Digital Disruption

00;00;02;00 - 00;00;13;08

Carl Benedikt Frey

The best case is that you know what we're producing. It's going to take your job. And in worst case, this is going to kill you. But, you know, please don't. Regulators nonetheless.

00;00;13;10 - 00;00;39;27

Geoff Nielson

Hey, everyone. I'm super excited to be sitting down with Professor Carl Benedikt Frey. He's Oxford's associate professor of AI and work and the author of two bestselling books, The Technology Trap and How Progress Ends. As an economist and historian, Carl is intensely skeptical of the vision of the future that we're being sold by Big Tech and thinks we have a lot to learn by studying other periods of rapid industrialization and technological change.

00;00;40;00 - 00;00;57;09

Geoff Nielson

Through his research. He thinks he has the recipe for why some countries have been able to use technology to get ahead, and why some have been left behind. I want to know what that recipe is and if it's still applies, or if this time really is different. What happens next to our jobs, to our countries and to ourselves?

00;00;57;13 - 00;01;18;05

Geoff Nielson

And what do we need to do to get ready? Let's find out. Well, Karl, thanks so much for being here today. Maybe just to jump into things, I wanted to talk a little bit about your book, How Progress Ends Up, because I talk to a lot of people, you know, on this program, obviously about AI, about the future of technology.

00;01;18;05 - 00;01;41;02

Geoff Nielson

And here an awful lot of stories about, you know, this world we're heading toward of abundance and how, you know, society is going to be incredible. And, you know, nobody can wait for the, you know, this next amazing thing. And your take is a little bit more skeptical than that. And I was curious if you could walk us through, you know, some of the, the risks societally, that come with, at any sort of large technological change.

00;01;41;02 - 00;01;45;02

Geoff Nielson

And what you've seen in your research that led you to publish this book.

00;01;45;05 - 00;02;18;22

Carl Benedikt Frey

So if we go back to the 1990s, and you would have told me that as a result of the personal computer and the internet, which essentially gave us the world, stored knowledge in our pockets that connected some of the leading talents, around the world that streamlined the research process extraordinarily. If you would have told me that all we were gonna get from that is a decades streak upsurge in productivity, mostly confined to the United States.

00;02;18;25 - 00;02;53;06

Carl Benedikt Frey

I would probably have thought that you were crazy because the technology was and still is so promising and useful, and I can't stress that alone. Right before the computer and the internet, you would spend, you know, days, sometimes weeks, just waiting for material and so that you could continue your, research and what we get despite that, is, you know, even a decline in breakthrough innovation and research productivity.

00;02;53;09 - 00;03;30;08

Carl Benedikt Frey

And so what that tells me is that there must be something else going on that is not just about the technology. And so I'm not skeptical about artificial intelligence or the potential of the technology itself. But I think as things stand, it's not on par with the computer revolution. Yet. The computer revolution automated a lot of downtime sitting around waiting for, useful information.

00;03;30;11 - 00;03;57;00

Carl Benedikt Frey

AI automates cognition. Or that sort of process of turning that information into, a useful output. But as long as you need to verify the output, you need to be up to speed with the AI. You need to learn the things that the algorithm learns. You need to understand it in order to be able to verify the output.

00;03;57;03 - 00;04;17;16

Carl Benedikt Frey

And so I think that, artificial intelligence is quite different in that regard. And in that sense, I think it's actually even less likely to boost productivity than what we saw with the computer revolution, which again, strikingly, was mostly confined to the United States.

00;04;17;19 - 00;04;33;02

Geoff Nielson

So, so when you see some of these studies that say the productivity gains from I have yet to materialize, it sounds like you're not surprised at all by that, that that that's in line with what you would expect, given the human factor in all of this.

00;04;33;05 - 00;04;56;22

Carl Benedikt Frey

Well, it's very much in line with the historical aspects. Looks. It took a decades for, you know, steam to deliver its main boost to productivity. In Britain, it took around four decades for electricity to show up in the productivity statistics. We see a similar pattern with our city. You might think that I should be a little bit quicker because I, you know, it's the production technology, but it's also consumer goods.

00;04;56;23 - 00;05;19;22

Carl Benedikt Frey

And you can just download it on your phone or on your desktop and you can use it, straight away. So, you know, I think that I will deliver some boost to productivity. I would be very surprised if we did not, but I don't think we should assume that it's going to be as significant as many people hope.

00;05;19;25 - 00;05;52;23

Carl Benedikt Frey

And it might also be very short lived. Right? And so the computing revolution did not deliver anything like the sustained growth that we were seeing from 1920 to 1970, interrupted by the war. And I think that is in part because it didn't deliver new things, new products, new industries to the same degree that we saw back then. Right.

00;05;52;23 - 00;06;20;22

Carl Benedikt Frey

So the automobile industry was the largest industrial undertaking that the world had ever seen. It produced not just out of mobile industry, but host of industries making the components that go into making a car. Range of industries, making machine tools needed to make the components. Electricity produced all the electric appliances you have in your home.

00;06;20;22 - 00;06;45;23

Carl Benedikt Frey

There was an industry, standing behind those, the car gave rise to road commerce, travel, mass tourism. And so it created a lot of new kinds of things. Whereas with the computer revolution, yes, of course, it's created new jobs and industries as well. But, you know, it's been much smaller scale and mostly confined to a few places, like the Bay area.

00;06;45;25 - 00;07;18;09

Carl Benedikt Frey

And when I look at artificial intelligence today, I think of it very much as a continuation of the computer, revolution. Basically, every application I can think of today has something to do with automation or process improvements, and those are important. But look, if all we had done since 1800 was automation, we would have productive agriculture. We would have cheap textiles, but that would be about that.

00;07;18;11 - 00;07;41;15

Carl Benedikt Frey

We wouldn't have computers, antibiotics, vaccines, rocket airplanes, etc. and so unless artificial intelligence, develops new types of products that lead to new industries and activities. It's much more likely to be a relatively short lived productivity. Such.

