Maximizing the benefits of artificial intelligence and managing the risks will require innovative policies with global reach



Beginning in the 18th century, the Industrial Revolution ushered in a series of innovations that transformed society. We may be in the early stages of a new technological era—the age of generative artificial intelligence (AI)—that could unleash change on a similar scale.

History, of course, is filled with examples of technologies that left their mark, from the printing press and electricity to the internal combustion engine and the internet. Often, it took years—if not decades—to comprehend the impact of these advances. What makes generative AI unique is the speed with which it is spreading throughout society and the potential it has to upend economies—not to mention redefine what it means to be human. This is why the world needs to come together on a set of public policies to ensure AI is harnessed for the good of humanity.

The rapidly expanding body of research on AI suggests its effects could be dramatic. In a recent study, 453 college-educated professionals were given writing assignments. Half of them were given access to ChatGPT. The results? ChatGPT substantially raised productivity: the average time taken to complete the assignments decreased by 40 percent, and quality of output rose by 18 percent.

If such dynamics hold on a broad scale, the benefits could be vast. Indeed, firm-level studies show AI could raise annual labor productivity growth by 2–3 percentage points on average: some show nearly 7 percentage points. Although it is difficult to gauge aggregate effect from these types of studies, such findings raise hopes for reversing the decline in global productivity growth, which has been slowing for more than a decade. A boost to productivity could raise incomes, improving the lives of people around the world.

But it is far from certain the net impact of the technology will be positive. By its very nature, we can expect AI to shake up labor markets. In some situations, it could complement the work of humans, making them even more productive. In others, it could become a substitute for human work, rendering certain jobs obsolete. The question is how these two forces will balance out.

A new IMF working paper delved into this question. It found that effects could vary both across and within countries depending on the type of labor. Unlike previous technological disruptions that largely affected low-skill occupations, AI is expected to have a big impact on high-skill positions. That explains why advanced economies like the US and UK, with their high shares of professionals and managers, face higher exposure: at least 60 percent of their employment is in high-exposure occupations.

On the other hand, high-skill occupations can also expect to benefit most from the complementary benefits of AI—think of a radiologist using the technology to improve her ability to analyze medical images. For these reasons, the overall impact in advanced economies could be more polarized, with a large share of workers affected, but with only a fraction likely to reap the maximum productivity benefits.

Meanwhile, in emerging markets such as India, where agriculture plays a dominant role, less than 30 percent of employment is exposed to AI. Brazil and South Africa are closer to 40 percent. In these countries, the immediate risk from AI may be reduced, but there may also be fewer opportunities for AI-driven productivity boosts.

Over time, labor-saving AI could threaten developing economies that rely heavily on labor-intensive sectors, especially in services. Think of call centers in India: tasks that have been offshored to emerging markets could be re-shored to advanced economies and replaced by AI. This could put developing economies’ traditional competitive advantage in the global market at risk and potentially make income convergence between them and advanced economies more difficult.

Redefining human

Then there are, of course, the myriad ethical questions that AI raises.

What’s remarkable about the latest wave of generative AI technology is its ability to distill massive amounts of knowledge into a convincing set of messages. AI doesn’t just think and learn fast—it now speaks like us, too.

This has deeply disturbed scholars such as Yuval Harari. Through its mastery of language, Harari argues, AI could form close relationships with people, using “fake intimacy” to influence our opinions and worldviews. That has the potential to destabilize societies. It may even undermine our basic understanding of human civilization, given that our cultural norms, from religion to nationhood, are based on accepted social narratives.

It’s telling that even the pioneers of AI technology are wary of the existential risks it poses. Earlier this year, more than 350 AI industry leaders signed a statement calling for global priority to be placed on mitigating the risk of “extinction” from AI. In doing so, they put the risk on par with pandemics and nuclear wars.

Already, AI is being used to complement judgments traditionally made by humans. For example, the financial services industry has been quick to adapt this technology to a wide range of applications, including introducing it to help conduct risk assessments and credit underwriting and recommend investments. But as another recent IMF paper shows, there are risks here. As we know, herd mentality in the financial sector can drive stability risks, and a financial system that relies on only a few AI models could put herd mentality on steroids. In addition, a lack of transparency behind this incredibly complex technology will make it difficult to analyze decisions when things go wrong.

Data privacy is another concern, as firms could unknowingly put confidential data into the public domain. And knowing the serious concerns about embedded bias with AI, relying on bots to determine who gets a loan could exacerbate inequality. Suffice it to say, without proper oversight, AI tools could actually increase risks to the financial system and undermine financial stability.


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