The Mistiming of Creation and Destruction During AI Innovation
Creative destruction is the process described by Economist Joseph Schumpeter in Capitalism, Socialism, and Democracy (1942), whereby industries and markets in capitalist economies mutate, causing a dynamic cycle of destruction and creation. The book’s chapter on creative destruction points explicitly to the productivity gains realized by farms that had been rotating crops, implementing elevators, and were being connected by railroads, as well as new methods devised to produce power. Two of the most important insights from the chapter are how the process of creative destruction takes “considerable time in revealing its true features and ultimate effects” and that “every piece of business strategy acquires its true significance only against the background of the process and within the situation created.” The idea of creative destruction is insightful and can help guide our understanding of current technological breakthroughs, most notably Artificial Intelligence.
Creative Destruction: Industry and Job Disruption
The first aspect to consider regarding creative destruction in the technology industry is how hardware and software companies are changing how they conduct business and implement their strategy. A paper published by the National Bureau of Economic Research (NBER) specifically on creative destruction and AI highlights how the international trade of mobile apps will be changed in terms of bilateral trade flows, the variety of goods imported by countries, and the creation and destruction of varieties. During their analysis, they noted that AI deployment increases app downloads sixfold, doubles the number of bilaterally traded apps/varieties, and, as it relates to creative destruction, causes higher levels of entry and exit of apps/varieties available in importer countries.
Other businesses will face similar magnitudes of impact from AI disruption, too. Business process outsourcing (BPO), a $48.9bn industry in India, and the overall Indian tech sector $250bn, “runs the risk of getting replaced by an AI engine pretty quickly,” noted Rajesh Nambiar, Chairman and Managing Director of Cognizant India, an IT and technology consultancy based in New Jersey. The Indian tech sector faces the challenge of implementing the new technology into its operations, however the industry is hopeful the technology will add more value comparatively quicker than in other industries. Other industries, jobs, and tasks are also at risk of being replaced by the AI engine, like those which rely on programming and writing skills. Skilled high-paying jobs like insurance carriers, (traditional) publishing, and information services are at higher risk than other occupations, especially those considered blue-collar, like logging, manufacturing, food service, and mining.
However, back to Schumpeter’s observation regarding the timing and the nature of new technological and organizational developments, sales related to AI products from most of America’s largest technology firms have barely budged since recent breakthroughs and likewise have lacked implementation in many industries. Much work is being done to operationalize the new technology, and although its effects are likely overhyped now, they are incalculable in the medium and long term. If AI's impact on industries and the labour market is indeed going to be so huge and will materialize over the next few decades, what are the foreseeable risks.
AI’s Unpredictable Trajectory: Innovation and the Sociopolitical
An article published in 2015 by Lawyer and Essayist Philippe Fabry highlights the potentially catastrophic impacts of the robotic revolution, as he calls it more generally, arguing that compared to the Industrial Revolution, which took a century and a half to replace 50% of the working agricultural population with machines, our economies will pivot by his estimate, five to seven times faster. Furthermore, analyzing historical precedents, he identifies several social, economic, and political consequences of the creative destruction Roman society faced during the second and first century BCE after rapid territorial expansion led to a massive influx of slaves who were trained to perform all matters of labour and skilled jobs. Fabry dismisses the idea that innovations in the ancient world were capped by an inability to think about progress and develop related technologies and use cases for their inventions, but rather, on the development of a mentality which hindered innovation. During the rapid influx of slaves to Rome, which massively and systematically displaced the citizens from their jobs, the regime became resistant to progress. The state took to welfare and redistribution, which ate away at the core of the society, to offset massive inequalities.
The ongoing developments in technological innovation in AI echo historical patterns of creative destruction. The AI revolution will reshape industries, jobs, and, more foundationally, society and politics. Unlike Rome in the second and first century BCE, the strength of our markets makes it unlikely that we’ll shy away from the unfolding progress. However, we are not immune to the political and social consequences the past society has faced. While we can observe that AI’s impacts won't immediately transform our entire society in the short term, we can expect plenty of destruction when it does achieve operational and implementational breakthroughs in the next few years. Our question will be how to cope with these destructions before creation takes its place.