00;07;41;17 - 00;08;08;19

Geoff Nielson

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00;08;08;21 - 00;08;30;26

Geoff Nielson

It's a really interesting historical counterpoint to talk about, you know, cars and transportation and, you know, in the confines of AI. You hear a lot these days about, you know, the AI infrastructure needed in the race between, you know, within the you within the US, some of the hyperscalers and then of course, China and some of the other big players.

00;08;30;28 - 00;08;57;03

Geoff Nielson

But even how small that sounds compared to, you know, with cars, the physical infrastructure and as you said, you know, not just factories and electricity and components, but but the roads themselves and, and the physical environments, I'm curious, as you, you know, apply more of that historical lens. We can see a situation where, you know, now we've got these major players racing to build this infrastructure.

00;08;57;10 - 00;09;20;18

Geoff Nielson

We had something similar with cars. And again, it seemed like it was very, you know, dominated by the US. But historically, and you mentioned, you know, the steam engine, the industrial revolution, we've had all sorts of, you know, big players and even empires tried to capitalize on these new technologies to to get ahead and, you know, leapfrog their peers in terms of economic power.

00;09;20;18 - 00;09;34;13

Geoff Nielson

And also just in terms of, you know, that power in the broader sense of the word, what what lessons do those share for what you're seeing with with the next kind of great technological leap forward?

00;09;34;15 - 00;10;25;25

Carl Benedikt Frey

So I think a key difference with the infrastructure that was built around highways, around railroads, around the electrical grid, was the technology that that was built to use. And leverage. That technology was relatively mature at the time, or at least the science behind it was broadly understood. I think with artificial intelligence, it's a much riskier bet, not just because the infrastructure itself seems to have a shorter, life span, but also because we don't quite know right now what the future of AI might be.

00;10;25;27 - 00;11;04;11

Carl Benedikt Frey

Right now, we're seeing The Magnificent Seven doubling down on large language models. That's one approach to AI, but it may be that the future of AI is smaller language models. Or it may be that, you know, it's world models. Or maybe that's something very different. One thing that strikes me is that humans are much more compute and data efficient than, AI is today.

00;11;04;14 - 00;11;33;06

Carl Benedikt Frey

And I think, you know, a useful analogy is with the steam engine. Right. And so the early steam engines that were tremendously energy inefficient, they were basically only used to drain coal mines and even that that didn't do particularly well. Well. And so you needed James Watt separate condenser to make steam engines energy efficient. And that's when the sort of steam revolution takes off.

00;11;33;09 - 00;11;55;00

Carl Benedikt Frey

And I don't think we reached that separate condenser moment yet with artificial intelligence. And in the end of the day, to which degree we need this massive infrastructure buildout will depend on that moment and what the future of the technology looks like.

00;11;55;02 - 00;12;18;01

Geoff Nielson

So so if I can feed that back to you, it sounds like you're not necessarily skeptical of the long term trajectory of this technology and its ability to revolutionize things that we're doing. Your view is, is more that we're still in early days and we probably need another, you know, massive invention or two to truly unlock what's capable here.

00;12;18;04 - 00;12;31;03

Geoff Nielson

And that if we're getting too far ahead of ourselves building out all this infrastructure before we create, you know, the equivalent of the condenser, it could all become redundant and not yield any return. Is that fair?

00;12;31;05 - 00;13;01;11

Carl Benedikt Frey

I think that's a fair assessment. But I also think in addition to that, and that's the key points of the book, it's not just about the technology. It's not just about the tech, it's about the institutions and the incentives and so, you know, when you get, powerful technology that allows you to do more stuff, you can use that, you know, either to use those efficiency gains to dig deeper or just drill more holes.

00;13;01;13 - 00;13;45;16

Carl Benedikt Frey

And I think one of the reasons that we've seen, that breakthrough innovation has declined, even though we have much more powerful tools at our disposal, is that in academia, the incentive is publish or perish. And so we've seen people taking on more projects as a result of, these productivity enhancing tools. And we see that people's attention is now more thinly spread across multiple projects.

00;13;45;19 - 00;14;19;26

Carl Benedikt Frey

The recent shows that the more things you do at any given point in time, the less likely you are to make a breakthrough. And so I think those incentives matter, and AI is not going to change that. And then there are, you know, many other institutional bottlenecks, pharmaceuticals, even if I supercharges medical discovery, which is still an open question but seems, reasonable to think you still have to go through clinical trials and that's still tremendously, expensive.

00;14;19;26 - 00;15;09;01

Carl Benedikt Frey

And so you need to partner with the pharmaceutical firm to do that. And so it means that few players can do it. And so that might be an extreme case. But I think that in, many industries, there are these sort of institutional bottlenecks that makes it harder to realize the gains from the technology. And I think if you look at business dynamism or just entry of new firms, you would have thought that that should have been through the roof over the past two decades because computers, the internet, the cloud, now I or they all make it's so much cheaper to operate, a startup and come up with new ideas.

00;15;09;03 - 00;15;27;13

Carl Benedikt Frey

But we're seeing the opposite business dynamism is in decline. And so there needs to must be some countervailing force that more than basically offsets those declining costs due to technology. And I think that's important to keep in mind.

00;15;27;15 - 00;15;45;21

Geoff Nielson

The the point about business dynamism declining is is a really interesting one. So, so in your view, what what is that countervailing force? Is it just us reaching the limits of, you know, how increased efficiency and productivity tools actually help us or what's what's leading to that decline.

00;15;45;23 - 00;16;14;15

Carl Benedikt Frey

So I think there are a number of things there. I think if you look at the United States, for example, corporate lobbying has been basically doubled since the 90s. You see that that's associated with more protective regulation, which makes it harder for new firms, to enter. We see, revolving door between patent examiners at the U.S. Patent and Trademark Office and some incumbent companies where they grant low quality patents for these firms.

