Thursday, 1 December 2016

AI Automation Will Save The UK Economy Billions

I was watching a TV programme recently about the BMW Mini manufacturing plant in Oxford employing apprentices. I thought, how quaint, but surely most of the construction is now automated? Then it became apparent that these apprentices were not there to build cars (at least not directly), but instead their job was to maintain the robots that did all the work!

That same night, I saw another programme about the introduction of the Boris Bus in London. This is a very high tech machine, sporting a hybrid diesel-electric drive-train and a 75 kWh lithium iron phosphate battery pack. The "classic Routemaster" mechanics at the bus garage were complaining that you couldn't work on these new vehicles without a degree in computer science. Most were reluctant to even consider retraining...

We hear a lot of doom and gloom in the press about how machines will steal jobs. But I see it another way - machines will release us from drudgery to do more interesting things, just as they did during the industrial revolution. Nobody would want to go back to a time before electricity and, in a similar vein, we will not want to go back to a time before mass AI automation.

So, I decided to calculate exactly how much AI automation will contribute to the UK economy. According to the Office of National Statistics the current UK workforce is comprised as follows:

Sector People %
Agriculture, forestry and fishing 381,000 1.1%
Mining and quarrying 64,000 0.2%
Manufacturing 2,684,000 7.8%
Electricity, gas, steam and air conditioning supply 128,000 0.4%
Water supply, sewerage, waste and remediation activities 212,000 0.6%
Construction 2,301,000 6.7%
Wholesale and retail trade 5,026,000 14.6%
Transport and storage 1,588,000 4.6%
Accommodation and food service activities 2,316,000 6.7%
Information and communication 1,409,000 4.1%
Financial and insurance activities 1,148,000 3.3%
Real estate activities 548,000 1.6%
Professional scientific and technical activities 2,998,000 8.7%
Administrative and support service activities 2,927,000 8.5%
Public admin and defence 1,484,000 4.3%
Education 2,953,000 8.6%
Human health and social work activities 4,279,000 12.5%
Arts, entertainment and recreation 965,000 2.8%
Other service activities 921,000 2.7%
Total 34,332,000 100.0%

This is where I begin to make some pretty big assumptions! Proceed with caution!!

Given that the average gross salary in the UK is £26,260 we can get a feel for how much is spent on employment in each sector. And, using my "patented" back of an envelope calculation, we can see how much AI will impact each sector over the next twenty years - in terms of the number and financial cost of jobs that will be displaced. There is a method in this madness - honest!

Sector People % Salary (£m) AI Penetration People Saving (£m)
Agriculture, forestry and fishing 381,000 1.1% £10,005 23.9% 90,897 £2,387
Mining and quarrying 64,000 0.2% £1,681 21.6% 13,794 £362
Manufacturing 2,684,000 7.8% £70,482 37.4% 1,004,637 £26,382
Electricity, gas, steam and air conditioning supply 128,000 0.4% £3,361 9.7% 12,368 £325
Water supply, sewerage, waste and remediation activities 212,000 0.6% £5,567 11.3% 23,987 £630
Construction 2,301,000 6.7% £60,424 21.0% 482,409 £12,668
Wholesale and retail trade 5,026,000 14.6% £131,983 24.7% 1,243,521 £32,655
Transport and storage 1,588,000 4.6% £41,701 31.7% 503,939 £13,233
Accommodation and food service activities 2,316,000 6.7% £60,818 17.3% 400,393 £10,514
Information and communication 1,409,000 4.1% £37,000 25.7% 362,321 £9,515
Financial and insurance activities 1,148,000 3.3% £30,146 42.4% 486,615 £12,779
Real estate activities 548,000 1.6% £14,390 36.3% 199,101 £5,228
Professional scientific and technical activities 2,998,000 8.7% £78,727 9.4% 280,476 £7,365
Administrative and support service activities 2,927,000 8.5% £76,863 28.0% 819,722 £21,526
Public admin and defence 1,484,000 4.3% £38,970 13.7% 203,954 £5,356
Education 2,953,000 8.6% £77,546 16.1% 474,694 £12,465
Human health and social work activities 4,279,000 12.5% £112,367 17.6% 754,240 £19,806
Arts, entertainment and recreation 965,000 2.8% £25,341 4.2% 40,984 £1,076
Other service activities 921,000 2.7% £24,185 17.1% 157,600 £4,139
Total 34,332,000 100.0% £901,558 22.0% 7,555,651 £198,411

As you can see, I predict that financial services, manufacturing and real estate will be hit hardest, closely followed by transportation and administrative support. Overall, I predict 7.5 million jobs and £200 billion of salaries will disappear from the traditional economy over the next twenty years - that's 22% of our workforce.

So, why is this good news?

Well firstly, a £200 billion saving per year will have a huge impact on the UK's GDP. Overall, in 2015, the UK's current account deficit was £96.2 billion (5.2% of GDP) at current market prices. This puts us firmly in the black very quickly. That money can be reinvested on health care, environmental protection, crime reduction and, most importantly, education. These are all factors that improve quality of life.

Secondly, the revolution won't happen overnight. Innovation of this sort generally follows a normal distribution or bell curve, which is summarised nicely by the diffusion of innovations theory. The first few years will show relatively little progress, with a surge towards the mid-term and finally slowly mopping up the laggards towards the end. We can use the slow ramp-up phase to ensure that people who lose their jobs to AI are being retrained. This requires patience, recognising that it will take time for these workers to be reemployed in higher skilled jobs.

To compliment this, our workforce and young people still in education should be directed towards what have become known as 21st century skills. These skills have been designed to foster creativity and global engagement:

  • Critical thinking and problem solving
  • Creativity and innovation
  • Cross-cultural understanding
  • Communications, information and media literacy

There will still be a demand for people, just as there was following the industrial revolution. Forward thinking companies, like BMW mentioned at the beginning, are already planning for this future. Even the White House has published it's paper "Preparing for the future of Artificial Intelligence". I have faith in the human race and the free market to work out the kinks.

Obviously, this story is not unique to the UK - all economically developed countries will be feeling a similar effect. In stark contrast to the recent Brexit victory and "I'm gonna build a wall" Trump, I believe in a world without borders. The scientific community that will drive this revolution is global and, as the new world economy evolves, so too should its workforce.

I've written before, there's revolution happening in plain sight. And, it's going to be great!

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