Are regulators doing enough to prepare for AI’s impact on capitalism?

Lots of people are thinking through the implications of AI. Speculation ranges wildly, from the relatively trivial — “live” Elvis shows anyone? — to the end of humanity.

What I’m reading less about are the implications for the very fundamentals of how we do business today. That interests me because my business is based on enabling consumers to buy things and businesses to collect payments. 

I believe that there will be a “Golden Age of AI” in about three to five years' time, but things are going to be chaotic before that and possibly afterwards too. In the long term, there are good reasons to believe AI could result in a new model of capitalism. 

I like to think that my company is one of the most innovative users of AI, with a highly streamlined and effective approach to development. But I also believe that the scale of economic change coming towards us will take most people by surprise. My argument here is that regulators, even those that have moved faster than usual, are still not preparing our economies for the AI future.

Short-term chaos: AI-induced job market disruption and beyond

The rapid integration of artificial intelligence into our economy is leading us towards a period of short-term chaos, which will be characterised by a drastic shift in the job market. This upheaval is not a gradual evolution but a sudden displacement of human roles and competencies due to AI's rising productivity.

As AI systems outperform humans in various tasks, we initially celebrate the surge in efficiency. However, this could quickly turn into a crisis as human labour becomes increasingly obsolete. In one scenario, the total number of available jobs is set to decline for the first time in modern history, leading to unprecedented levels of unemployment and job market instability.

This transformation extends beyond the immediate job market. Analysts predict a short-term economic boost as investments in AI surge, but the long-term implications are profound. AI may disrupt the traditional growth model inherent in capitalism. As AI accelerates innovation, it will diminish competitive and pricing differences across markets, including the financial sector, leading to potentially stagnant growth.

Furthermore, the rapid generative capabilities of AI will challenge the protection of intellectual property, making it nearly impossible to safeguard innovations. Consumer behaviour will also shift as the relentless pace of AI-driven innovation leads to a perceived homogenization of products and services, reducing incentives for consumers to switch or upgrade.

While many CEOs currently assert that AI will not significantly impact jobs, the reality is that automation means fewer people doing things. In the current environment of near-full employment, some displaced workers are being reassigned, but this is a temporary solution. New jobs created by AI will demand entirely new skill sets, often not aligned with those displaced, and will potentially offer lower compensation.

The transition will be painful as AI takes over more mainstream office roles. With fewer people earning good disposable incomes, economic growth will stall at a time when ageing populations demand more from health and pension services. Rather than inflation, we may face a deflationary period.

In conclusion, while AI promises efficiency and short-term economic growth, it brings about a wave of economic upheaval marked by massive job losses, shifts in market dynamics, and a need for significant societal adjustments. Navigating this transition will require a thoughtful approach to mitigate the impacts on employment, protect economic stability, and adapt to the new realities of an AI-driven future.

The Golden Age of AI: Paving the way to abundance?

In an optimistic outcome, once the initial turbulence settles, the transformative power of AI ushers in a new epoch: the Golden Age of AI. This era will be marked by an unprecedented journey towards abundance and prosperity, redefining human potential and societal constructs.

In this Golden Age, AI's capabilities will be fully harnessed to address complex global challenges, ranging from healthcare to climate change. AI-driven innovations will lead to breakthroughs in medicine, energy, and transportation, significantly improving the quality of life and reducing the ecological footprint.

The workforce transformation, initially disruptive, will evolve into a new social paradigm. Economically, the widespread adoption of AI will lead to a more efficient allocation of resources, reducing waste and increasing productivity. This efficiency, in turn, could pave the way for new economic models, such as universal basic income, ensuring a more equitable distribution of wealth and opportunities.

Socially, the benefits of AI will extend beyond economic gains. As AI takes over laborious tasks, individuals will have more time for personal growth, community involvement, and family, leading to a more balanced and fulfilling life.

Are regulators ready for this?

The EU has not been slow to recognise the need for regulation. The resulting AI Act looks set to be endorsed in 2024. But the problem with regulation is its often protracted nature, which can lag behind the swift advances in technology. For example, look at the pace of MiCA for digital assets, which appeared in 2020, took almost two years to finalise, and won’t come into full force before December 2024. On that performance, Europe is unlikely to have even the limited AI regulation contained in the new laws before 2026. 

The Act itself has also been criticised. Some experts say it is too vague and lacks clarity on important issues. The Act will be enforced by national authorities, which could lead to inconsistencies. It only applies to systems developed or used in the EU. What it designates as “limited-risk” systems will only be subject to very light transparency obligations. And it contains several worrying exemptions, such as for military and law enforcement purposes.

From my perspective, it is crucial for regulators to educate themselves about AI and embrace its potential to outperform human capabilities, especially in regulated industries like financial institutions. They should establish clear rules and roles for AI use, possibly including specialised tests to evaluate AI systems. My concern is that without this proactive approach, regulators might resort to punitive measures against AI usage, leading to legal battles and fines. This could divert valuable resources from innovation, exacerbating the period of chaos and prolonging its duration unnecessarily.

In the short term, in the avalanche-like AI revolution, fintech companies like myTU, which have the right technology and people with the right skills, will have a short-term advantage. We will be able to benefit, despite the short-term chaos I outlined earlier, well positioned for the AI Golden Age. Looking longer term, however, we will enter uncharted territory as AI changes the ground rules of capitalism in ways that are extremely hard to predict. I’m not convinced that regulators are preparing our systems for that yet.  

AI is undeniably a global phenomenon, and in this regard, Europe's response becomes even more critical. Given the current state of the world, with wars and widespread instability, it is imperative for Europe to accelerate its pace in the AI race. The stakes are high, as falling behind could mean conceding significant ground to autocracies and dictatorships. In the race to define the next era, it is not just about technological advances but also about shaping a future that aligns with democratic values and human rights.

As AI reshapes the global landscape, Europe’s role in this transition is pivotal. The region must move quickly and decisively, embracing the potential of AI while upholding and promoting its core values on the international stage. This is a race where the prize is not just technological dominance but the preservation and promotion of a free, equitable, and democratic world order.