00;16;14;15 - 00;16;45;07

Carl Benedikt Frey

And then go on, to work for them. We see a rise of some anti-competitive practices like killer acquisitions, whereby incumbents just, you know, basically buy up promising startups, just to, shut them down. And more broadly, I think, you know, the patent system may not be really up to the task for, the digital economy. It works well in, let's say, pharmaceuticals and chemicals for product life cycles.

00;16;45;07 - 00;17;12;10

Carl Benedikt Frey

Are are long. But, you know, it doesn't make much sense to grant, you know, 20 years of patent protection, for a technology that's obsolete in, 18 months. And then you have, you know, in all of these intersecting patents and digital technology as well, which are often poorly defined. And so that means that you only really know what they cover when you end up in court.

00;17;12;10 - 00;17;27;12

Carl Benedikt Frey

And that means that litigation costs are, very high. And they're particularly concerned for, for smaller firms. And so I think this sort of taken together has created significant barriers to entry. And I think it's a big part of the story.

00;17;27;15 - 00;17;52;17

Geoff Nielson

I'm glad you brought that up. And it's something that in a lot of conversations, certainly that I have with with people I speak with, and also that you just hear about, either in an undercurrent on the news or if you're reading, you know, Reddit or forums, it is just this undercurrent of frustration with larger firms for doing this, with the political system for allowing it to happen.

00;17;52;20 - 00;18;20;19

Geoff Nielson

And, you know, I'm curious in your mind, it's sounding like this is actually a bigger issue right now than the advancement of the technology. If we're going to have, you know, kind of a flourishing business environment for the next handful of decades, like how how important is it for us to course correct this if we're going to be able to build, you know, that this kind of, you know, prosperous future?

00;18;20;22 - 00;18;54;18

Carl Benedikt Frey

I think it's really important. And also because young firms tend to be the ones that develop new products and industries, right? Larger firms, incumbents that they have scale. And so they're much more likely to focus on, bringing down costs in what they're already doing, focusing more of on automation and process improvements, where smaller firms that don't have scale, they're more likely to develop new products.

00;18;54;20 - 00;19;36;15

Carl Benedikt Frey

Now, both of those are important to be clear, right. The model T would not have become the people's vehicles if it wasn't for the capacity of the Ford Motor Company to, you know, improve production processes to bring down costs. So they are complementary. But if you don't see M3, then you don't see as much new, products, industries, jobs being created as you seeing old ones being rendered, obsolete by, by automation.

00;19;36;15 - 00;19;45;04

Carl Benedikt Frey

And I think AI is likely to exacerbate that trend unless we do something about what.

00;19;45;04 - 00;20;08;29

Geoff Nielson

Well, and that's that's exactly it. It seems like a lot of these firms are very deliberately trying to, to own these entire new platforms of infrastructure that the AI sits on to give themselves even that, that further advantage and the, you know, you're you're starting to see and there's all sorts of stories in the news, especially in the US with the government about, you know, how the government is in some ways fueling that and trying to get in on the take.

00;20;09;06 - 00;20;37;22

Geoff Nielson

So is one of the issues, whenever lobbying and the proliferation of lobbying comes up, is the sense that it's just an intractable problem. And, you know, there's too many incentives from too many, you know, rich entities to make it go away. And, you know, you get the Bernie Sanders is of the world, or, you know, some of these, you know, some of these people advocating for, you know, fighting back more against these, these enterprises that are doing that.

00;20;37;29 - 00;20;51;02

Geoff Nielson

Is it intractable or, you know, do you have any recommendations for what the U.S. or any other kind of advanced country or society dealing with this can be able to do to create, you know, more business dynamism?

00;20;51;04 - 00;21;37;22

Carl Benedikt Frey

So the United States had a similar challenge in the late 19th century and commonly referred to as the Gilded Age, where public, private partnerships had led to widespread cronies. When the way the United States responded at the time was by, making the civil service more meritocratic through the Pendleton Act, introducing civil service examinations, and then using that state bureaucracy to institute, and create new institutions, to safeguard competition, including the Sherman, antitrust, act.

00;21;37;24 - 00;22;19;02

Carl Benedikt Frey

And what we're seeing right now, I think is very much going in the opposite direction. There has been, a tendency during the Trump administration, for example, to focus on government deficiency, which is, sounds good, in itself, but the reason that the IRS, for example, is a huge operation is that the tax code is extraordinarily complex.

00;22;19;02 - 00;22;49;12

Carl Benedikt Frey

Right. And so if you wanted to reduce bureaucracy, then you would probably want to introduce something like a flat tax. And that would simplify things. And then you could, reduce, bureaucracy and achieve some efficiency gains that way if you do the opposite, you cut down on the bureaucracy without simplifying the tax code, you're just diminishing your own capacity to collect taxes.

00;22;49;14 - 00;23;27;26

Carl Benedikt Frey

And the same logic, I think applies across most domains. And so right now, rather than focusing primarily on simplifying rules so that there's, you know, some, of that going on to the focus on, on, cutting the civil service means that, the U.S. is actually going in the opposite direction that it was going in the late 19th century in its attempts to revitalize competition.

00;23;27;28 - 00;24;04;05

Carl Benedikt Frey

And so, I think that is unfortunate, because I think there are certain things that we can learn from the past. And one of those lessons is that you actually, paradoxically, need, strong governments, a strong civil service to enforce, competition from time to time. Now, that role can certainly be overstated. And there were certainly cases where, the administrations, may have overstepped.

00;24;04;07 - 00;24;24;15

Carl Benedikt Frey

But, you know, if you basically every case from, you know, the first industrial revolution where the Parliament clamped down on the guilds, that the least competition that, that made the sort of fast industrial revolution possible to today. I think that logic still applies.

