Artificial Intelligence and automation and their effect on the job market

Introduction

In the fast-evolving field of economics, there is perhaps no recent technological advancement that has generated as much discussion and stirred as many debates as the integration of artificial intelligence (AI). While AI enthusiasts see it as a groundbreaking force poised to transform economic systems and decision-making, critics raise valid concerns about its potential risks and ethical implications. As AI increasingly infiltrates the economic arena, it is crucial to consider both its promises and challenges.

This report is intended to form a basis for further research by providing a compact and

summarised presentation of different aspects of the topic, which is supported by further references to additional sources and related material and should not be relied on as a standalone source for preparation of arguments.

The Impact of Artificial Intelligence on Growth, Employment, 

and Economic Transformation

The utilisation of artificial intelligence (AI) for everyday tasks has experienced remarkable growth in recent years, marking the dawn of a technological revolution that has profoundly affected our daily lives.

AI has seamlessly integrated itself into our daily routines, exemplified by ChatGPT, an innovative generative AI developed by OpenAI, which has garnered over a billion users for various tasks like coding and content creation. The rapid assimilation of AI is highlighted by the fact that ChatGPT reached its 100 millionth user within a mere 60 days, a feat that took Instagram two years to achieve.

The pace of AI's development is further evident in a recent report from Stanford University, revealing a thirty-fold increase in AI patent applications between 2015 and 2021, underscoring the relentless momentum of AI development. AI-powered technologies have evolved to perform a wide range of tasks, from data retrieval and logistics coordination to financial services, translation of complex documents, generation of business reports, legal brief creation, and even diagnosing complex medical conditions. AI's capacity to continuously learn and improve through machine learning algorithms enhances the efficiency and precision of tasks it performs.

The prevailing consensus is that AI serves as a catalyst for productivity and economic growth, especially through iIts ability to process and analyse vast datasets has the potential to revolutionise business operations, streamlining processes and reducing costs. Projections by the McKinsey Global Institute suggest that by 2030, approximately 70% of companies will have embraced at least one form of AI technology. Furthermore, it is anticipated that AI could contribute to a staggering 14% increase in global GDP by 2030, as indicated by PriceWaterhouseCoopers (PwC).

The World Economic Forum (WEF) recently unveiled a report that sheds light on several emerging trends, including artificial intelligence (AI) and digitalisation as well as supply of renewable energy, which are collectively driving a substantial reconfiguration of the global labour landscape. The prognosis presented by the WEF foresees an era characterised by considerable turbulence, as workers across various industries grapple with the need to acquire new competencies to adapt to the unfolding developments. In this narrative, individuals with backgrounds in technology, data analytics, or cybersecurity are poised to benefit significantly.

The WEF's report, based on an extensive inquiry involving more than 800 corporate entities and over 11.3 million employees across 45 countries, projects the creation of approximately 69 million new jobs by 2027. Simultaneously, around 83 million positions are expected to be relinquished, resulting in a net attrition of approximately 14 million roles. The brunt of these losses is anticipated to be borne by clerical occupations, with AI being a major driver of change. Approximately 26 million jobs in administrative functions may become obsolete due to the relentless march of AI. Additionally, macroeconomic factors, including decelerated economic growth, supply shortages, and inflationary pressures, are expected to have a more profound impact on job stability compared to AI.

In a separate report issued by Goldman Sachs, the emergence of generative AI is predicted to disrupt a staggering 300 million positions. Interestingly, the study suggests that automation, in its wake, could fuel innovation and lead to new employment opportunities. Firms can leverage these developments to realise cost savings, which could result in a 7% increase in global GDP.

Impact on Jobs

AI is poised to reshape the labour market, with evidence suggesting a historical trend towards polarisation, favouring low-skilled and high-skilled jobs while diminishing medium-skilled positions due to the rise of computers. However, this polarisation may reverse as certain low and medium-skilled roles prove resistant to automation, while some routine high-skilled jobs could become automatable, possibly through AI technologies. A contrary perspective put forth by Petropoulos and Brekelmans in 2020 suggests that unlike past technological revolutions, the AI revolution is unlikely to lead to job polarisation, impacting low-skilled, middle-skilled, and high-skilled positions alike.

On the other hand, especially job creation in the renewable energy sector poses chances. 

