AI Upskilling and Workforce Adaptation | Can artificial intelligence unlock productivity and growth?

If you watched Nvidia CEO Jensen Huang’s extraordinary presentation at Taipei Computex last month, you’d be convinced that artificial intelligence has ushered in a new industrial revolution, where accelerated data processing using the latest AI chips has unleashed the power to do everything faster, more efficiently, and with less energy.

In an era of intense global rivalry and competition involving military power, artificial intelligence, robotics and improved engineering, it promises a techno-utopian way to achieve domination over rivals. McKinsey estimated that the productivity impact of generative AI could add between $2.6 trillion and $4.4 trillion to the global economy annually. That’s like adding one UK economy to the world economy every year.

Roughly three-quarters of productivity will come from business improvements in four areas – customer operations, marketing and sales, software engineering, and research and development. Think about it, instead of training everyone to learn how to code, we bypass coding because AI can actually translate what you want by writing a script, creating a video, or even designing the process. Just ask for the latest version of ChatGPT.

The machine has the answers, but ultimately it is the human who will either do what is needed or simply do nothing at all.

The reality is that while generative AI will have a significant impact across all industry sectors such as retail, banking, high tech and life sciences, whether productivity (measured as output per capita) will be achieved depends on how individuals, businesses, communities and nations are driving productivity change. As Generative AI changes the way we work by automating many individual activities, this is a social and political issue. Cross-border language barriers are removed when artificial intelligence can perform automatic translations, print transcriptions, and even indicate the next work schedule. With McKinsey estimating that current generative AI and other technologies could automate work-related activities by as much as 60-70 percent of employees’ current work hours, it’s no wonder that many employees are afraid of adopting AI, showing great resistance and reluctance to change.

The latest European Union Industrial Competitiveness and Benchmarking Report 2024 shows that the EU is largely aware that the region is racing against time as EU industry continues to lose ground in global markets in terms of market share . EU companies are becoming less and less relevant and the EU’s future technological leadership is at risk. The reason is obvious to everyone – the EU market is much more fragmented than the US or Chinese market and is a collection of national markets, not a single market with a single currency – the euro.

The indicators speak for themselves. The EU’s share of world trade fell by one third and took second place (16% of world trade in 2021) compared to China (28.3%) and the United States (14.5%) since 2001 in terms of market revenues enterprises in Between 2005 and 2023, in the Fortune Global 500 list, EU enterprises fell to third place, while US enterprises lead with 31.8%, Chinese enterprises with 27.5% and EU enterprises lag behind with 15.5%.

The deployment of 5G technology in Europe lags far behind the adoption of the technology in China and the United States. As research and development is a key driver of innovation and technological leadership, the EU lags behind China (2.4%) and the United States (3.5%) in spending at 2.3% of GDP by 2021. This is particularly evident in the case of investment in industrial research and development among the 2,500 largest companies in the world. The EU’s market share dropped to third place with just 17.5%, overtaken by China (17.8%), while the US leads with 42.1%. Chinese electric vehicles and engineering products (including industrial machinery) are already taking EU markets by storm.

Add to this the fact that energy costs in the EU are higher than in the US or China and that EU regulations are the most complex compared to other markets, and it is not surprising that EU companies are moving their production abroad. Labor productivity has remained stable for years due to the highest standards of social protection. As the report states, the EU’s regulatory environment needs to be modernized to empower and reward innovators, reduce silo thinking at EU and national levels, and improve technology adoption through stronger public-private collaboration.

These European proposals are salutary for the transformation of the real sector for almost all emerging market economies (EMDEs). Despite the shock of the 2008 global financial crisis, Europe has failed to undertake structural reforms in the labor and business sectors that would improve overall competitiveness. The financial sector, dominated by a fragmented banking system, remains risk averse. German, French and Swiss banks are a shadow of their former global power, having been hit hard by tighter regulations and inept consolidations.

The real issue is who is driving structural change. In America, it is abundantly clear that the private corporate sector remains dynamic and focused on profits and innovation. In China, the government or party takes the lead but allows sufficient corporate competition consistent with national goals. No one pretends that American or Chinese corporations are neoliberal.

The EU and many EMDE countries continue to feel a schizophrenic tension between the old neoliberal goal of free markets and the newer penchant for state intervention and industrial policy. The neoliberal approach has failed where governments and the public believe that simply passing more laws and regulations will solve social and market problems. As we have all learned from bitter experience, policies and programs easily become frustrated at the legislative or political level or become mired in legal processes forever due to vested interests opposed to change.

Ecosystem change is complex and requires not only building a common narrative explaining why change is needed, but also concrete implementation of visible projects that demonstrate determination and inspire public trust. If you want the economy to change, appoint business leaders who understand how to manage institutional change to remain business-friendly. Indonesian President Jokowi’s appointment of former president of tech platform Gojek Nadiem Makarim as Minister of Education is an example of how to shake up the traditional education bureaucracy towards changes in the technology ecosystem. Radical change requires radical thinking, but by someone like Jensen Huang who understands the role of both technology and markets.

The AI revolution is already progressing at an alarming pace. Economies that hinder the transformation will be marginalized. Those businesses and communities that adapt well will not only survive, but thrive. This is the cruelty of Darwinian competition.