00;24;24;18 - 00;24;59;26

Geoff Nielson

It's really interesting. And, you know, looking at some of the examples you dive into throughout history, there's this interesting sort of symbiotic relationship in some cases between governments and, you know, some of the, the, you know, large and powerful firms of their day that they have, you know, a close relationship with and, you know, you've got cases, you know, I'm thinking of, you know, for example, you know, the Dutch East India Company or, you know, some of what's going on with China and, you know, some of the big corporations there that are, you know, kind of hand in glove with the government.

00;25;00;04 - 00;25;40;05

Geoff Nielson

And then, you know, to your point about the early 20th century in America, you've got the government playing more of, you know, trying to break up anti-competitive practices. Right? And you have, you know, Standard Oil that's getting broken up. And so I'm curious, when you look at the historical context, do you see, you know, more of a case for bringing in a breakup of some of the big tech players now, or do you think, actually that the consolidation is good if the object is, you know, for a given, you know, state or society, you know, to get ahead and stay prosperous?

00;25;40;07 - 00;26;19;21

Carl Benedikt Frey

So a key theme of the book is that, technological progress entails both experimentation, exploration and then, you know, execution, exploitation, which is a lot of essentially amounts to, you know, getting things down, scaling up, what what what you invented and institutions that support those different, phases can be quite, quite different. And so at the frontiers of innovation, I think the centralist competition is really important.

00;26;19;21 - 00;26;44;29

Carl Benedikt Frey

Right. And so if you take the Soviet Union as an example, right. That was the most centralized economy the world had ever seen. If you were an aircraft engineer in the Soviet Union and you wanted funding for your project, you could go to the Red Army if they declined, maybe 2 or 3 other options if they declined. And your idea would basically die with you.

00;26;45;01 - 00;27;12;10

Carl Benedikt Frey

That's quite different from the US system of much for decentralized finance, where Bessemer Ventures famously declined to invest in Google back in 1999 and probably regretted, today. But it also illustrates Google wasn't a safe bet at the time. Right? AltaVista, Yahoo! They were dominating, search. And so somebody needed to take the risk to invest in order to figure out whether Google would catch on or not.

00;27;12;15 - 00;27;42;28

Carl Benedikt Frey

And so in a more decentralized system, you have more people that can take different bets. And that's really important for innovation. And so, for example, the breakup of AT&T was really important for the, development of the internet. And e-commerce around it, because it meant that when the National Science Foundation released Arpanet, the predecessor of the modern internet, to the world, it wasn't just handed over to sort of the, the monopoly carrier service.

00;27;43;06 - 00;28;06;05

Carl Benedikt Frey

That would probably have bottlenecked it in the boardroom if they had seen no commercial use for it. And there was no commercial use for Arpanet, at the time. And so that meant that, you know, the technology could develop more organically by its users and, you know, businesses being built around that. But, you know, that's quite different from catch up growth.

00;28;06;05 - 00;28;34;14

Carl Benedikt Frey

So if you're behind the frontier and you can, you know, just make use of, technology invented elsewhere to grow, then you're much more likely to have, you know, this symbiotic relationship between government and business. Or you can even have it done sort of directly through the government, as in the case of, the Soviet Union. But if you take Japan, for example.

00;28;34;14 - 00;29;01;00

Carl Benedikt Frey

Right. So, to catch up, with the May Meiji Restoration restoration, the government played a key role in establishing a range of pilot projects. I went abroad, you know, scouted new technologies and projects, brought it back home, sold those off to emerging. So Batsu conglomerates who then, you know, emerge around those technologies and effectively scaled it.

00;29;01;00 - 00;29;29;14

Carl Benedikt Frey

Then there's been a very close relationship between government and business ever since. And, you know, even World War Two. And then, you know, the arrival of the Allied occupation authorities, which sought to introduce American style antitrust in Japan, essentially, you know, failed. It was very short lived. And, you know, these, cyber conglomerates essentially just transforming into.

00;29;29;14 - 00;30;00;03

Carl Benedikt Frey

Correct. So in the postwar period and then then do very well and and catching up to the United States to the point that in the 1980s, everybody worries that Japan is about to overtake the United States. But then obviously growth in Japan peters off in the 90s, whereas, America ends up leading the computer revolution and a big part of that is that Japanese model was very anti-competitive.

00;30;00;05 - 00;30;29;27

Carl Benedikt Frey

If you're part of, of these conglomerates, then you would benefit from technology transfer and stable, trade. But that also meant very high barriers to entry for outsiders. Right. And so Japan completely misses the switch from hardware to software and the rise of e-commerce, whereas in the United States, antitrust against IBM, which forces system hardware and software, provides really critical.

00;30;30;00 - 00;31;13;17

Carl Benedikt Frey

And then, as I mentioned earlier, the breakup, of AT&T and so government, the government and businesses can have these close relationships and that mostly can help catch up growth, if I should say, the government can play the role of the enforcer and making sure that businesses use the privileged position to make productive investments. And that has often been sort of tried to, ensure that through export discipline, making sure that this form of firms export into global markets, which means that they need to be sufficiently productive, to, to achieve that.

00;31;13;20 - 00;31;45;20

Geoff Nielson

So so that's exactly what I want to hone in on, given what it sounds like, is a lot of historical success with antitrust behavior, regardless of government appetite right now, how strong, in your mind is the case for antitrust against some of these big tech firms and actually starting to break them up and kind of crack open the competitive landscape and and what's the trade off there with their scale enabling them to, you know, build out some of this infrastructure at scale.

00;31;45;23 - 00;32;41;11

Carl Benedikt Frey

So I'm not hugely convinced that, you know, vigorous antitrust against metal Google and these firms would be hugely transformative. I think, you know, more likely to lead to the, one, social media platform being replaced, by, and other. What I do think is important is to deter some of these anti-competitive practices. I mentioned earlier, and I think it is noteworthy that if you look, you know, at the early days of the computer revolution from, Apple and Microsoft to Google and Amazon, essentially every major company, that emerged IPO and and became it became a firm continue to be a firm in its own right.

