Generative AI: Will It Transform the Global Economy or Fade Away?
Generative artificial intelligence (AI) has been hailed as a technology that could potentially transform the global economy. Some experts believe that AI has the capability to greatly impact productivity and lead to explosive growth. However, despite this optimism, there is little evidence of a significant increase in companies’ investments in new software and equipment to fully integrate generative AI into their production processes.
For previous technological breakthroughs like the tractor or personal computer to spread across the economy, a substantial investment boom was needed. However, current data suggests that capital expenditures by businesses, also known as capex, are surprisingly weak. Although there was a slight increase in capex after the COVID-19 pandemic, it later slowed down due to geopolitical uncertainty and higher interest rates.
While some companies, such as Microsoft and Nvidia, are ramping up their investments in generative AI, many others are more cautious. Most firms, excluding those at the forefront of the AI revolution, are planning to lift their capex by only around 2.5% in 2024, which aligns with inflation. The overall situation is even bleaker, as an American capex tracker shows a year-on-year decrease of 4% across the economy.
Furthermore, despite the excitement surrounding generative AI’s potential, spending on information technologies has not seen significant growth. American firms’ investment in information-processing equipment and software actually fell by 0.4% in the third quarter of 2023. This trend is also noticeable globally, with investment spending growing at a slower pace than before the pandemic.
These sluggish trends in capex and investment spending raise two possible interpretations. The first is that generative AI may not live up to its hype. While big tech firms have invested billions of dollars in developing AI products and services, they might struggle to find enough customers to make their investments worthwhile. This scenario wouldn’t be the first time technologists overestimated the demand for new innovations, as seen with cryptocurrencies and the metaverse.
The second interpretation is that the adoption of new general-purpose technologies often takes time. Looking back at the example of personal computers, American firms only began significantly increasing their spending on software years after Microsoft released its groundbreaking operating system in 1995. This suggests that generative AI may indeed transform the economy, but in a gradual and less dramatic manner.
It is crucial to note that different perspectives exist regarding the impact of generative AI. While some are skeptical about its potential, others remain optimistic and expect it to power a productivity boom in the coming years. Time will tell whether generative AI will fulfill its transformative promise or if it will fade away like other overhyped technologies.
In conclusion, while generative AI holds the potential to transform the global economy, the current lack of significant investment in the technology raises doubts about its immediate impact. It remains to be seen whether generative AI will bring about a productivity revolution or if it will be a slower and more gradual process. Ultimately, the future of generative AI and its role in the global economy will be determined by the actions and investments of businesses worldwide.
