A boom in generative artificial intelligence and a pandemic-induced shift in workplaces will usher in a new era of faster productivity growth in rich countries, economists say, though it may take a decade or more for advanced economies to reap the full benefits .
After a surge early in the pandemic, the Conference Board, a global business research body, said this month that it expected Productivity in mature economies has barely increased this year. The Board believes that this weakness will persist over the next decade due to rising capital costs and ongoing economic and geopolitical uncertainty.
The forecasts underscore the challenges facing advanced economies, where efforts to boost productivity have held back output and wage growth since the 2008 financial crisis.
Economists believe, however, that the rush to invest in artificial intelligence — combined with several trends that have sprung up in the workplace during the pandemic — will eventually yield dramatic results.
Chad Syverson, a professor at Chicago Booth School of Business, says there is now a “data-driven optimistic case” about productivity, with artificial intelligence, the formation of new businesses and people switching jobs will all produce results.
While productivity growth remains weak on paper, he argues that the payoff of recent changes in workplace practices — plus the eventual benefits of AI — will take time to show up in the numbers.
“These things are rarely plug and play . . . companies have to invest a lot of resources in reconfiguring their business models for this new thing,” Syverson said. “New software, regulatory issues, all these issues have to be addressed. For a while, the technology is there and you can see the benefits of it, but there are many reasons . . . Productivity declines.”
University of Maryland professor John Haltiwanger agrees that AI breakthroughs involving large language models will ultimately drive economic development. The US, he says, is now undergoing a transformation similar to that of the late 1980s, when economist Robert Solow said: “You can see the computer age everywhere except in productivity statistics. “
The fundamental shift brought about by generative AI could improve efficiency and the growth process by removing what LSE professor John Van Reenen calls “a lot of drudgery” from workplace practices.
However, it took decades for early technological leaps to pay off meaningfully in terms of productivity.
“Companies take a lot of time to change,” said Stanford University professor Nick Bloom, citing, for example, the invention of electric motors in an era when most industrial buildings were configured for water or steam power.
Much has been made of the transformative impact of generative AI on productivity. A recent papers Published by the Brookings Institution—written with the help of the GPT4 model—cites evidence that it can help coders work twice as fast, halve the time it takes to complete certain writing tasks, and make 14% increase in call center productivity.
Meanwhile, investment banks are encouraging clients to buy into generative AI. U.S. productivity is “on track to bounce back” partly because demographic trends, combined with the government’s “friend outsourcing” policy, will make it harder for multinationals to take advantage of cheap global labor and force them to automate, according to Morgan Stanley researchers.
A “productivity revolution” centered on artificial intelligence could be broader than what has been seen since the advent of the personal computer, with sectors such as retail and manufacturing “ready to invest,” they said in a recent report.
Haltiwanger noted that much of the surge in new business creation is due to a shift from inner-city to suburban home office hotspots.
As long as these upstarts can weather rising U.S. interest rates and any turmoil in regional banks, returns will follow. “Anytime you have a change in the way you do business, whether it’s spatially or economically, there’s an increase in productivity,” he said.
Van Reenen is more skeptical that labor shortages will drive innovation. While a smaller pool of workers may redirect technological change — as in Japan, where an aging workforce has spurred investment in robotics — it may also mean fewer new ideas.
The Conference Board is also trying to temper what it calls the “euphoria” surrounding technological breakthroughs.
At the same time, Bloom warned that it is difficult to predict when a major inflection point in productivity will come. “The development of the steam engine, the electric motor, the personal computer, and the internet have not had a measurable impact on productivity in five years. So it’s hard to imagine what will. I’m including (generated) AI.”