The Future of Growth: AI Comes of Age

IN THE MODERN ECONOMY, there are two traditional drivers of production: increases in capital investment and labour. However, the decades-long ability of these drivers to propel economic progress in most developed countries is on the cusp of a massive change.

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 labour and open up new sources of value and growth. AI is, without question, the single most disruptive technology the world has experienced since the Industrial Revolution. In this article we will discuss some of the implications, challenges and opportunities of this new fact of economic life.

A New Factor of Production

For three decades, rates of gross domestic product (GDP) growth have been shrinking across the globe. Key measures of economic efficiency are trending sharply downward, while labour-force growth across the developed world is largely stagnant.

Are we experiencing the end of growth and prosperity as we know it? The short answer is an emphatic No, because the data misses an important part of the story: How new technologies affect growth in the economy. Traditionally, growth has occurred when the stock of capital or labour increased, or when they were used more efficiently. The growth that comes from innovation 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, and this made sense for the technologies that we have seen — until now.

What if AI has the potential to be not just another driver of TFP, but an entirely new factor of production that can replicate labour activities at much greater scale and speed, and even perform some tasks beyond the capabilities of humans?

For example, — now part of the — uses AI