In a visionary energy transition scenario characterised by early, substantial investments, global employment in renewable energy is projected to reach remarkable levels by 2030. The energy sector could potentially generate a staggering 139 million jobs, with over 74 million of these positions spanning across energy efficiency, electric vehicles, power systems/flexibility, and hydrogen-related roles.

Environmental impact of AI growth

The global artificial intelligence (AI) market is on a meteoric rise, projected to reach a staggering value of close to $1,600 billion by 2030, with an impressive compound annual growth rate (CAGR) of 38.1%. 

This growth, primarily driven by advances in software and hardware, is fueled by the ever-expanding volumes of data in today's digitised economy, with annual data generation expected to reach a mind-boggling 163 trillion gigabytes by 2025, representing a remarkable 40% growth rate.

However, this exponential growth in AI comes with serious environmental implications. The data value chain, involving the capture of data through devices and sensors, its transmission through networks, and storage in data centres, relies heavily on natural resources and energy. In fact, data centres alone are responsible for a staggering 20% of all electricity consumption in Frankfurt, Germany. Moreover, the power-hungry nature of neural networks, which underpin many modern AI algorithms, further exacerbates energy consumption.

The trajectory of AI suggests a persistent surge in power consumption, with the computational demands for training AI models doubling each year. According to the creators of ChatGPT, OpenAI, this trend means that the computational demands for training the average model experience a tenfold surge each year. Such exponential growth in energy usage has led experts to speculate that, if left unchecked, machine learning could eventually exhaust all available energy resources, presenting significant environmental concerns.

To address these environmental challenges, AI researchers propose a multifaceted approach. They recommend taking a comprehensive approach to tackle complex environmental issues while minimising negative effects. Using a systems perspective helps analyse interactions among technology, users, and stakeholders. Applying a design thinking approach is suggested to prevent unintended consequences and improve AI solutions. Understanding the psychological and social aspects of human responses is crucial for effective, long-term environmental solutions. Lastly, evaluating AI's economic value in sustainability helps distinguish it from conventional IT.

Despite these challenges, AI holds immense potential to address major societal problems, including sustainability and environmental governance. Corporations and governments are urged to pursue sustainable AI practices. As data and AI become increasingly pervasive across industries and regions, companies will face growing scrutiny regarding their environmental impact. 

Achieving a positive effect will require a systemic view of environmental impacts, beyond digital ones, and collaboration with stakeholders outside the company. Competition dynamics in the AI industry suggest that some companies will distinguish themselves by adopting environmentally friendly practices. However, this will entail significant changes to their business models and a commitment to avoiding "greenwashing." A select few may even put the environment at the forefront, redefining their operations and models to minimise data usage and energy-intensive models. Others will focus on radical energy-saving strategies, especially if energy constitutes a significant portion of their costs. Additionally, some companies may seek cheaper access to clean energy sources.

Balancing AI's tremendous innovation potential with its environmental impact is not just a technological challenge; it is a governance issue that requires careful consideration. The urgency of these decisions is clear, given the climate crisis and the rapid growth of AI. The path forward involves not only advancing AI technology but also shaping responsible, sustainable practices to ensure that AI contributes positively to our world.

Sources for further research

https://www.key4biz.it/wp-content/uploads/2023/03/Global-Economics-Analyst_-The-Potentially-Large-Effects-of-Artificial-Intelligence-on-Economic-Growth-Briggs_Kodnani.pdf

https://www3.weforum.org/docs/WEF_Future_of_Jobs_2023.pdf 

Encouraging foreign investment in developing countries to promote economic equality

Introduction

The pursuit of economic equality stands as a paramount challenge, especially for developing countries striving to bridge the socio-economic gap. In this report, the pivotal role of foreign investment in encouraging economic equality will be outlined, foregrounding its role as a strategic pathway towards establishing open and effective economic systems in which innovation and improvement are catalysed. 

Against a backdrop of globalisation, the imperative to create a globally inclusive and balanced economic landscape has become ever more important; the modern interconnectedness of economies heightens the need for collaborative efforts to create environments of equitable income distribution. Furthermore, by recognising how financial constraints pose a barrier to the progress of many developing countries, we can use foreign investment as an instrumental tool for unlocking latent opportunities. These opportunities not only encompass immediate economic gains but also the potential for knowledge transfer, technological advancement, and skill development. 

Definition of Key Terms

Foreign Direct Investment (FDI): this refers to a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy. 

