## The Power and Perils of the “Artificial Hand”: Considering AI Through the Ideas of Adam Smith

_IMF News, June 5, 2023_

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## Bibliographic details
- Authors: Gita Gopinath
- Published: June 5, 2023

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### Introduction
- Speech by Gita Gopinath, First Deputy Managing Director, IMF.
- Occasion: Speech to commemorate 300th anniversary of Adam Smith’s birth, University of Glasgow, June 5, 2023.
- Framing: Uses Adam Smith’s ideas (The Wealth of Nations; The Theory of Moral Sentiments) as a lens to assess generative artificial intelligence (AI), its economic potential, labor-market implications, concentration risks, regulatory needs, and societal effects.

### Productivity and growth: potential gains and evidence
Findings:
- AI could raise productivity by automating certain cognitive tasks and giving rise to new higher-productivity tasks for humans.
- Example empirical result: a study of customer-service agents using a conversational assistant based on generative AI found productivity rose by 14%.
- Goldman Sachs forecast: AI could increase global output by 7%, or roughly $7 trillion, over a decade.
- Historical parallel: The Industrial Revolution—Smith’s era—similarly transformed work and productivity.

### Labor-market impacts and distributional concerns
Findings:
- Automation previously has led to loss of “middle-skill” jobs and polarization into high-paying and low-paying clusters.
- Recent empirical studies suggest AI could affect occupations and industries differently than prior automation waves and may put downward pressure on wages of high-paying jobs.
- Some studies indicate AI adoption could flatten firm hierarchies: increasing the number of workers in junior positions and decreasing the number in middle management and senior roles.
- Scale of vulnerability: some researchers estimate that two-thirds of U.S. occupations could be vulnerable to some form of automation.
- Uncertainty: net impact on employment is not guaranteed to be positive—AI might replace human jobs without creating new, more productive work for humans to transition into (citing Daron Acemoglu’s concern).

### Market concentration, data, and compute power
Findings:
- The market for components to develop AI tools is highly concentrated (example cited: a single company dominant in silicon chips best suited for AI applications).
- Many AI models require massive computing power and huge amounts of data, concentrating capability among a handful of large corporations despite open-source efforts.

### New approach to regulation and public policy (policy recommendations)
Policy recommendations:
- Urgently develop sound, smart regulations to ensure AI is harnessed for societal benefit.
- Recognize that AI may require an entirely new game and an entirely new approach to public policy.
- Support regulatory models that classify AI by risk levels (example: EU’s Artificial Intelligence Act):
  - Highest-risk systems banned (includes government systems that rank people based on social compliance, “social scoring”).
  - Next-highest risk level tightly regulated with requirements for transparency and human oversight.
- Address broader economic and social effects of AI:
  - Develop nimble social safety nets for those whose jobs are displaced.
  - Reinvigorate labor market policies to help workers remain in the labor market.
  - Carefully assess taxation policies to ensure tax systems don’t favor indiscriminate substitution of labor.
- Education and training:
  - Adjust education to prepare the next generation to operate new technologies and provide ongoing training for current employees.
  - Anticipate increased demand for STEM specialists while recognizing increased value of liberal arts education for interdisciplinary thinking.
- International coordination:
  - Coordinate regulation across borders; the G7 has formed a working group to study AI.
  - Aim for a truly global set of rules given the cross-border nature of AI and the speed of technological change.

### Moral sentiments, information integrity, and societal risks
Findings and concerns:
- Adam Smith’s concept of “sympathy” underpins moral behavior and a rules-based society; generative AI’s mastery of language could erode these social bonds.
- Generative AI can comb vast knowledge and produce convincing messages; it can “speak like us,” raising risks of indistinguishability between human and machine interlocutors.
- Risks noted:
  - AI models can replicate embedded biases from training data.
  - AI “hallucination”: models confidently defending false information.
  - “Fake intimacy” (per Yuval Harari): AI forming close relationships with people to influence opinions and worldviews, potentially destabilizing societies and undermining accepted social narratives.
  - Existential concerns: more than 350 AI industry leaders signed a statement calling for global priority to mitigate the risk of “extinction” from AI, placing it on par with pandemics and nuclear wars.
- Information integrity:
  - AI could damage the integrity of information flows—market price signals and emotional cues—weakening the foundations Smith described for functioning markets and civilized behavior.
- Suggested protective measures:
  - Support rules that protect consumer privacy and limit misinformation in the age of AI.
  - Maintain human oversight in critical areas (medicine, critical infrastructure) to mitigate severe risks.

### Conclusion
- AI could be as disruptive as the Industrial Revolution; balancing innovation support with regulatory oversight is essential.
- Because AI can mimic human thinking and speech, it demands a unique set of rules and global coordination.
- Navigating AI’s power and perils will require interdisciplinary approaches, broad empathy, and ingenuity—drawing on law, history, rhetoric, languages, mathematics, and economics—as Smith exemplified.
- The debate is ongoing; no definitive answers were claimed, but a set of priorities and concerns were presented to guide policy and societal responses.

*Source: Speech — Gita Gopinath, "The Power and Perils of the “Artificial Hand”: Considering AI Through the Ideas of Adam Smith", University of Glasgow, June 5, 2023.*

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## References

- [Gita Gopinath](https://www.imf.org/en/about/senior-officials/bios/shirin-hamid)
- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2023/06/05/sp060523-fdmd-ai-adamsmith_