By Mark Purdy and Paul Daugherty
2 | Why artificial intelligence is the future of growth
CONTENTS
The new factor of production4
Three channels of AI-led growth12
Factoring in AI15
Clearing the path to an AI future21
3 | Why artificial intelligence is the future of growth
There has been marked decline in the
ability of increases in capital investment
and in labor to propel economic progress.
These two levers are the traditional drivers
of production, yet they are no longer able
to sustain the steady march of prosperity
enjoyed in previous decades in most
developed economies.
But long-term pessimism is unwarranted.
With the recent convergence of a
transformative set of technologies,
economies are entering a new era in which
artificial intelligence (AI) has the potential
to overcome the physical limitations of
capital and labor and open up new sources
of value and growth.
Increases in capital and labor are no longer
driving the levels of economic growth the
world has become accustomed to and desires.
Fortunately, a new factor of production is on the
horizon, and it promises to transform the basis of
economic growth for countries across the world.
Indeed, Accenture analyzed 12 developed
economies and found that AI has the
potential to double their annual economic
growth rates by 2035.
To avoid missing out on this opportunity,
policy makers and business leaders must
prepare for, and work toward, a future
with artificial intelligence. They must do so
not with the idea that AI is simply another
productivity enhancer. Rather, they must
see AI as the tool that can transform our
thinking about how growth is created.
4 | Why artificial intelligence is the future of growth
That missing element is how new
technologies affect growth in the economy.
Traditionally, capital and labor are the
“factors of production” that drive growth in
the economy (see Figure 5). Growth occurs
when the stock of capital or labor increase,
or when they are used more efficiently. The
growth that comes from innovations and
technological change in the economy is
captured in total factor productivity (TFP).
Economists have always thought of new
technologies as driving growth through
their ability to enhance TFP. This made
sense for the technologies that we have
seen until now. The great technological
breakthroughs over the last century—
electricity, railways and IT—boosted
productivity dramatically but did not
create entirely new workforces.
Given this poor outlook, commentators
say that a stagnant economy is the “new
normal.” On an even more pessimistic note,
economist Robert Gordon argues that
productivity growth over the next quarter
century will continue at the sluggish pace
we have experienced since 2004.1 He
believes that the past two centuries of
“Great Inventions,” such as the steamship
and telegraph, are unlikely to be repeated.
And this deficit of innovation, combined
with unfavorable demographic trends,
flagging educational attainment and
rising wealth inequality, will slow
economic progress.
So, are we experiencing the end of growth
and prosperity as we know it
As grim as much of the data undoubtedly
is, it misses an important part of the story.
THE NEW FACTOR OF PRODUCTION
Across the globe, rates of gross domestic product (GDP) growth have been shrinking.
Moreover, this has been true for three decades. Key measures of economic efficiency are
trending sharply downward, while labor-force growth across the developed world is largely
stagnant. It is even in decline in some countries (see Figures 1 to 4).
5 | Why artificial intelligence is the future of growth
Similarly, AI can take the form of physical
capital such as robots and intelligent
machines. And unlike conventional capital,
such as machines and buildings, it can
actually improve over time, thanks to its
self-learning capabilities.
Based on our analysis and modeling, we
can illustrate what happens when AI is
seen as a new factor of production rather
than just a productivity enhancer. The
impact on projected growth for the United
States, for example, is dramatic. As Figure
6 shows, the first scenario is business-as-
usual, assuming no AI effect. The second
indicates the traditional view of AI as a TFP
enhancer where it has a limited impact
on growth. The third scenario shows what
happens when AI can act as a new factor of
production—there is a transformative effect
on growth. This ability of AI to complement
and enhance traditional factors of
production is where its true potential lies.
Today, we are witnessing the take-
off of another transformative set of
technologies, commonly referred to as
artificial intelligence (see “What is artificial
intelligence”). Many see AI as similar to
past technological inventions. If we believe
this, then we can expect some growth, but
nothing transformational.
But what if AI has the potential to be not
just another driver of TFP, but an entirely
new factor of production How can this be
The key is to see AI as a capital-labor hybrid.
AI can replicate labor activities at much
greater scale and speed, and to even perform
some tasks beyond the capabilities of
humans. Not to mention that in some areas
it has the ability to learn faster than humans,
if not yet as deeply. For example, by using
virtual assistants, 1,000 legal documents can
be reviewed in a matter of days instead of
taking three people six months to complete.2
The advance of AI is leading us
to rethink fundamental economic
relationships and how value is created.
DAVID LEHRER, CEO, CONATIX
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