00;32;41;13 - 00;33;10;23

Carl Benedikt Frey

If you look at WhatsApp, WhatsApp, Instagram, YouTube, all of them were acquired and you could, you know, reverse, some of those potentially. Again, I'm not sure that that's sort of the main concern. I think the main concern going forward is trying to shift back the balance and to, make firms IPO rather than exiting by acquisition.

00;33;10;26 - 00;33;40;24

Carl Benedikt Frey

Part of that may have to do with things like merger review focusing more on, valuation than turnover. For example, part of it may have to do with making it less costly to operate as a public firm in terms of compliance costs. And so I think trying to tilt that, that balance, should be a key priority.

00;33;40;27 - 00;33;56;21

Carl Benedikt Frey

But, you know, trying to reverse some of the mistakes of the past, I'm not sure that, you know, that's going to, get, us, to where we need to be in terms of dynamism.

00;33;56;23 - 00;34;35;09

Geoff Nielson

Got it. So let's let's pivot back maybe to the technology itself, and what it can do and what it can't do. And I want to come back to something you said earlier about, you know, digging deeper holes versus, you know, digging more holes. And maybe we'll we'll stay on academia for a minute, just, you know, given how, you know, valuable an example, I think it is because this is something that's been bothering me for a while now, which is if if I can suddenly, you know, dramatically increase efficiency in certain areas, basically reduce the cost to zero or near zero, call it an order of magnitude cheaper.

00;34;35;11 - 00;34;59;06

Geoff Nielson

You use the example of publishing papers. And, you know, in academia, if you enter a world where suddenly, you know, an academic can crank out a new paper, you know, even every week, and suddenly there's just this proliferation of papers. Yeah. Is that good? It feels I mean, frankly, in some ways it feels worse than the status quo.

00;34;59;09 - 00;35;20;26

Geoff Nielson

And then I worry about, well, does that mean we just need, you know, a 10th or a 50th of the number of academics and is that good? And so I'm curious, you know, in your mind, as especially in academia, what what are, what are the deeper holes and what are some of the traps around potentially increasing efficiency so dramatically?

00;35;20;28 - 00;35;52;21

Carl Benedikt Frey

So I think if you're, editor, and, you know, the leading journals and you have to deal with this enormous upsurge in, productivity as measured by numbers of papers being produced there, you're probably not very happy with the situation. And you also are not really in the position where you can you, you know, you say for the most part to sort of, that might change.

00;35;52;24 - 00;36;23;26

Carl Benedikt Frey

But, you know, in the end of the day, it comes down to the quality of the papers being produced. And, you know, there are numerous, numerous instances where, I has been used to spot flaws in existing works of papers that already have been published. And I think we will see more of those. And that's good. I think on balance, it's like, you know, with the computer, and the internet is a good and useful tools for research that we shouldn't discount.

00;36;23;26 - 00;36;56;01

Carl Benedikt Frey

But the question is, do you use it to improve quality or quantity? And that's the I'm afraid we go more for quantity. So far, since the release of Chatty Betty. But as I mentioned earlier, even even before that, with regard to whether we, you know, need more or fewer academics, obviously at, bias there working at, a university.

00;36;56;04 - 00;37;23;21

Carl Benedikt Frey

And, you know, I often hear these things that, you know, 90% of all academics are useless, they don't produce anything of value, etc., etc. but, you know, with with innovation and discovery in general, you, you know, you really know what's going to turn out to be fruitful before somebody is actually carried out. And so there's always a lot of waste in the system and the successful things that come through.

00;37;23;23 - 00;38;16;26

Carl Benedikt Frey

They're more than sort of, make up for it. So, you know, we, can well aspire to reduce use waste. But I think that that concern, is somewhat overblown. But I think you asked a sort of broad question about the labor market, implications, of this and I think, you know, right now, AI is not sufficiently good to replace most people in what they do, but it's sufficiently good that somebody without a lot of expertise in a particular domain can produce content that, in many instances is competitive.

00;38;16;26 - 00;38;48;08

Carl Benedikt Frey

And so we have a range of, experimental studies looking at this. And it seems that in most settings, novice and low skilled workers benefit more in terms of productivity from these tools. And so I often make the comparison to, you know, GPI, IPS, technology and taxi services. And so, with, with the arrival of GPS technology, knowing the name of every street in Toronto was no longer a particularly valuable skill.

00;38;48;11 - 00;39;12;13

Carl Benedikt Frey

And then when Uber and Lyft, Lyft arrived with the platforms matching supply and demand, basically anybody with a driver's license could get into their car and top up their incomes on the side, and that was good for them. I mean, more people in taxi services, but it wasn't very good for incumbent drivers. It took salary cut because of their or, wage cut because of the competition.

00;39;12;15 - 00;39;49;28

Carl Benedikt Frey

And, and a key difference and knowledge work and, and professional services is obviously that that's what can be traded. Even across borders. And machine translation is making that, you know, even easier because, language has historically been the key barrier to trade in services. And I think that's gradually being being eroded by machine translation. But what that means, if you take an accountant in, in Toronto and compare that to counted in Manila or Cairo, the, Toronto accountant will I suspect, roughly an order of magnitude more.

00;39;49;28 - 00;40;18;00

Carl Benedikt Frey

Right. And so if I then reduces the productivity difference between the accountant in Toronto and the counties in Manila, then obviously will hire more in Manila. And we're seeing that, you know, already anecdotally, you see Clifford, for example, reducing headcount and in London hiring more in India you see firms like McDonald's that struggle to compete for AI talent in the United States.

