HAMISH MCRAE: How to win in the world of AI

Beware the hype; focus on the substance. Not a bad rule in life, but one particularly appropriate now with the frenzy over generative Artificial Intelligence.

On the plus side, we have the soaring share price of the US software company, Nvidia, making it worth almost $1 trillion, and of course the hunt for the best way of investing in AI.

There is the claim by Bill Gates that this is as important as the personal computer, the internet and the mobile phone.

On the minus side, there are suggestions that this technology is already leading to job losses – 4,000 in the US in May – because AI is doing things that human beings used to do.

And if you want to go the Full Monty, it seems half of AI researchers think there is a 10 per cent chance that unless it is regulated it could lead to human extinction.

Jobs threat: There are suggestions that this technology is already leading to job losses – 4,000 in the US in May – because AI is doing things that human beings used to do

Regulating AI was one of the issues discussed this week by Rishi Sunak and Joe Biden in Washington, with our PM pitching for AI to have a key role here. 

We are hosting the first AI global regulation summit in the autumn. If there really were a danger of extinction, then it wouldn’t matter much which shares zoomed up in price – but having a summit can’t be a bad idea.

Is it easy to mock, so where is the substance? Half-a-dozen (somewhat simplified) points.

One, though AI has been around at least since the 1960s, until now it has not had much practical use.

What has happened is that the combination of increased computing power and the vast database on the internet means that computers can sift through all the stuff that would previously have taken human researchers months or years.

They can spot trends and identify solutions to problems with what seems like uncanny skill, and they can do it immeasurably faster.

Two, whenever there is a big technological advance, not only does it take a while for its impact to move through the economic system, it is also impossible to envisage its full consequences.

The internet goes back to the 1970s, but only had widespread practical use when browsers and search engines were developed.

And while it took the genius of Steve Jobs to see that the iPhone would, as he said at the launch, ‘change everything’, even he could not spot all the uses to which it could be put, including, of course, apps and also the simple selfie. That first iPhone did not have a front-facing camera.

Three, one of the great economic problems of the developed world is increasing both the productivity of service industries and the quality of that service they provide.

So living standards have risen only slowly over the past 30 years, and we all feel frustrated by the poor response of banks, insurance companies, public utilities, the tax people and so on – as the string of reader problems tackled by our personal finance experts demonstrate. 

But now, a technology is being developed that should enable them to deal with issues more efficiently and swiftly, providing cheaper and better service.

Four, there will be job losses. There always are when a new technology comes along. Some of us are old enough to remember that when you wanted cash, you had to get it over the counter of the local bank. 

Then came cash dispensers. Now there aren’t even branches. But the jobs being lost are being replaced. The number employed in UK financial services has risen steadily, reaching 1.1 million in 2021.

So there will be plenty of jobs and the challenge will be to make sure they are good ones. It is very early to have much feeling for this, but there is some evidence that AI can help less-productive white-collar workers do their jobs better, narrowing the gap between the high-performers and less adept. If that is right, it is really good news.

Five, it is never clear who the lasting winners will be when a new technology comes along. Vodafone pioneered mobile telephony and is still one of the top ten in the world. But its share price has never recovered from the dot-com crash, and is at 75p.

At the moment, the market thinks the great beneficiaries will be big tech America, with – aside from Nvidia – Apple and Microsoft both back close to their all-time highs.

That may well be right, but maybe the real winners will be firms that don’t even exist now.

Finally, there will have to be regulation. We have a chance in Britain to do this one well, and for all sorts of reasons, it is important we don’t make a hash of it.