Artificial Intelligence (AI) has generated a new wave of creativity and productivity, which is expected to add trillions of dollars in value to the global economy.
This rapidly advancing technology is the ability of a computer or machine to showcase human-like capabilities such as learning, reasoning, and planning. It enables technical systems to perceive their environment, solve problems, act to achieve a specific goal and analyze their actions to adapt.
While AI technology has existed for several decades, the availability of huge amounts of data, advances in computing power, and new algorithms have led to many breakthroughs in recent years that have made the technology a part of our daily lives.
For instance, AI is being widely used to provide personalized recommendations based on people’s online behavior. This makes AI important in optimizing products, planning inventory, and logistics.
AI is also being used in web searches to provide more relevant results, in smartphones to provide personalized solutions via virtual assistants, in language software to enhance translations, in cars for navigation and safety functions, in cybersecurity to analyze data, identify patterns, and track attacks, in smart homes to save energy, and in smart cities to regulate traffic and improve connectivity.
AI is used across industries, helping to automate repetitive tasks, reduce human error, and enhance decision-making.
AI Adoption in Government
Governments worldwide have started adopting AI to improve operations and enhance efficiency. AI in the public sector can especially help streamline administrative processes by automating repetitive tasks like data entry and document processing, which can save time and money.
By providing data-driven insights, AI allows for improved decision-making while helping improve access to services and enhance citizen engagement. It can also be utilized to plan new infrastructure projects, speed up drug discovery and trials, and protect the public from extreme weather.
While AI enables smarter governance and fosters innovation in public service delivery, its use in government has concerns about privacy, security, compatibility with existing systems, lack of proper regulation, and job losses.
The ongoing development surrounding AI saw Europe passing the first comprehensive AI law and the UK gathering international governments for the first AI safety summit.
Last week, exclusive research detailed key steps for the UK government to take to capitalize on AI developments and capitalize on their potential to revolutionize policymaking and national security.
The report from the Global Government Forum is based on interviews with ten government digital leaders about their perceptions of the UK’s performance on AI. It shows that the country is far from ready to take advantage of AI’s opportunities.
While the UK government is doing exemplary work around AI safety, it is referred to as ‘the brake.’ External hype and significant ministerial interest in AI, meanwhile, are acting as ‘the accelerator.’
As per the report, it’s important to exploit AI opportunities and manage its risks. However, practical work—the testing, trialing, implementing, and scaling-up of AI applications—is still not advanced.
Meanwhile, the UK’s moves, which include making an incubator for AI (i.AI), Government Digital Service (GDS), and Central Digital and Data Office (CDDO) part of the Department for Science, Innovation and Technology (DSIT), are seen as a promising development. The report noted:
“It establishes the kind of single AI authority that’s needed to build a whole-of-government vision.”
In conclusion, the government needs a clear, overarching AI roadmap. The report recommends a strategic move for AI across the government. The key elements it should include are vision, design, plan, leadership, collaboration, people, and accountability.
“Embedding AI across government departments and functions is not just a strategic choice,” the report noted, it is a need to ensure that a country “remains competitive and responsive in an increasingly digital world. Its potential to enhance efficiency, reduce costs, and improve outcomes is immense.”
Progress on AI in Canadian Government
As AI technologies continue to attract attention, governments’ interest in their transformative potential is also rising, and Canada is taking a particularly special interest.
Last week, Bank of Canada governor Tiff Macklem said that the central bank is working on a better understanding of how AI could help keep inflation low and stable. He noted that there is a lot of uncertainty around this technology regarding its effect on the economy moving forward, including the labor market and price growth.
At the same time, in his speech, Macklem acknowledged AI’s potential to boost labor productivity, which would raise living standards and grow the economy without raising inflation. However, he said, short-term investment in AI adds to demand, which can be inflationary. Also, AI can displace more jobs than it creates and may lead to less competition than more.
The governor called on businesses and academics to collaborate to better understand AI’s potential effects on the economy.
Last month, the Government of Canada noted that AI technologies offer promise for improving the way they provide digital services and are exploring their usage in government programs and services.