00;40;18;03 - 00;40;42;25

Carl Benedikt Frey

They can, you know, move operations to India and get, you know, right. AI talent that lower costs, right. And so for the workers, in Canada and the US, in Europe, obviously, this is the equivalent to automation, right? It doesn't really matter to me whether I takes my job or somebody in India takes my job, right amount of job in any event.

00;40;42;27 - 00;40;57;08

Carl Benedikt Frey

And so I think that's the sort of going to be the first wave and more of offshoring in, AI induced offshoring. And I think that that's going to be be quite disruptive indeed.

00;40;57;10 - 00;41;20;13

Geoff Nielson

That's, you know, that that's very much in line with with one of my takes that a AI is going to sort of supercharge some of the offshoring we've already seen, you know, with some of the and that a lot of the, a lot of the jobs and tasks at risk from AI are the same ones that were already, you know, earmarked for being offshoring to begin with.

00;41;20;16 - 00;41;46;27

Geoff Nielson

You started that the answer to that question, talking about how I actually has the most benefit to, you know, those who are newer to the workforce or lower skilled versus higher skilled, and where the conversation sort of evolved was, yes, but maybe those are very different people are, you know, there are people in a very different geography then who would necessarily be, you know, hired for some of those jobs today.

00;41;47;00 - 00;42;09;13

Geoff Nielson

And so it sounded like the implication is still that if you are in, you know, the developed world and you are, you know, coming out, you are a recent graduate or someone who's new to the workforce, then you're the roles that you traditionally would have been hired into are still very much at risk. Do you do you buy that?

00;42;09;13 - 00;42;17;11

Geoff Nielson

Do you believe that, or are those the most at risk roles or or how do you kind of see the the impact on jobs more broadly?

00;42;17;13 - 00;42;47;09

Carl Benedikt Frey

Yeah. No, I think that's right. I think broadly speaking, know roles are more at risk. Senior roles, which are more about leadership, management and, you know, roles that require more experience out in the real world, which, doesn't yet have, those are are less at risk. But obviously down the road, every firm needs to have a talent pipeline.

00;42;47;09 - 00;43;22;07

Carl Benedikt Frey

Right. And that's the sort of the tricky trade off. And so how much can you get in the short run in terms of efficiency gains by using AI rather than hiring new graduates? But, without, without undermining the talent pipeline that you rely on? In the end of the day. And I think that's the question that many firms will be grappling with over the coming years.

00;43;22;10 - 00;43;40;22

Carl Benedikt Frey

And I suspect that they will sooner or later figure out that they need the talent pipeline and, that the labor market for graduates is going to somewhat improve, at least as a result of that.

00;43;40;25 - 00;44;06;20

Geoff Nielson

So so if you follow that thread through and, you know, I, I imagine as I think you sort of implied, that there may be an over rotation toward AI, and then the pendulum swings back and they realize, oh, we actually need that pipeline. If you zoom out, you know, a decade or so, maybe, you know, maybe more. What do you see as being the broader, implications for the labor market from this technology?

00;44;06;23 - 00;44;19;16

Geoff Nielson

And then based on the labor market implications, what does that mean for us societally? And what, if anything, do we have to do to, you know, kind of course correct it and keep our, you know, our societies and our economies vibrant.

00;44;19;18 - 00;44;48;21

Carl Benedikt Frey

So obviously that depends a lot on the trajectory of the technology and how fast sort of the they can compute the efficiency concerns around, are sort I think one thing that I feel fairly confident in saying is that it is not just going to depend on the technology, though. It's also going to depend a lot on consumer choice.

00;44;48;23 - 00;45;19;15

Carl Benedikt Frey

And, consumers want. Right. So we make these choices every day, right? I go to the supermarket, I go to the self-service, checkouts, or do I, go to the human cashier? Do I do my yoga classes? In front of my computer at home, or do I go to, a yoga studio? Do I, you know, want to sit in the giant vending machine and have my dinner?

00;45;19;15 - 00;45;45;27

Carl Benedikt Frey

Or do I prefer to interact with the human waiter? And so all of these things are going to, have a material impact on the future labor market. And I think there are many settings where we prefer to interact with humans, and there are probably quite a few settings where we feel that humans should ultimately have the responsibility for list.

00;45;45;27 - 00;46;20;26

Carl Benedikt Frey

You know, verifying AI outputs and signing off. And that will have an impact on the labor market, too. And so even if we, you know, achieve superhuman performance of AI across the board, there will be jobs, but that may not be enough for many to, like, make a living. And so that that part, I'm less, certain of, I think right now and possibly for many years to come.

00;46;20;26 - 00;46;51;06

Carl Benedikt Frey

Though I struggles with novelty in novel situations, things that I have seen before. Right. So most people know that, AlphaGo beat the world champion and go back in 2016, 41. Few people know that humans using basic computers beat the best go programs. Two years ago by exposing them to positions that they would not have encountered in training and new concepts.

00;46;51;06 - 00;47;24;03

Carl Benedikt Frey

And so what this tells you is that even in in cases where AI is already achieved superhuman performance, you cannot be really sure of how well it will perform when the circumstances change and the state of the world changes all the time. Right? And so you may do very well using AI for inventory management, but then all of a sudden the pandemic hits and that is not working out, very well any longer, at all.

00;47;24;06 - 00;47;46;01

Carl Benedikt Frey

And so I think that is a key bottleneck. That means that in a lot of jobs where the state of the world is changing around you one day to another, humans are more resilient to that. And those jobs will be relatively safe from automation for some time to come.

00;47;46;04 - 00;48;15;24

Geoff Nielson

I, I, I buy that as well. And it certainly sounds like, you know, to use your model of, of kind of the innovation frontier versus the catch up of technologies that while that frontier may be developing some of this AI, the that the AI itself, if it hasn't seen these, these scenarios in its training data are going to be much less useful there than just kind of, you know, business as usual and improving efficiencies where, you know, the rules are set.

