The advent of ChatGPT and other popular AI technologies is fueling a wave of transformation sweeping across almost every industry. The race towards optimal adoption of automation and the replacement of labor costs with expensive, high-energy-consuming technology is becoming a matter of survival of the fittest in the business world. Automating processes that once took months, replacing people’s jobs to remain competitive, is the harsh new reality of our time. While AI has already made significant strides in reducing the cost of repetitive tasks such as data entry and compliance verification, new functionality threatens the jobs of highly qualified professionals, such as lawyers and doctors. It could be argued that nobody’s job is safe from this transformation. AI certainly promises to lower the cost and shorten the time to access medical care, and so many other goods that are today unattainable for many. However, it remains unclear if the free market where these products are sold will even exist in 10 years.
Let me elaborate: as everyone jumps on the AI labor replacement bandwagon and technology evolves faster than the labor force can be re-skilled, the structural unemployment gap will likely grow larger. Given the way in which the government measures unemployment (people unemployed for more than 18 months are no longer considered part of the working force), it is very possible that unemployment numbers can be kept artificially low; While the market demand for goods shrinks significantly and productivity numbers remain very high due to the ability to produce large quantities of output at a minimal cost.
But how does this relate to the end of capitalism and potentially the erosion of democracy? To put it more bluntly, capitalism, the backbone of democratic regimes, supports freedom of choice through a meritocracy fueled by access to labor and consumption. However, consumption dollars flowing towards AI platforms, support the rise of a technocracy instead. In this scenario, a lot of cash (resources) flows towards a single platform or a few platforms (Meta, Google, Nvidia, Amazon Web Services, ChatGPT, etc.), ultimately resembling more of an oligarchy, as information flows and resources are monopolized. A phenomenon that is slowly emerging in the US, as President Trump gears up to take office, surrounded by his rich technocrat friends.
Further evidence of the subtle erosion of freedoms already happening, particularly economic access freedom, is reflected by the rise of extreme far-right ideologies across advanced economies in Europe. Professor Michael Cox (LSE) attributes the rise of extreme right-wing movements disguised as populist movements to the expansion of economic inequality and the lack of opportunity. Protectionism, extreme nationalism, and ultimately autocracy are symptoms of a much bigger problem: growing structural unemployment. The free market is further threatened by projected retiree-to-worker ratios driven by rising life expectancy. In 2015, the US Immigration Policy Center estimated that this ratio would move from 7:1 (in 1950) to only 2.8 working people per retiree by 2050. This, of course, was before the AI race to replace labor was unleashed. As we know, taxes from working people support retirees’ pensions. With fewer working people, tax burdens will have to be higher on those remaining employed, or pensions will have to be lowered unless AI agents are taxed. Either way, it points to a smaller consumption market and increased competition in a shrinking economy.
Don’t get me wrong, I am not saying that we should revert to the dark ages to ensure the survival of capitalism and democracy. Rather, I am suggesting that big companies, the same ones that are reaping the benefits of automation, should begin thinking about what the future of consumption will look like when enough people lose their jobs to automation. If you think competition is fierce now, imagine what will happen when the pool of paying customers continues to shrink every year. And why should big corporations think about this? Because their very existence depends on it. Governments are too busy regulating interest rates and applying 1970s economic theory to realize the profound shift in the core of our financial system.
It is ironic to see that the race towards cost efficiency has reached a point where its application threatens the very system it is meant to protect. Perhaps the time has come to imagine what our institutions and norms around consumption and democracy will look like when we reach a point where we can produce more than we can consume through traditional employment. Will it be the end of capitalism? It is hard to know, but it will be challenging to continue perpetuating ideologies of resource distribution based on hard work when there is not enough work to go around.
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