A month before that, the government released a guide on the use of generative AI, which offers “many potential benefits to Government of Canada (GC) institutions.”
As per the guide, federal institutions should explore potential uses of generative AI tools to support and improve their operations, but not without evaluating their ethical, legal, and other risks and using them only in instances where the risks can be managed effectively. The guidance stated:
“More analysis is needed to determine the most appropriate and beneficial uses of these tools by federal institutions. Experimentation, coupled with performance measurement and analysis, is needed to understand potential gains and trade-offs better and to inform the government’s approach to the use of these tools.”
If we look at the progress on AI in the Canadian government, it all started about eight years ago when an AI whitepaper was drafted with several academic, civil society, and government subject matter experts.
This led to TBS binding policy on the automation of decisions, followed by a session with different departments. In 2018, an AI policy working group was kicked off, as was an AI Day with 120 participants from industry, academia, and government. Then came the creation of a Justice AI taskforce to provide input and direction on legal issues, and after that, several related consultations took place.
The year after that, a directive on automated decision-making was followed by directive compliance. In 2021, the directive was amended based on feedback received from stakeholders, and after further engagement, it was again updated last year. Key changes included an expanded scope and new measures for explanation, bias testing, data governance, and peer review.
The same year, federal institutions received guidance on using generative AI, and the updated Digital Nations shared approach to the responsible use of AI in government was then endorsed.
This year, key changes were made to the gen AI guidance, including enhanced definitions of the FASTER principles and responsibilities for federal institutions. In May, an AI roundtable was hosted to inform the first-ever AI strategy for the federal public service, followed by a public consultation on the Government of Canada’s AI strategy for the federal public service early last week.
AI’s Impact on Central Banking and Economy
At the Bank of Canada, AI is already being used to forecast demand for banknotes, inflation, and economic activity. The technology is also being used to improve efficiency, de-risk operations, clean and verify regulatory data, and track sentiments across the main sections of the economy.
The central bank has just begun exploring AI, and to fully utilize it, it needs to invest in data, computing power, and manpower.
This exploration has been in line with AI’s impact on several elements critical to an economy, which calls for central banks to have a good idea of just how AI is affecting inflation directly and indirectly, said Governor Macklem.
The governor’s remarks at the National Bureau of Economic Research’s Economics of Artificial Intelligence Conference, posted by the central bank on Sept. 20, detailed the technology’s impact on the global economy.
Talking about AI’s main impact on productivity, he noted that, as history has shown, the first technical applications tend to be less transformative and take years to diffuse through the economy. While the full effects of AI won’t be seen anytime soon, Macklem noted encouraging early results from firm-level studies on AI adoption.
Estimates suggest AI can automate a quarter of work tasks in the US and increase total factor productivity (TFP) by 9% over the next decade. Macklem stated that such a sustained boost in TFP in Canada would result in a spike of about $4k per year in an individual’s average income.
When looking at AI’s effects on the broader economy, it needs to be seen just how much boost productivity growth will have, as that plays a key role in determining how fast the economy expands without triggering inflation.
In the long run, AI can be expected to boost productivity, which will allow for higher wages and more spending without pushing up inflation. Meanwhile, in the short run, strong investment in AI technologies is already seen boosting demand in the economy, with the run-up in equity prices supporting consumption.
So, through faster productivity growth, AI can foster demand more than it increases supply in the short run, which may lead to inflationary pressures.
Now, what about labor markets? Macklem points to studies suggesting that in the very long run, machines could perform many of the tasks that people do now.
For this, he looked into history, which shows that “technological change has ultimately been a net positive for overall employment.” On the contrary, AI could shrink the number of non-automated tasks, and if AI is creating many new goods and services, then the labor market may not benefit from increased demand.
Also, in previous change cycles, the tech adoption occurred over a longer period, which gave the workforce time to adjust, unlike this time, when the adoption is happening at a faster rate.
The governor then touched upon AI affecting how businesses set prices, with evidence showing that digitally focused firms make price changes more regularly than less digitally intensive firms. He noted:
“For us central bankers, this means the Phillips curve might be steeper than previously thought. When combined with a more shock-prone world, this suggests inflation could be more volatile than it was in the 25 years before the pandemic.”