Economic Equality: this involves fair distribution of resources, opportunities, and wealth within a society. It aims to bridge the gap between the affluent and the marginalised, fostering inclusive economic growth. 

Developing countries: nations characterised by lower income levels, emerging industries, and lower Human Development Index (HDI) scores, as classified by international organisations such as the United Nations.

Background Information

Firstly, to perceive the inextricable link between foreign investment and economic growth it is necessary to understand the concept of FDI itself and, too, the benefits it yields. Foreign direct investment is when a business takes controlling ownership in a company, sector, individual, or entity in another country, therefore directly getting involved with foreign day-to-day tasks and leading to the international transfer of money, knowledge, skills, and technology. In this way, host countries become conducive to 4 main economic benefits:

1. Economic stimulation

With FDI contributing to more jobs and higher wages, the national income of a host country generally increases. In correlation, more purchasing power is proffered to locals and, in the long run, there is a boost in the targeted economies.

2. Development of human capital

Countries with FDI benefit by developing their human resources through improving workforce skills and their overall education with training, all while maintaining ownership. Hereby, a host country’s productivity may also increase as the workforce is made familiar with facilities and equipment provided by foreign investors. 

3. Increase in employment

Investors building new companies in foreign countries leads to the establishment of new jobs and more opportunities for locals.

4. Access to management expertise, skills, and technology

FDI facilitates for resources to be transferred and the exchange of knowledge, technologies and skills to be done with relative ease. Ultimately, this feeds into improved organisational practices, workforce development, technological advancement, and access to global market

Relevant UN Treaties, Resolutions and Reports

United Nations Conference on Trade on Development (UNCTAD):

This is an intergovernmental organisation that has consistently addressed issues related to foreign investment and economic development. For instance, reports such as the ‘World Investment Report’ provide valuable insights into global investment trends, policy frameworks, and recommendations for enhancing the developmental impact of FDI.

Millennium Development Goals (MDGs):

These emphasise the importance of developing a global partnership for development. Particularly Goal 8 stresses foreign investment as a means to stimulate economic growth and reduce poverty.

United Nations Guiding Principles on Business and Human Rights:

These principles outline the responsibility of states and business to ensure that foreign investments respect human rights. They provide a framework for promoting sustainable development and preventing adverse social and environmental impacts.

Sustainable Development Goals (SDGs):

SDG 10 focuses on reducing inequality within and among countries. Encouraging foreign investment is aligned with this goal as a potential path for creating economic opportunities and narrowing the wealth gap

https://www.un.org/en/development/desa/population/migration/generalassembly/docs/globalcompact/A_RES_69_313.pdf 

https://www.cepal.org/sites/default/files/events/files/13-does_foreign_direct_investment_lower_income_inequality_a_closer_look_to_countries_receiving_captive_centers_from_mne_service_offshoring.pdf 

Possible Solutions

Principly, this report identifies that all resolutions should be implemented in a coordinated and collaborative manner, emphasising the importance of creating a conducive environment for foreign investment that aligns with the principles of sustainable and inclusive development. Further, it recognises that a genuine commitment to this matter must be underpinned by a synergetic effort of diverse stakeholders, such as governments, internal organisations, and the private sector, to which MUN will serve as a facilitator.

Possible solutions may include but are not limited to:

1. International standards and guidelines

2. Promotion of Sustainable Development Goals (SDGs)

3. Inclusive investment platforms 

4. Data collection and monitoring

5. Promotion of Ethical Business Practices

6. Investment in social infrastructure

Previous Attempt(s) to Solve the Issue

Previous UN attempts to solve the issue, as delineated below, illustrate the organisation’s commitment to addressing the complexities of foreign investment and promoting sustainable, inclusive economic growth in developing countries. By leveraging these initiatives, member states can work collaboratively to encourage foreign investment in ways that feed into the ultimate goal of economic equality.

1. UNCTAD’s Investment Framework for Sustainable Development (IPFSD)

This provides guidance to countries in forming and implementing policies that contribute to sustainable development. It emphasises the importance of ensuring that foreign investment aligns with national development goals, promotes social inclusivity, and respects environmental sustainability. 

