Your employer is (probably) unprepared for artificial intelligence - The Economist

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Your employer is (probably) unprepared for artificial intelligence - The Economist

Jul 16th 2023 Boston and Tokyo T o understand the impact that artificial intelligence may have on the economy, consider the tractor. Historians disagree about who invented the humble machine. Some say it was Richard Trevithick, a British engineer, in 1812. Others argue that John Froelich, working in South Dakota in the early 1890s, has a better claim. Still others point out that few people used the word “tractor” until the start of the 20th century. All agree, though, that the tractor took a long time to make a mark. In 1920 just 4% of American farms had one. Even by the 1950s fewer than half had tractors. Speculation about the consequences of ai—for jobs, productivity and quality of life—is at fever pitch. The tech is awe-inspiring. And yet ai’s economic impact will be muted unless millions of firms beyond Silicon Valley adopt it. That would mean far more than using the odd chatbot. Instead, it would involve the full-scale reorganisation of businesses and their in-house data. “The diffusion of technological improvements”, argues Nancy Stokey of the University of Chicago, “is arguably as critical as innovation for long-run growth.” The importance of diffusion is illustrated by Japan and France. Japan is unusually innovative, producing on a per-person basis more patents a year than any country bar South Korea. Japanese researchers can take credit for the invention of the qr code, the lithium-ion battery and 3d printing. But the country does a poor job of spreading new tech across its economy. Tokyo is far more productive than the rest of the country. Cash still dominates. In the late 2010s only 47% of large firms used computers to manage supply chains, compared with 95% in New Zealand. According to our analysis, Japan is roughly 40% poorer than would be expected based on its innovation. France is the opposite. Although its record on innovation is average, it is excellent at spreading knowledge across the economy. In the 18th century French spies stole engineering secrets from Britain’s navy. In the early 20th century Louis Renault visited Henry Ford in America, learning the secrets of the car industry. More recently, former ai experts at Meta and Google founded Mistral ai in Paris. France also tends to do a good job of spreading new tech from the capital to its periphery. Today the productivity gap in France between a top and a middling firm is less than half as big as in Britain. During the 19th and 20th centuries businesses around the world became more “French”, with new technologies diffusing ever faster. Diego Comin and Martí Mestieri, two economists, find evidence that “cross-country differences in adoption lags have narrowed over the last 200 years.” Electricity swept across the economy faster than tractors. It took just a couple of decades for personal computing in the office to cross the 50% adoption threshold. The internet spread even faster. Overall, the diffusion of technology helped propel productivity growth during the 20th century. Since the mid-2000s, however, the world has been turning Japanese. True, consumers adopt technology faster than ever. According to one estimate TikTok, a social-media app, went from zero to 100m users in a year. Chatgpt itself was the fastest-growing web app in history until Threads, a rival to Twitter, launched this month. But businesses are increasingly cautious. In the past two decades all sorts of mind-blowing innovations have come to market. Even so, according to the latest official estimates, in 2020 just 1.6% of American firms employed machine learning. In America’s manufacturing sector just 6.7% of companies make use of 3d printing. Only 25% of business workflows are on the cloud, a number that has not budged in half a decade. Horror stories abound. In 2017 a third of Japanese regional banks still used cobol, a programming language invented a decade before man landed on the moon. Last year Britain imported more than £20m-($24m-) worth of floppy disks, MiniDiscs and cassettes. A fifth of rich-world firms do not even have a website. Governments are often the worst offenders—insisting, for instance, on paper forms. We estimate that bureaucracies across the world spend $6bn a year on paper and printing, about as much in real terms as in the mid-1990s. Best and the rest The result is...