Britain needs a technological breakthrough such as artificial intelligence to counter the collapse in its long-term growth rate, Bank of England Governor Andrew Bailey said in a lecture at Leicester University.
Productivity has slowed sharply since the years before the financial crisis, hitting living standards. Yet history shows that the emergence of general purpose technologies such as the steam engine and the computer “can move the needle on growth in the economy,” Bailey argued.
AI has the potential to be the next productivity enhancing technology, Bailey said, which will be needed particularly as populations in advanced economies like the UK are ageing.
“The need to complement human labor with technology to support the productive potential of the economy is more pressing,” he said. “I am therefore of the view that we must facilitate the growth of AI.”
“A substantial and sustained increase in growth most probably does need this breakthrough to happen, as has been case in the past.”
Bailey said he was not concerned about AI taking people’s jobs, comparing it to technologies during the industrial revolution that did not lead to mass unemployment.
“I firmly believe that this is about people using AI, more than is about AI replacing people,” he said, responding to a question following the speech.
Weak productivity prevents economies from growing without triggering inflation. The BOE, which is currently deciding how quickly it can reduce interest rates, expects little improvement in UK productivity in the near term.
Trump tariffs
Bailey said that while trade is vital to speed up technological advances, there is a problem with large imbalances in the current trading system – with China in particular running huge trade surpluses.
Without expressing support for US President Donald Trump’s trade wars, Bailey described the issue that is “today at the heart of the pressure to return to higher levels of tariffs.”
More of China’s national income should be spent by its citizens on their own consumption, he said, adding that he agreed with Trump’s former trade representative Robert Lighthizer that “free trade is a force for prosperity if it rests on a level playing field.”
Rather than rabalancing through tariffs, he said, “we need effective multilateral processes that support getting us to more balanced outcomes.”
“In the contemporary world, unlike the nineteenth century, the political economy is not well suited to such persistent trade imbalances with their consequent effects. If that is too subtle, another way to put it is that such a system could be sustained in a world of empires and colonies, but no readily now.”
“To solve these issues we need authorities to come together and strengthen the rules of engagement in a multilateral setting.”
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Philip Aldrick and Irina Anghel, Bloomberg News
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