The Banking Executive Magazine - July 2023 Issue

2021. With the world population set to continue growing, AI could exac- erbate these trends. The prospect of a rise in structural unemployment reminiscent of the deindustrialization of the 1980s is a daunting one. Governments worldwide may see re- distribution as an immediate solu- tion, raising taxes on AI-driven productivity gains and using these revenues to support the broader pop- ulace, perhaps through mechanisms like universal basic income. How- ever, the complexity of the issue calls for a multifaceted solution. Govern- ments may need to consider taxing not just excess profits but the rev- enues of the firms reaping the largest rewards from AI. Thus, a more equi- table share of the AI windfall could be claimed by the state and, in turn, the general population. Meanwhile, businesses face an uphill battle to recalibrate their strategies and operations for a future with higher productivity and a smaller labor force. Their survival will de- pend on their ability to generate more output with less capital. The ability to adapt and achieve low cost-to-income ratios will determine who thrives in this new era and who falls by the wayside. Corporate adjustments will have far- reaching consequences throughout the economy. As the demand for capital decreases, firms will rely less on borrowing from banks, leading to a decline in overall activity in capital markets. Higher taxes on corporate profits or revenues to support the growing number of unemployed could leave corporations with lower retained earnings to reinvest. This would not only hurt the companies but also potentially undermine eco- nomic growth, shrink the economic pie, and lower living standards. Moreover, it could narrow the tax base, erode the middle class, and widen inequality between the own- ers of capital and the traditional labor force. We're entering uncharted territory. To navigate these treacherous waters, governments and policymakers need to re-evaluate long-standing eco- nomic models and principles. Short- term measures, like raising taxes and redistributing revenues, can provide some relief, but a more profound re- thinking is required. We must ques- tion the foundational assumption that labor is a key engine of growth and explore new paradigms where, in the age of AI, workers may not drive growth but must unequivocally ben- efit from it. As we hurtle towards this future, adaptation, innovation, and inclusivity must guide our path. the BANKING EXECUTIVE 18 ISSUE 175 JULY 2023