• Angelica Sirotin

AI Can Hurt Developing Nations Without Proper Economic Intervention.


While AI has continued to impact every industry and global citizenry, agencies have been hard-pressed with the task of resolving the digital divide. Technological advancement has always been viewed as beneficial for all; however, this is not always the case. The claim that AI is going to improve everyone’s standard of living couldn’t be farther from the truth. First of all, this is because AI technologies are largely natural resource-saving and labor-saving, which can potentially hurt developing nations whose economies rely on natural resources and unskilled labor. Second, AI can lead to power-vacuum mega monopolies that will give developed nations “Ultra-Competitive Advantages” in the global market. Therefore, without proper governance measures in place, AI technologies can potentially exacerbate inequality by making developing countries worse-off and even overturn decades worth of economic growth.


Problems


AI can impede upon the convergence in living standards.

Convergence theory dictates that global societies tend towards a condition of similarity. Because of the exponential growth that AI can grant to technologically mature (developed) nations, developing countries with largely poor technological infrastructure and information may be left in the dark in terms of advancement. Because the rate of immersion/adoption of new innovations is much slower on average in developing countries that in developed countries, AI may completely destabilize global convergence patterns in standards of living that we have witnessed over the last several decades.


AI may disrupt trade for developing nations.

Developing nations experience manufacturing-based and export-led GDP growth. AI technologies can yield diminishing returns to labor and natural resources, which can negatively impact terms of trade (the ratio of an index of a country's export prices to an index of its import prices). In other words, AI can reduce the demand for natural resources, in which case the value-add of developing nations for the global economy decreases, hence deteriorating terms of trade. A tricky situation here is that, for example, countries that export oil (Saudi Arabia, Russia, Iraq, etc.) will face dire issues with economic development because resource-saving technologies would sharply decrease oil demand, and cause these nations with massive oil reserves to actually become poor.


Developing nations lack a skilled labor force.

Developing countries rely on unskilled labor. Because AI technologies are labor-saving, the demand for unskilled labor decreases, meaning wages decrease and the net effect is overall negative for developing countries. Therefore, with AI innovations, those few skilled workers that do exist in developing nations (a fractional amount) would be the ultimate winners with disproportionately higher wages, therefore sharpening income inequality as we have never seen before.


Monopolies and concentrated market power

If enough AI monopolies/mega firms emerge, competitive economic models as we know them might become obsolete. Because AI is instantaneously applicable to every industry, one firm (or a group of firms) can service a wide range of markets. This means that AI is a non-rivalrous good, meaning that it is consumed by people, but its supply is not affected by people's consumption. As a result, it isn’t hard to see that AI will bring about mega monopolies with unbelievable market control, forcing huge barriers to entry that developing economies would simply not be able to take down.


Knowledge gap

Developing nations are far less successful at adopting and implementing AI technologies because of the severe knowledge gap involved. The knowledge gap is one of the reasons in the first place as to why developing economies are poor.



Solutions


Investments into Education and Infrastructure

  • A skilled labor force is essential to the success of developing nations in the AI age. At a minimum, developing economies must invest in "Intelligent Assistance" education (or when humans assist in parts of AI automated processes, such as in factories).

  • Governments of developing nations must focus on policy that boosts demand of unskilled labor. This can be accomplished by investing into digital infrastructure, transportation and other projects that are unskilled-labor demanding and can potentially employ millions of individuals. This can offset the negative impact of diminishing exports.

Focus on Digital Infrastructure

  • Without proper digital infrastructure in place to adopt AI and new emerging technologies, developing nations will never be able to catch up to the pace of progress that is set by the developed world.

  • The focus of developing economies should be investments into digital infrastructure for purposes of technology immersion and adoption, and particularly for those technologies that are "Augmented Intelligence" in nature.

Taxation Policies

  • Most developing nations lack the institutional capacities to increase taxes or even keep track of them. By leveraging digital platforms (like e-Estonia has exhibited), it is possible to promote and regulate taxation in developing nations (assuming the right digital infrastructure is in place).

  • With the rise of Mega Monopolies in developed countries, governments can potentially tax and redistribute Mega Monopoly rents. Economic rent is an amount of money earned that exceeds that which is economically or socially necessary. Revenues of new-age monopolies will be significantly higher than those of present day. Therefore, taxation and distribution of "Mega Rents" owned by monopolies without distortion of equilibrium prices may be feasible.

Discovering New Competitive Advantages

  • Although AI is a resource-saving and labor-saving technology, some developing nations may still find themselves beneficiaries.

  • For example, developing nations that are rich in metals (Myanmar, India, Thailand, Madagascar), may engage in trade with developed nations that would need to use these resources to augment or create new innovations.


"Augmented Intelligence" Industries

  • In order to mitigate the effects of the digital divide, developing nations should focus their economies on employing labor for "Augmented Intelligence" duties.

  • These tasks include aiding AI systems in agriculture, healthcare (aging population care), transportation, construction of infrastructure, and other related industries that remain central to economic growth of developing countries.

  • In other words, developed economies can focus on innovation of AI technologies while developing economies can focus on deploying human capital to augment the processes of these innovations

Inclusive Global Policy Framework

  • Countries with the highest annual per capita Gross National Income (GNI) will dictate how quickly technology is made and adopted. This casts developing nations into the shadows with little say into how fast the pace of progress should be. Being in the dark also make it extremely difficult for developing nations to gain any of the tax rents on Mega Monopolies in high GNI countries.

  • A formulary appointment tax system may be feasible and should be considered. According to the TPC, "Under formulary apportionment, a multinational corporation would allocate its profits across countries based on its sales, payroll, and capital base in each jurisdiction." This system can potentially help equalize the massive, AI-caused income divide between developing and developed economies.

  • There must also be an international competitiveness and information policy regime. Anti-trust laws and data trade terms must be established to lessen the digital divide.

To Conclude

Developing nations are export-based economies that rely on unskilled labor, and hugely lack proper digital faculties to participate in the AI economy. By addressing the labor-saving resource-saving problem that AI poses, and by leveling the playing field with proper economic and government intervention, the digital divide can potentially be resolved.

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