport,households  in Europe. Much later the computer and Internet started the digital revolution in America and enables digital highways to transact manufacturing coordination,transport and financial transactions in minutes.

   The present fourth Industrial Revolution is led by artificial intelligence. To understand artificial intelligence we trace the development of Internet . The modern computer originated as a sophisticated calculator essentially computing alone. Later computers were connected by telephone wires to transmit data. The invention of technique of hypertext protocol enabled large amounts of data to be tagged to a subroutine.These data packets which are transferred are known today as sites and the hypertexts which are requests to transfer them are links,http//.The advent of hypertext protocol enabled the world wide web. 

   Initially the web transfer was slow and limited to data. The modem improved rapidly and can transmit now voice,pictures and video through broadbands and wireless technology. The wireless technology in turn has enabled smartphones where we can connect to web while mobile and anywhere.

     Artificial  intelligence acts on data and categorises it making predictions of future.This it does through machine learning where layers of artificial  neurons are fed raw data. These act non linearly to produce predictions.AI thus is based on data analysis . 

AI and economic growth

  A new technology increases economic growth by three means: It can require less labour to produce a good thus increasing productivity, it can create new goods again creating growth in GDP, lastly it can increase efficiency of existing production technology causing increase in total factor productivity. AI and general purpose technology has effects on many sectors of economy but they differ in nature of productivity increase,

   However the advent of a GPT does not immediately increase growth. This is because the initial investment does not include complementary sectors whose nature is still not known. Gradually as complementary sector investment grows the rate of growth and wages rise, Thus in England wages started growing only in later half of nineteenth century almost eighty years after introduction of steam power.Morever the creation of new jobs will lead to long term full employment but not necessarily in the short term. Those sectors whose existing skill levels are nearest to the new skills now demanded will be able to re skill fastest and get the new jobs. The obvious beneficiaries in this will be those already in software engineering firms.

Manufacturing sector and AI

It is the manufacturing sector that has become rapidly automated and leading to high productivity growth. Robots today perform many of routine manufacturing steps and this has led to displacement of workers from factories . Today the automotive sectors utilizes the most industrial robots but gradually  the effect is spreading to most manufacturing sectors. Soon manufacturing may displace most factory workers with factories managed by a few managing and repair workers.This is the sector thus which will lead to highest “displacement effect “ due to AIand these jobs will be lost forever. Moreover the building of automated factories also reduces the labour cost advantage and off shoring of manufacturing to developing nations

Transport,retail sectors

 AI has led to apps like UBER which allow hiring of cabs at will. This reduces wastage of idle time for both drivers and customers. This leads to increase in TFP in transport.Similarly in retail the use of apps like AMAZON enables a huge  market where customers and producers are brought in contact massively . 

   The losers of employment here have been retail shops and those cabs not connected to the net. However by increasing efficiency of market it has increased the TFP in the economy. Moreover the gig economy has arisen and created numerous jobs ,which if given legal protection of health cover and minimum wage can lead to relatively good jobs.These are the complementary Jobs created by AI

 If the introduction of self driven cars and drones become widespread there may be however a massive loss of jobs for drivers of commercial transport sector.

    Professional sectors and AI

AI enables predictions to be made and action plans to be formulated based on data. Professions like radiological interpretation of X-rays,CT scans can be done much better withAI. Robots today have come in a big way in surgery and has increased the accuracy of same. However the effect on employment has not been a displacement effect but a “Efficiency effect” and will not lead to a loss of jobs but their enhancement in quality. It will thus increase TFP in service sector. A similar effect is likely to occur in other professions as law,marketing management where AI will enhance existing capabilities.

   The advent of AI through increased productivity enables higher incomes and ability to purchase a wide variety of personalised services such as sports training,care of elderly,artistic activities,and these professions are likely to get higher wages, as they are not yet vulnerable to substitution by AI.

Sunrise sector jobs

These are the sectors which are in the forefront of innovation in the fourth Industrial Revolution. Obviously these include the firms creating and maintaining AI tools and algorithm jobs. However the fourth Industrial Revolution also includes knowledge sectors such as semiconductor manufacturing,green energy(solar, renewable batteries) ,biotechnology,IOT,Blockchain,space technology and these sectors would produce the greatest number of jobs in future

Ack:The fourth Industrial Revolution,The economics of fourth Industrial Revolution;The economics of artificial intelligence;