HAMISH MCRAE: Labour’s lost in new AI world?

Shakespeare would be spinning in his grave. Last week, Google managed to lose $100 billion of its market capitalisation by botching the launch of its artificial intelligence chatbot, Bard.

If you don’t follow the intricacies of AI developments, bear with me, for what has been happening is of huge importance not just in terms of investment, but for employment and living standards in the years ahead.

AI has been around since the 1960s but, like so many potentially exciting technologies, has taken a long time to have much economic impact. It is becoming useful for specific tasks, such as medical diagnostics, but has not really been a more general game-changer. But last November saw the public launch of ChatGPT, which combines AI and a vast amount of text data, and uses it to create essays, newspaper articles (yes), answer questions, pass exams and so on.

Its responses are almost human. Ask it advice on investment, and it will give a perfectly competent response, taking into account your time horizon, willingness to take on risk and so on.

A few evenings ago at home, we asked it to give that advice in the form of a Shakespearian sonnet and the result was brilliant: investment wisdom in perfect Elizabethan metre and rhyme. Maybe the Google team tried something similar, which is why they called their version Bard.

The future: AI has been around since the 1960s but, like so many potentially exciting technologies, has taken a long time to have much economic impact

So it’s lots of fun over a family dinner, but what does all this mean in economic terms? Bard gave the wrong answer to a question at its launch, which was why the share price of Alphabet, Google’s parent company, plunged.

But AI is already good enough to replace human beings in many activities. The best example I have come across is a report about the world economy, widely quoted in the media a few weeks ago for its sage judgments. I was told by the head of the consultancy that produced it that 80 per cent of it was written by AI. Their staff did a few of the important countries and they checked the others, but writing it this way saved a huge amount of work.

That is now. Imagine what it might do in five years’ time. This explains why ChatGPT has revolutionised the quest for finding effective and profitable ways to combine AI and big data – why Microsoft is investing $10 billion in OpenAI, the company behind ChatGPT, and why Google apparently rushed out its competitor before having tested it properly.

It is the next battleground for Big Tech, but it is much more than that. Any innovation that substitutes technology for human labour destroys jobs. Just as robots have replaced workers on production lines in companies, AI is replacing people writing reports for economic consultants.

Calling it a chatbot is a silly name, but think of just about any white collar activity – preparing a legal case, for example – and ask what would happen if a chatbot can do it better. The savings in time and cost would be enormous.

Jobs will go, just as the jobs of bank tellers have been disappearing, but such is human ingenuity that we always find new things for people to do. Unemployment across the developed world is very low, the lowest in the UK since the 1970s. There is a genuine problem that the skills needed for the new jobs are different from the skills needed for the old ones.

Actually, we are suffering from that mismatch in the UK right now. Just as the disruption that has followed the pandemic has created more demand for labour in some areas and less in others, so the disruption that will follow the widespread adoption of AI will be tough for some people and wonderful for others.

The problem, as always, is that it is easy to see the jobs that are going, but hard to envisage the ones that will be created.

But the net outcome is a more efficient economy, and that in turn is vital if people who are starting careers now are to have higher living standards than their parents.

The challenge now will not only be to improve the technology – to develop a better Bard – but also to deploy it in such a way to maximise the benefits.

The story of that plunge in the share price of Alphabet is a narrow one about the prospects for one American corporation that has already revolutionised our lives.

Think of a world without Google. But behind it is the wider message that we are glimpsing the next great step forward in the ways we will live and work in the future.