00;48;15;26 - 00;48;39;24

Geoff Nielson

There's there's another avenue that I wanted to go down, that, that you alluded to, which is the impact of consumer preference on all of this. And, you know, one of the trends we're seeing emerge is quite a strong anti-air backlash among consumers. It seems like especially yeah, you see it in different demographics. You see a lot of it with young people.

00;48;39;24 - 00;49;06;15

Geoff Nielson

You see some of it with with older folks. I'm curious how that compares with your research on previous disruptive technologies throughout history. And you know, what you make of that backlash? Is it productive? And it's going to lead us to better outcomes? Is it just kind of this Luddite style foolishness that's going to be, you know, kind of drown in a tsunami of new technology?

00;49;06;17 - 00;49;11;22

Geoff Nielson

How do you how do you classify it, and where do you see it kind of evolving to?

00;49;11;25 - 00;49;38;26

Carl Benedikt Frey

So I can't recall any time when the makers of a new technology have essentially sold a product by saying that, the best case is that, you know what we're producing, it's going to take your job. And in worst case, this is going to kill you. But you know, please don't regulators nonetheless. And so I think that part is basically unprecedented.

00;49;38;28 - 00;50;08;01

Carl Benedikt Frey

But you're right that, you know, even without that, we've seen a lot of historical resistance to technologies, particularly that threaten people's jobs and skills. And the key reason that the industrial Revolution took a long time to materialize, because, you know, the steam engine was a latecomer to the process. And beside that, you know, really most of the machines in the factories were not really that complicated, right?

00;50;08;03 - 00;50;36;17

Carl Benedikt Frey

Those technologies could have been conceived, much earlier. A key reason for that was that the guilds were quite strong and they were resisting the introduction of anything that threatened their, jobs and skills. And so in Britain, you know, there was famously the law that riots, those were unsuccessful. But on the continent and in China, those riots were actually much more successful than in China.

00;50;36;19 - 00;51;16;08

Carl Benedikt Frey

That delayed the industrial, industrialization process by another, two centuries, because the guilds, the power of the local guilds and, and so we've seen this repeat in history and, the 20th century is probably an exception, in, that regard that we see much less resistance generally to technological change, although, you know, we see some displacing technologies like automatic elevators or switchboard operators automating being automated away.

00;51;16;11 - 00;52;02;08

Carl Benedikt Frey

I think there was a general sense that people had improving outside options because there was a lot of new, industries emerging and well-paid jobs. And in them that sort of cushioned, the, sort of transitional costs of, you know, losing, your job. And I think with, artificial intelligence, it's obviously also affects workers that tend to have more, political clout, a bit like the guilds, in a way.

00;52;02;08 - 00;52;41;07

Carl Benedikt Frey

And so when robots began replacing people in the Rust Belt in the 80s, right, you would have, few angry op eds, from those workers in, either the New York Times or the Wall Street Journal. But, the people being replaced in knowledge work, they are much more likely to mount more successful resistance to this. And the selling proposition of the technology companies is making that resistance, a lot easier as well.

00;52;41;09 - 00;53;17;13

Geoff Nielson

The the historical context of the guilds is really interesting. And I'm curious if you'll, you know, agree with this or if this was the point you wanted to make that if you look at it through the lens of hindsight, it seems like where the guilds resistance was more successful, actually did more long term societal and economic damage by preventing the adoption of these technologies versus the areas where there was a faster uptake that actually allowed them to kind of leapfrog in the technology and gain more economic clout.

00;53;17;15 - 00;53;39;24

Geoff Nielson

And that, you know, there's an implication if I can connect some dots, that maybe the role of government, as you sort of alluded to, is actually just minimizing the shorter term pain caused by job loss when these this automation comes into play. Do you is that fair or is that sort of, you know, against the sentiment you were trying to convey?

00;53;39;26 - 00;54;04;28

Carl Benedikt Frey

No, I think it's fair. And so Britain during the Industrial Revolution had something called the Poor Laws. They were taxing themselves for 2% of GDP, which is obviously very little in, in modern, perspective, but was a lot of the time to provide for the poor. And in places where the poor laws were more generous, you see less resistance to mechanization and you see faster uptake of new technologies.

00;54;04;28 - 00;54;12;17

Carl Benedikt Frey

And so I think that was already important during the first industrial revolution. I think it's been true since as well.

00;54;12;19 - 00;54;33;22

Geoff Nielson

One, and that's starting to feel pretty analogous to, you know, universal basic income, like the UBI conversation that's starting to emerge, you know, adjacent to all of this. Do you see that continuing to be, you know, a topic of conversation? As you know, we see more automation and, you know, is that, you know, a viable policy recommendation.

00;54;33;24 - 00;54;54;02

Carl Benedikt Frey

I feel like that's a very American conversation. So Europe, we have the welfare state. I mean, you have it across the Atlantic too, but maybe, you know, to to a lesser degree. And so the question is, okay, do you use the UBI to replace the welfare state? Well, if you do that, you're going to worsen inequality because welfare state targets people at the lower end of the income distribution.

00;54;54;02 - 00;55;15;09

Carl Benedikt Frey

And so if you, replace that with something that's universal, you're going to US inequality because essentially transferring resources to the bottom from the bottom to the top. Or if you've sort of, added UBI on top of that. Well, it's probably not going to be a very meaningful UBI because, levels of taxation in Europe or it's, quite high.

00;55;15;11 - 00;55;38;11

Carl Benedikt Frey

So I, you know, I never quite understood the you in UBI, you know, Friedman con, you know, the idea around the negative income tax a long time, ago, I think that's, you know, a decent proposal that means that, you know, it's essentially caps, put puts a floor, on how far your income, can fall.

00;55;38;11 - 00;56;01;13

Carl Benedikt Frey

And then you have, you know, incentives to top up your income. On top of that, you know, I think about AI a little bit, like, I think about natural resources in the sense that, you know, some places have oil that makes those places directly. Well, there some places have been very good at sharing that wealth, like Norway.

