SDG 8: Decent Work and Economic Growth | SDG 10: Reduced Inequalities
Ministry of Finance | NITI Aayog
The IMF’s Finance & Development feature titled “A New Industrial Revolution?" compares the rapid advance of Artificial Intelligence (AI) to historical shifts caused by General Purpose Technologies (GPTs) like steam power and electricity. The analysis states that AI offers fundamentally new possibilities for production and invention, but history suggests its full economic impact will take time, explaining the current AI “productivity paradox”.
Historical Lessons on Displacement and Distribution:
The analysis states that while technology raises productivity and the demand for labor over centuries, the unfolding of past revolutions, viewed decade by decade, revealed a bleaker picture.
During the early phase of the Industrial Revolution, the initial technological displacement of labor dominated, hurting workers (e.g., Luddite discontent). It was only in the 20th century that the reinstatement effect (new jobs replacing old ones) became stronger, driving up wages and living standards.
In a paradox, real wages in many leading economies have been flat since the late 20th century, despite the Information Age.
AI’s Unique Challenge to Inequality:
The analysis states that unlike previous waves of automation that mainly displaced low-wage routine tasks, AI is set to significantly impact high-income, white-collar jobs.
IMF research predicts that this will substantially increase wealth inequality as workers who own capital are best positioned to benefit from higher capital returns stemming from AI-driven productivity gains.
The article argues that policymakers must proactively intervene, as choices about the path of AI are currently being left to corporations with little concern for the broader economic impacts.
Policy Relevance
The historical analysis provides a crucial roadmap for Indian regulators, emphasizing that economic stability requires proactively influencing the development of AI towards labor-reinstating applications (e.g., in education and health) and deploying robust fiscal tools, such as strong social safety nets, to mitigate the risks of severe labor displacement and widening wealth inequality.
What is a General Purpose Technology (GPT)?→ A General Purpose Technology is a breakthrough innovation that offers fundamentally new possibilities for the production of goods and services and has broad applications across many economic fields. Historically, GPTs like steam power, electricity, and Information and Communications Technology (ICT) profoundly transformed entire economic systems, requiring new infrastructure, organizations, and policy approaches to fully realize their potential.
Relevant Question for Policy Stakeholders: What combination of fiscal policy and labor market interventions should the government deploy to ensure the benefits of AI adoption are equitably shared across Indian society?
Follow the full news here: A New Industrial Revolution? - International Monetary Fund