AI’s Impact on Capitalism: Assessing Regulatory Preparedness for the Future

Tomas Navickas, CTO and co-founder at myTU, emphasizes the transformative impact of AI not just in applications but in reshaping the fundamental structures of capitalist systems. While many discussions focus on AI applications, Navickas is intrigued by the potential consequences for the core principles of contemporary business.

In the realm of enabling consumer purchases and facilitating business transactions, Navickas anticipates a "Golden Age of AI" within three to five years. However, he acknowledges the potential for chaos during the transitional phase and even afterward.

Navickas envisions that the long-term implications of AI could lead to the emergence of a new model of capitalism. As AI continues to evolve and integrate into various aspects of business, it has the potential to redefine traditional structures and introduce novel approaches to economic systems.

Tomas Navickas, CTO and co-founder at myTU, asserts that despite being an innovative user of AI with a streamlined development approach, the scale of economic change brought by AI is poised to catch most people by surprise. In his argument, he highlights that regulators, even those demonstrating faster responses, are not adequately preparing economies for the impending AI future.

Navickas anticipates a period of short-term chaos as AI rapidly integrates into the economy. This chaos is characterized by a sudden and drastic shift in the job market, not as a gradual evolution but as a result of AI's increasing productivity leading to the displacement of human roles and competencies. The urgency for regulatory preparedness is emphasized to navigate the challenges associated with this transformative phase.

Furthermore, the rapid generative capabilities of AI will challenge the protection of intellectual property, making it nearly impossible to safeguard innovations. Consumer behaviour will also shift as the relentless pace of AI-driven innovation leads to a perceived homogenization of products and services, reducing incentives for consumers to switch or upgrade.

While many CEOs currently assert that AI will not significantly impact jobs, the reality is that automation means fewer people doing things. In the current environment of near-full employment, some displaced workers are being reassigned, but this is a temporary solution. New jobs created by AI will demand entirely new skill sets, often not aligned with those displaced, and will potentially offer lower compensation.

The transition will be painful as AI takes over more mainstream office roles. With fewer people earning good disposable incomes, economic growth will stall at a time when ageing populations demand more from health and pension services. Rather than inflation, we may face a deflationary period.

While AI promises efficiency and short-term economic growth, it brings about a wave of economic upheaval marked by massive job losses, shifts in market dynamics, and a need for significant societal adjustments. Navigating this transition will require a thoughtful approach to mitigate the impacts on employment, protect economic stability, and adapt to the new realities of an AI-driven future.

The rapid integration of artificial intelligence (AI) into our economy is leading to a period of short-term chaos characterized by a drastic shift in the job market. As AI outperforms humans in various tasks, it leads to a sudden displacement of human roles and competencies, causing a crisis as human labor becomes obsolete. The total number of available jobs is predicted to decline for the first time in modern history, resulting in unprecedented levels of unemployment and job market instability.

This transformation goes beyond the immediate job market, with AI disrupting the traditional growth model inherent in capitalism. It accelerates innovation, diminishing competitive and pricing differences across markets, potentially leading to stagnant growth. The rapid generative capabilities of AI also challenge the protection of intellectual property, making it difficult to safeguard innovations.

While some CEOs assert that AI will not significantly impact jobs, the reality is that automation means fewer people doing tasks. Displaced workers are temporarily reassigned in the current environment of near-full employment, but new jobs created by AI demand entirely new skill sets, often offering lower compensation. The transition will be painful as AI takes over mainstream office roles, leading to economic growth stalling at a time when ageing populations demand more from health and pension services, possibly resulting in a deflationary period.

In conclusion, while AI promises efficiency and short-term economic growth, it brings about economic upheaval with massive job losses, shifts in market dynamics, and the need for significant societal adjustments. Navigating this transition requires a thoughtful approach to mitigate impacts on employment, protect economic stability, and adapt to the new realities of an AI-driven future.

The optimistic outcome envisions the Golden Age of AI, marked by unprecedented abundance and prosperity. In this era, AI's capabilities address global challenges in healthcare, climate change, and beyond. Innovations driven by AI lead to breakthroughs in medicine, energy, and transportation, significantly improving quality of life and reducing ecological footprints.

The transformative power of AI in the Golden Age is harnessed to create a new social paradigm. Economically, widespread AI adoption leads to a more efficient allocation of resources, reducing waste and increasing productivity. This efficiency paves the way for new economic models, such as universal basic income, ensuring a more equitable distribution of wealth and opportunities.

Socially, the benefits of AI extend beyond economic gains. As AI takes over laborious tasks, individuals have more time for personal growth, community involvement, and family, fostering a more balanced and fulfilling life.

However, the readiness of regulators for this scenario is questioned. While the EU has recognized the need for regulation with the AI Act set to be endorsed in 2024, the protracted nature of regulation may lag behind swift technological advances. The example of MiCA for digital assets, taking almost two years to finalize and not coming into full force before December 2024, raises concerns about the pace of regulatory response to AI advancements, potentially delaying the implementation of AI regulations until 2026 or beyond.

The Act itself has also been criticised. Some experts say it is too vague and lacks clarity on important issues. The Act will be enforced by national authorities, which could lead to inconsistencies. It only applies to systems developed or used in the EU. What it designates as “limited-risk” systems will only be subject to very light transparency obligations. And it contains several worrying exemptions, such as for military and law enforcement purposes.

From my perspective, it is crucial for regulators to educate themselves about AI and embrace its potential to outperform human capabilities, especially in regulated industries like financial institutions. They should establish clear rules and roles for AI use, possibly including specialised tests to evaluate AI systems. My concern is that without this proactive approach, regulators might resort to punitive measures against AI usage, leading to legal battles and fines. This could divert valuable resources from innovation, exacerbating the period of chaos and prolonging its duration unnecessarily.

In the short term, in the avalanche-like AI revolution, fintech companies like myTU, which have the right technology and people with the right skills, will have a short-term advantage. We will be able to benefit, despite the short-term chaos I outlined earlier, well positioned for the AI Golden Age. Looking longer term, however, we will enter uncharted territory as AI changes the ground rules of capitalism in ways that are extremely hard to predict. I’m not convinced that regulators are preparing our systems for that yet.

AI is undeniably a global phenomenon, and in this regard, Europe's response becomes even more critical. Given the current state of the world, with wars and widespread instability, it is imperative for Europe to accelerate its pace in the AI race. The stakes are high, as falling behind could mean conceding significant ground to autocracies and dictatorships. In the race to define the next era, it is not just about technological advances but also about shaping a future that aligns with democratic values and human rights.

As AI reshapes the global landscape, Europe’s role in this transition is pivotal. The region must move quickly and decisively, embracing the potential of AI while upholding and promoting its core values on the international stage. This is a race where the prize is not just technological dominance but the preservation and promotion of a free, equitable, and democratic world order.