00;56;01;19 - 00;56;35;28

Carl Benedikt Frey

Some places have not been very good at sharing that, wealth at all. And so I think your political institutions, in the end of the day, are the ones that are likely to determine what you end up doing. And so you can always, you know, come up with these ideas, whether it's UBI or welfare state, etc.. But you know, in the end of the day, the the question is, how do you get to Denmark or Norway, which is sort of this classic, development question.

00;56;36;01 - 00;56;49;17

Carl Benedikt Frey

And so, you know, if AGI happens, I think countries will adjust very differently to it depending on the political institutions in place.

00;56;49;20 - 00;57;12;11

Geoff Nielson

So so let's let let's follow that thread about how we make sure that our you know, societies are best equipped for this type of change. And, you know, I'll ask the general question, how should we be intervening here? And should we be actively intervening? Right on, on the one hand of, you know, let the invisible hand guide what's going on here in these economies versus active intervention.

00;57;12;11 - 00;57;26;01

Geoff Nielson

So, so just to kind of reframe that to what degree is active intervention worthwhile and and what types of policies would you actually recommend, you know, around AI and the, the labor disruptions?

00;57;26;03 - 00;57;54;08

Carl Benedikt Frey

So I think generally speaking, if people have a little bit more time to look for an alternative job, they tend to find better matches. And so Danish flexicurity is often mentioned in this context. I tend to agree that that's a good model of genuine flexibility. You can hire and fire relatively easy, but to have genuine security in the sense that if you lose your job, you have.

00;57;54;10 - 00;58;35;00

Carl Benedikt Frey

I think, something like two years for you to have, very generous payments and you have, a chance to, to find something else. So if this turns out to be, short transitional problem and I think that's the way to go, if we end up really in the world where there is not enough work to go around, well, we can either choose to adjust as societies and recognize that before the Industrial revolution, while people worked, but they didn't really have jobs.

00;58;35;00 - 00;58;55;27

Carl Benedikt Frey

And, you know, people can find meaning in family and gardening and, other things too. Or we can think of, you know, employment programs, if you feel that people are not able to find sufficient meaning and purpose in other things.

00;58;56;00 - 00;59;25;23

Geoff Nielson

So that, you know, that covers, you know, an interesting viewpoint specifically at the lens of of the state or, you know, societally, do you think you do you think for well, let's let's maybe pivot over here. For business leaders, if you're talking to leaders who are not, you know, in The Magnificent Seven, let's say, how should they be thinking about this, this period of change?

00;59;25;23 - 00;59;46;03

Geoff Nielson

What should they be focused on, and what are the right and wrong ways to kind of, you know, lead their organizations and let's, you know, when I say business leaders, let's say it's it could be public sector as well. Public sector or commercial sector. What's the best way for them to lead their organizations through this kind of period of turbulence and change?

00;59;46;05 - 01;00;12;19

Carl Benedikt Frey

So if we go back and look at the computer revolution for for guidance, I think there's a general pattern that firms the more incent and decentralized, benefit the most. And I think the same thing applies to AI and have been number of studies looking at corporate hierarchy and AI adoption and more decentralized organizations tend to be more likely to adopt and AI as well.

01;00;12;20 - 01;00;55;17

Carl Benedikt Frey

And that makes sense because, if you the people that are most likely to know something about the technology are the people that actually using it, that's the people at the lower levels of the organization trying to figure out new use cases. And what do you use this technology for? And if they don't have decision making rights, then obviously you're going to slow down, adoption, significantly because you need to, get approval for, essentially, just using, using, this new, tool.

01;00;55;19 - 01;01;15;06

Carl Benedikt Frey

And so I think as a general rule, more decentralized firms and organizations tend to do better to period, some of a quite rapid technological change. And so that I think, is one lesson, that that applies to today as well.

01;01;15;08 - 01;01;30;09

Geoff Nielson

Can I push a little bit more on, decentralization? How do you define that at the firm level? What, what what does a decentralized firm look like? And maybe you know the opposite question. What does how does it differ from a centralized firm?

01;01;30;11 - 01;02;01;29

Carl Benedikt Frey

So I think a difference between two dimensions and one is sort of just the number of layers. And in the managerial hierarchy. And then this sort of a question of, you know, how much decision making authority do you have at the local level. So the organization and so how much do you can you just, you know, do something and implement a new technology, change your workflow without having to ask a superior or your superior superior for permission, to do that.

01;02;01;29 - 01;02;24;14

Carl Benedikt Frey

And so I think that's decision making. Autonomy is an important part of that. And then I think, you know, the reward systems matter too. Right? And so if I take time off experimenting with something new, I might be less I will be less productive in other things unless I increase my, you know, hours to, you know, do the experimentation in my spare time essentially.

01;02;24;14 - 01;02;32;09

Carl Benedikt Frey

And so you want to reward that experimentation, or at least punish it. And I think that's an important part of it as well.

01;02;32;11 - 01;02;54;26

Geoff Nielson

One, it it has a parallel with something you said earlier about people complaining about waste in academia that it and that if you're actually going to build something new and discover something, what waste is a byproduct of that entire process, right? You'll never get to, to perfection there. And you have to have an appetite to have some level of, of waste as a trade off.

01;02;54;28 - 01;02;56;14

Carl Benedikt Frey

I think that's absolutely right.

01;02;56;17 - 01;03;05;29

Geoff Nielson

Well, I really appreciate the conversation today. This has been really interesting. We've covered an awful lot of ground. So, you know, thank you so much for joining and, for all your great insights.

01;03;06;01 - 01;03;09;19

Carl Benedikt Frey

That much enjoyed it. Thank you for having me.

01;03;09;22 - 01;03;35;03

Geoff Nielson

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