AI may also adversely affect competition by allowing just a handful of companies to keep monopoly power, which would ultimately lead to less competition and higher prices.
The governor said that with the timing, magnitude, and direction of AI’s impact uncertain, monetary policymakers need better information, research, and analysis into the technology’s effect on the overall economy and inflation.
“The recent rapid advances in AI, and GenAI in particular, have the potential to transform economies around the world,” concluded Macklem, adding that there’s a lot of uncertainty, which for central banks means “maintaining price and financial stability in the face of disruptive technological change. And it means leveraging AI to do our jobs better.”
Click here to learn all about investing in artificial intelligence.
Companies Leading the AI Development
When it comes to nations, the US is leading in terms of implementation, innovation, and investment in AI and is followed by China, according to the Global AI Index 2024. But what about companies?
Given the vast scope and significant demand for the technology, AI has taken over the world, with everyone jumping on this bandwagon. However, a few names are currently leading this development.
Amazon (AMZN) is using AI extensively in its services, including AWS for machine learning, cloud-based AI tools, and its own AI-powered personal assistant, Alexa. Meta Platforms (META) is also heavily involved in AI research and development, while Alphabet (GOOGL) is involved via Google AI, DeepMind, and Waymo.
Then there’s IBM’s Watson AI, which is known for its enterprise-level AI solutions; Palantir Technologies (PLTR) specializes in AI-powered data analytics; and Adobe (ADBE) is leveraging the technology in its Creative Cloud and Experience Cloud products through its Sensei AI framework.
Now, let’s take a deeper look at a couple of public-listed companies helping advance the tech:
#1. NVIDIA (NVDA)
Nvidia is at the forefront of AI hardware, developing GPUs and AI platforms that power machine learning, deep learning, and AI model training. Its hardware is important for AI development across industries.
With a market cap of $2.85 trillion, the company shares are currently trading at $116, up 134.24% YTD. It has an EPS (TTM) of 2.13, a P/E (TTM) of 54.48, and a dividend yield of 0.03%. For Q2 2024, the company reported $30 billion in revenue, up 15% from the previous quarter and a whopping 122% from a year ago. Nvidia’s GAAP earnings per diluted share was $0.67, up 168% from a year ago. Meanwhile, $15.4 bln was returned to shareholders in the form of shares in the first half of the year. The company also completed a ten-for-one forward stock split in this quarter.
“NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI.”
– Founder and CEO Jensen Huang
He added:
“Generative AI will revolutionize every industry.”
#2. Microsoft (MSFT)
This tech giant is integrating AI across its products, such as Azure AI and the Copilot feature in Microsoft 365. One of the best AI moves from Microsoft has been its heavy investment in OpenAI, the company behind ChatGPT, further expanding its reach in generative AI.
With a market cap of $3.23 trillion, the company shares are currently trading at $433.55, up 15.75% YTD. It has an EPS (TTM) of 11.80, a P/E (TTM) of 36.89, and a dividend yield of 0.76%. For the quarter ending June 30, 2024, the company reported $22 bln in net profit.
Recently, Microsoft announced an increase of over 10% in its quarterly dividend and said that it would buy back as much as $60 billion in stock. The new repurchase program, however, can be canceled at any time.
Meanwhile, Microsoft is collaborating with BlackRock and other companies to raise $100 bln to develop data centers for AI and energy infrastructure to power their AI workloads.
“We are committed to ensuring AI helps advance innovation and drives growth across every sector of the economy.”
– CEO Satya Nadella
Conclusion
Overall, AI holds tremendous potential to transform industries, improve productivity, and revolutionize economic systems. While private investment has grown significantly, governments are now also recognizing its promise and calling for inclusive, safe, and responsible adoption.
As Macklem noted, AI is still in its early days, though it is already disrupting existing industries and creating new ones. So, it’s high time that governments have a clear, strategic plan in place to capture its potential and lead the way.
Click here to learn about Canada’s top ten concerns for the near future.