2. Sustainable Development Goals (SDGs)

Within the SDGs, the United Nations’ 2030 Agenda for Sustainable Development is encapsulated, underscoring the role of FDI in achieving inclusive and sustainable economic growth. In particular, SDG 17 stresses the importance of revitalising the global partnership for sustainable development, including promoting foreign investment.

Preventing hyperinflation in a global economy

Introduction

Inflation is measured using the consumer price index. Most central banks aim to maintain a healthy inflation rate of about 2% over the long term. However, hyper inflation is an extreme case of inflation and is detrimental to a global economy and to consumers within that country. During periods of hyperinflation, people lose their savings as cash loses its value due to the sudden increase in the supply of it alongside prices. Typically, elderly people are more vulnerable to hyperinflation due to their reliance on pensions. In addition, hyper inflation can cause banks to go bankrupt as due to cash losing value so do all loans so they run out of cash as people eventually stop making deposits.It is a typically rare event for developed countries but has occurred in the past in countries such as Germany, China, Venezuela and Hungary. 

To prevent any further damage, commonly governments resort to monetary reform where they replace their currency and introduce a new one which signals to the public that the government is serious about the issue which lowers their inflationary expectations. As well as this, governments can adopt a different currency or peg the hyperinflated currency to something tangible such as gold.  Venezuela started to introduce virtual currencies and implemented half-baked currency reforms. As well as this, a common and more successful example is Hungary which implemented a completely new currency called the Hungary forint.

Definition of key terms

Hyperinflation is rapidly rising inflation which is measuring more than 50% per month. Hyperinflation can occur when there is an issue affecting the production within the economy or central banks print excessive money to pay for government spending. As it increases the money supply, it will cause a huge surge in prices of goods and services, such as food.

Consumer price index: this is a measure of the average change in the prices paid by urban consumers over time for a market of consumer goods and services.

Currency pegging: used to help control a currency’s rate or a way to combat hyperinflation by tying it to another country’s currency. Many countries stabilise their currencies by pegging them to the U.S. dollar.

Possible solutions:

This reports identifies three ways most governments typically combat hyperinflation within an economy. 

These are:

1. Adopting different currencies: also known as dollarisation if the dollar is used, it is the substitution of the currency of the hyperinflated country. This will involve using an internationally recognised currency or a known healthy currency such as the dollar or the euro; as after a period of hyperinflation, the country’s currency has gone down in value and become more unpredictable so sellers are unlikely to work with countries with unpredictable currencies. An example of this is in Zimbabwe where they used the American dollar after a period of hyperinflation.

2. Replacement of currency(with new): some countries choose to create a new currency to solve hyperinflation or combat it. The country would have to stabilise the economy as much as it could through the use of fiscal or monetary measures; then implement economic reforms to promote economic stability. After that a new currency would be designed and implemented into the economy. Setting exchange rates would follow due to the retraction of the old currency and implementation of the new one.

3. Pegging the hyperinflated currency: by pegging the currency it lowers inflation by inducing greater policy discipline and instilling more confidence into the currency. To peg the currency you’d need to choose a stable currency ( the dollar or euro) as a reference point which will be the anchor to which your currency value will be pegged. Then, a government must decide on a fixed exchange rate. Following this, a system must be created to maintain this exchange rate alongside implementing economic reforms. Before pegging the currency, a government must communicate with the public about the decision to peg the currency.

Previous attempts to solve the issue

 The era of the Weimar Republic in Germany in the 1920s was a very well-known case of hyperinflation. Throughout World War 1, German paper marks increased by a factor of four and by the end of 1923, it had increased by billions of times. The inflation rate was 20.9% per day. Production had collapsed which led to shortages of goods which was also due to excess cash in circulation and very limited goods; the prices of necessities doubled every three and a half days. How Germany combatted this issue mainly was via the German foreign minister, Gustav Stresemann introducing a new temporary currency ( the rentenmark) alongside renegotiating debt and securing new American loans to finance the government.

Does the Exchange Rate Regime Matter for Inflation and ...International Monetary Fundhttps://www.imf.org › external › pubs › issues2

Currency Substitution in High Inflation Countries - IMF eLibraryIMF eLibraryhttps://www.elibrary.imf.org › article-A011-en

Hyperinflation: Its Causes and Effects With Examples Could You Survive Hyperinflation? 

Gustav Stresemann and Recovery from the 1923 crisis.Oasis Academy Wintringhamhttps://www.oasisacademywintringham.org › G...

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