AI in CEE: Time for Reflection

By LookingEast.eu | www.lookingeast.eu

The advent of Artificial Intelligence (AI) applied to many economic sectors and driving Industrial Revolution 4.0. will likely bring a large increase in output and labour productivity to the economies of Central and Eastern Europe. This is because the nature of work will change due to robotization and the application of AI to new technologies will likely bring revolutionary breakthroughs. Our lives, professional and personal, will be transformed in fundamental ways. According to the McKinsey Global Institute, the annual contribution of AI to GDP could be as high as 7% in the future unfolding gradually in the coming years.This is anenormous boost to world GDP and, if harnessed properly, can enhance prosperity in many places, including in the CEE.

However, the application of AI to many sectors will also bring many challenges and the risk of disruption, to which national economies and their leaders will have to react. The transformation of the nature of work in many sectors and robotization will mean that many workers will be displaced from their current jobs. While predictions vary as to how AI will transform economies and to what extent the labour market will be affected, it is presumed that the impact will be fundamental. It is well worth considering the potential adverse effects of AI on the labour market now, since the unfolding of the AI revolution with enormously positive gains and concomitant negative economic side effects may arrive relatively quickly.

There are at least three areas where progress will help us prepare for the coming challenges:

First, it is clear that supporting lifelong learning will bring dividends on many fronts. Many displaced workers will likely not be able to find a new job in the same sector they worked in previously. Here retraining - possibly subsidized by governments - can help. Furthermore, a more complex response to boosting the lifelong learning sector - such as by various tax-related schemes to encourage private sector retraining and encourage the flow of funds to the sector - could also help.

Second, large infrastructure projects, which are still needed in many CEE countries, will help absorb released workers, however, the financing of such projects will be circumscribed by the usual fiscal constraints. Hence, an even more cautious than usual fiscal policy stance in the coming years will help prepare the fiscal position of individual countries for extraordinary expenditures should AI-related labour displacements prove significant and a launch of infrastructure projects be chosen as one of the solutions.

Third, but perhaps most importantly, promoting entrepreneurship and supporting various schemes to help start-ups will go a long way towards creating a base from which many new enterprises can spring up ready to absorb displaced workers. Since industry is particularly vulnerable to labour displacements due to likely future robotization and while start- ups in this sector are a particularly demanding undertaking, innovative ways to help such start-ups will be called for. An increased flow of funds to the R&D sector could help CEE countries further reduce the gap to the technological frontier. Effective collaboration between business and universities would mean that advances in research will translate into commercial products. Additionally, small business and self-employed workers should be encouraged via various schemes. The support of small businesses could be an effective solution to many ills which the current integrated economic system brings alongside prosperity.

An AI-related revolution is right round the corner. In order to fully realize its potential, which is enormous for economic prosperity and the quality of life, it is time to consider the best medium-term solutions to the downsides that it is likely to bring alongside the benefits.