The Intelligent Economy 2030: Estimating the Economic Impact of the Next Industrial Revolution
A few years back in a previous blog article, I discussed the ‘productivity puzzle’ and concerns over the return of the ‘Solow Paradox’.
Succinctly, this was about the widely recorded drop in annual labour productivity growth across many countries since the Global Financial Crisis, despite the seeming ubiquity and rapid advancement of digital technologies. This puzzle chimed with that of renowned economist Robert Solow in the late 1980s, when he remarked that, “You can see the computer age everywhere but in the productivity statistics.”
The productivity puzzle has been investigated many times and several factors have been given for it. One of the main reasons provided is that we are currently experiencing a rare period of fundamental change in the underlying technologies shaping and driving the future global economy.
Professor Erik Brynjolfsson of Stanford University et al best explained this with their Productivity J-Curve. In the early years of path-finding new General Purpose Technologies (GPTs), productivity is under-recorded as much intangible investment takes place that remains undocumented in the national accounts. The fruits of those investments (that may take many years) eventually roar through the economy (as in the 1920s) leading to an over-estimation of productivity growth.
Our recent era is plausibly a time when firms were still working out strategies for utilising the full potential of new general purpose technologies, such as artificial intelligence (AI) and robotics, as well as other complementary technologies such as Cloud Computing, the Internet of Things, the Blockchain, and 5G.
Like other GPTs, the full impacts will not be felt until a wave of complementary factors are developed, understood and implemented. The required adjustment costs, organisational changes, and newly required skills can be considered as an increasing stock of intangible capital.
While there were signs that productivity growth bounced during the pandemic, recent data suggest a renewed softening. Current short and even medium-term economic forecasts for the global economy from the likes of the IMF and OECD remain pessimistic.
But there are many signs that we may have already passed through the trough of the J-Curve and are about to enjoy the benefits of these new GPTs.
Associate Professor Rob Seamans of New York University et al explain how the use of robots in Chinese firms is already boosting productivity and employment, especially in the private sector.
Again in China, according to the Ministry of Industry and IT the country’s three main telecoms operators had built 5,325 5G private networks by May of last year, with a total of more than 20,000 use cases across 40 economic sectors. Advanced industrial digital transformation is beginning to happen at huge scale.
More recently, Generative AI applications such as Chat GPT’s ability to sprout human-like language and Dall-E’s creativity in imagery and graphic design has captivated the media and investors around the world. Many firms are now rapidly testing and using Generative AI in their firms.
What we may now be experiencing is the most impactful stage of the fourth industrial revolution. In collaboration with Ernst & Young, Huawei recently produced a research report that delves into the heart of this issue. The report “The Intelligent Economy” – part of our Intelligent World 2030 series – outlines in detail how we believe the world is already beginning a transition onto a new trajectory of digital development. It is one undergirded by the widespread adoption of frontier technologies and intangible capital, that help create smart solutions for the emerging social, policy and business challenges in the world today.
This concept is that of an ‘Intelligent Economy’ – the next stage of the Digital Economy and the key to unlocking its full potential. The report further aims to show how a transition towards the Intelligent Economy will herald new possibilities and also yield socioeconomic and environmental benefits.
Our research suggests that the economic benefits of the Intelligent Economy will be realized through three main channels.
i. Augmented productivity gains: the incremental increase in global economic output as a result of the application and use of next-generation technologies. The Intelligent Economy has the potential to help countries solve the productivity slowdown by allowing workers to focus on higher-value added skills such as creativity, problem-solving and networking.
ii. Improved social well-being. The use of the technologies driving the Intelligent Economy to make faster decisions and more accurate predictions could produce social benefits in the form of consumer time-savings, more optimal health and safety outcomes, and greater social inclusion.
iii. Environmental benefits. Intelligent technologies could contribute to decarbonization especially in industries such as manufacturing, construction and electricity generation. It presents a significant opportunity to accelerate sustainable transformation and place the world on a better development path of low-carbon and climate-resilient development.
Through these three main channels, our research suggests that the Intelligent Economy has the potential to generate significant new opportunities for the global economy. In total, we believe that the Intelligent Economy could have a value of US$18.8 trillion by 2030, representing over 16.9% of the global economy by then. The Intelligent Economy is expected to grow at a CAGR of 18.0% between 2020 and 2030, a rate higher than the 2.3% and 6.1% CAGRs estimated for both the non-digital and digital economies, respectively.
In the future, the speed and extent of frontier technology adoption will determine the rate at which countries are able to enjoy Intelligent Economy benefits. As more use cases and applications may be discovered in the future, the value of the Intelligent Economy in the periods ahead could actually be larger than those estimated in this study.
This is the first in a series of articles based on our expansive Intelligent Economy research report. In future blogs, we’ll be examining in more detail topics such as the features of the Intelligent Economy, the main technologies we believe will drive it and how best to realise its potential.
In the meantime, download the The Global Value of the Intelligent Economy
Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.