From the rise of e-commerce and the fintech revolution to artificial intelligence (AI), technological innovations have, in a remarkably short span of time, redefined the way businesses operate and economies function. As the world becomes increasingly interconnected, technology plays a major role in fostering productivity, employment, trade, income distribution, and consequently economic prosperity.
For example, a recent study by McKinsey found that generative AI, which includes applications such as ChatGPT and Midjourney, could deliver economic benefits to the tune of $2.6 trillion to $4.4 trillion annually to the global economy. When compared to older forms of AI such as machine learning and deep learning, generative AI has the potential to boost productivity by up to 40 percent.
“The real impact could be even greater if the technology was integrated into software such as word processing programs or chatbots, which would free up working time for other tasks. The development of generative AI … will be a tool for increasing productivity and accelerating global economic growth,” Anna Katariina Wisakanto, digital consultant and generative AI expert at McKinsey’s Helsinki office, said in a press statement.
A catalyst for economic growth
Technology has been a critical driver of economic growth throughout history. The wheel, electricity, the telephone and the radio, ships, railways and airplanes, computers, the internet, and now, AI. All these technological advances have brought the world closer together while fostering growth in trade and industry.
In the modern world, advances in digital technology, from the internet to cloud computing, have enabled businesses to streamline operations, reduce costs, and expand their reach. Companies embracing technological innovation can automate routine tasks and optimize production processes, leading to vastly improved quality of goods and services and greater efficiency and profitability.
Automation is a prime example of this. Robots and AI-powered machines have taken over what used to be labor-intensive tasks, enabling increased production while reducing labor costs. Cloud computing has revolutionized the way businesses store and process data, allowing enterprises to access vast computational resources without making heavy investments in physical infrastructure.
According to a McKinsey Global Institute report, digitalization could add as much as $3 trillion to the global GDP by 2030. This potential for growth is largely attributed to technology’s ability to improve productivity across sectors, foster innovation, and create entirely new industries, such as the gig economy and digital platforms.
Reshaping the global job market
Even as technology has spurred economic growth, it has also majorly transformed the labor market. Automation, AI, and machine learning perform tasks once performed by humans. This phenomenon has given rise to apprehensions regarding job displacement, especially in sectors such as manufacturing, retail, and transportation.
A study by the World Economic Forum predicts that automation could displace as many as 85 million jobs globally by next year. At the same time, the study also predicts that 97 million new roles may emerge, particularly in the areas of data analysis, software development, and AI research. So while some jobs may be lost, new opportunities are likely to arise. These opportunities, however, are likely to require workers with greater digital skills and higher education.
The rise of the gig economy has further complicated the employment landscape. Platforms such as Uber, Upwork, and Airbnb have revolutionized how people work, offering flexible employment opportunities but often without the traditional security of full-time employment. This is a change that has sparked debates about the nature of work in the digital age and the need for government intervention in the form of policy reforms to protect workers in such an environment.
Expanding global trade and market access
Technology has revolutionized global trade by breaking down what used to be physical barriers and facilitating international commerce. Internet and e-commerce platforms enable even small businesses to reach global markets, substantially leveling the playing field and increasing competition. It is now possible for companies to source raw materials from anywhere and sell their products across the globe with relative ease.
E-commerce giants such as Amazon, Alibaba, and Shopify have created ecosystems that allow businesses of all sizes to tap into international markets, transforming the retail landscape. Fintech innovations such as mobile payment systems have made cross-border transactions quick and efficient, reducing costs and inconvenience.
Digitalization of trade has led to the rise of global value chains (GVCs) where production processes can be distributed across multiple countries. For example, a smartphone could be designed in the U.S., assembled in China, and sold in France. This interconnectedness has increased economic integration across the globe and lifted growth in emerging markets, enabling them to participate in global supply chains.
Fostering innovation and entrepreneurship
Technology is a powerful enabler of entrepreneurship and innovation. The rise of digital platforms has lowered entry barriers for startups, allowing entrepreneurs to launch businesses with minimal upfront costs. For instance, cloud services provide the necessary technological infrastructure for startups that do not need to invest heavily in hardware and software.
In addition to this, social media and digital marketing tools have given even small businesses access to a global audience at a comparatively low cost. New business models have emerged such as subscription services and on-demand platforms, which have disrupted traditional business models while creating new revenue streams.
Read: Why local AI solutions are key to security and technology innovation
The rise of inequality in the digital age
Technology has disproportionately benefited highly skilled workers in developed economies, creating a digital divide between those with the skills to thrive in the new economy and those without. As automation eliminates low-skilled jobs, workers in such positions may struggle to find new opportunities, increasing income inequality.
The concentration of wealth in technology hubs such as Silicon Valley has led to increased regional disparities. The rise of tech giants such as Google, Apple, and Facebook has led to the accumulation of vast wealth among a small number of companies and individuals.
Globally the gap between developed and developing countries has widened due to uneven exposure to technological advances. While some emerging economies, such as China and India, have leveraged technology to boost their economic growth, others have lagged behind due to inadequate infrastructure, limited internet access, and low levels of digital literacy. Bridging this global digital divide is essential for ensuring a more equitable distribution of opportunities and wealth.
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