AI AND THE MODERN PRODUCTIVITY PARADOX: A CLASH OF .

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MIT IDE RESEARCH BRIEFVOL. 2018.01AI AND THE MODERN PRODUCTIVITY PARADOX:A CLASH OF EXPECTATIONS AND STATISTICSErik Brynjolfsson, Daniel Rock, and Chad SyversonWe live in a paradoxical age. When it comes to technologyand the economy we see transformative new technologieseverywhere except in the productivity statistics. Systemsusing artificial intelligence (AI)—and machine learning inparticular—increasingly match or surpass human-levelperformance; news about the rapid pace of technologicaladvancement abounds, and market capitalizations fortechnology firms are at all-time highs. Yet, measuredproductivity growth in the United States has declined byhalf over the past decade, and real income has stagnatedsince the late 1990s for a majority of Americans. Laborproductivity growth rates also fell in a broad swath ofdeveloped economies in the mid-2000s, and have stayedlow since then.What can explain such inconsistencies? Our new researchtakes a close examination of recent patterns in aggregateproductivity growth for a better understanding of theapparent contradictions.AI, MACHINE LEARNING ADVANCESIn the past, computer-driven automation depended onexplicit specification of rules and routines for executingtasks. Software engineers needed to specify inputs,process, and outputs for each program they wrote.Machine learning represents a fundamental change fromthe first wave of computerization by using categories ofgeneral algorithms (e.g., neural networks) to figure out therelevant mapping of task inputs to outputs on their own,typically using very large data sets of examples. The vastmajority of recent breakthrough successes in supervisedlearning are attributable to deep neural nets, which can beused to approximate any arbitrary mathematical function.Deep neural nets have made impressive accuracy gainsin perception, an essential skill for many types of humanwork. For example, error rates in labeling the content ofphotos on ImageNet, a dataset of over 10 million images,have fallen from more than 30% in 2010 to less than 5%in 2016—and most recently, as low as 2.2% with SEResNet152, as shown in Figure 1)1.Error rates in voice recognition are also falling rapidly. TheSwitchboard public-domain speech recording corpus ofconversations, often used to measure progress in speechrecognition, have improved from 8.5% to 5.5% over thepast year (Saon et al., 2017). Exceeding the five percent1 ; ImageNetincludes labels for each image, originally provided by humans.For instance, there are 339,000 labeled as flowers, 1,001,000 asfood, 188,000 as fruit, 137,000 as fungus, and so on.IN THIS RESEARCH BRIEF Machine learning represents a fundamentalchange from the first wave of computerization byusing neural networks to figure out the relevantmapping of tasks on their own. The vast majorityof recent breakthrough successes in supervisedlearning are attributable to deep neural nets.Aggregate labor productivity growth in the U.S. averaged only 1.3% per year from 2005 to 2016, lessthan half of the 2.8% annual growth rate sustainedfrom 1995 to 2004. Fully 28 of 29 other countriesfor which the OECD has compiled productivitygrowth data saw similar decelerations.The evidence and explanations for the latest productivity paradox indicate no inherent inconsistency between forward-looking technological optimism and backward-looking disappointment.Both can simultaneously exist.Like other general-purpose technologies, AI’s fulleffects won’t be realized until waves of complementary innovations are developed and implemented. Still-nascent, technologies can potentially combine to create noticeable accelerationsin aggregate productivity growth.

MIT IDE RESEARCH BRIEFVOL. 2018.01AI AND THE MODERN PRODUCTIVITY PARADOXErik Brynjolfsson, Daniel Rock, and Chad Syversonthreshold is important, because that roughly reaches theperformance of humans on each of these tasks using thesame test data.Clearly, these and other milestones are impressivetechnologically, but they can also change the economiclandscape, creating new opportunities for businessvalue creation and cost reduction. For example, asystem using deep neural networks was tested against21 board certified dermatologists and matched humanperformance in diagnosing skin cancer (Esteva et al.,2017). Facebook uses neural networks for over 4.5billion translations each day.2PRODUCTIVITY DECELERATIONConcurrent with these advances, however, measuredproductivity growth over the past decade has slowed tohalf of its level in the preceding decade—and the declineis widespread.Specifically, aggregate labor productivity growth in theU.S. averaged only 1.3% per year from 2005 to 2016,less than half of the 2.8% annual growth rate sustainedfrom 1995 to 2004. Fully 28 of 29 other countries for whichthe OECD has compiled productivity growth data sawsimilar decelerations. What’s more, real median incomehas stagnated since the late 1990s and non-economicmeasures of well-being, such as life expectancy, havefallen for some groups.Some of this negativity about the impact of technologicalprogress has spilled over into long-range policy planningand corporate plans, as well. The U.S. CongressionalBudget Office, for instance, reduced its 10-year forecast foraverage annual labor productivity growth from 1.8 percentin 2016 to 1.5 percent in 2017. Although modest, that dropimplies U.S. GDP will be considerably smaller 10 yearsfrom now than it would in a more optimistic scenario—adifference equivalent to almost 600 billion in 2017.2 /Figure 1. The six-year improvement in AI vs. Human ImageRecognition Error RatesNevertheless, in our research we find that it’s not the firsttime we’ve seen economic contradictions of this nature. Infact, we appear to be facing a redux of the paradox firstobserved by Robert Solow in 19873: We see transformativenew technologies everywhere but in the productivitystatistics.In our paper, we review the evidence and explanations forthe latest productivity paradox, and propose a resolutionbased on a surprising and significant conclusion:There is no inherent inconsistency between forwardlooking technological optimism and backward-lookingdisappointment. Both can simultaneously exist.Indeed, there are good conceptual reasons to expect themto simultaneously exist when the economy undergoesthe kind of restructuring associated with transformativetechnologies. Disparities between future company wealthand the measurers of economic performance are greatestprecisely during times of technological change. Ourevidence demonstrates that the economy is in such aperiod now.FOUR EXPLANATIONS FOR THE PARADOXOur study led us to four possible reasons for the clashbetween expectations and statistics: False hopes,3 Solow, Robert. (1987). “We’d Better Watch Out.” New YorkTimes Book Review, July 12: 36IDE.MIT.EDU2

MIT IDE RESEARCH BRIEFVOL. 2018.01AI AND THE MODERN PRODUCTIVITY PARADOXErik Brynjolfsson, Daniel Rock, and Chad Syversonmismeasurement, redistribution, and implementationlags. While a case can be made for each, we contend thatimplementation lags are probably the biggest contributor tothe paradox. Specifically, the most impressive capabilitiesof AI—those based on machine learning—have not yetdiffused widely. More importantly, like other generalpurpose technologies (GPT), their full effects won’t berealized until waves of complementary innovations aredeveloped and implemented.Each of the first three reasons—false hopes,mismeasurement, and concentrated distribution—relieson explaining away the discordance between high hopesand disappointing statistical realities. In each case,one of the two elements is presumed to be “wrong.” Inthe misplaced optimism scenario, the expectations fortechnology by technologists and investors are off base.In the mismeasurement explanation, the tools we use togauge reality accurate. And in the concentrated distributionstories, private gains for the few, don’t translate into broadergains for the many.But the fourth explanation allows both halves of the seemingparadox to be correct: In other words, there is good reasonto be optimistic about the productivity growth potentialof new technologies, while at the same time recognizingthat recent productivity has been stagnant. It takes aconsiderable time—more than is commonly appreciated—to sufficiently harness new technologies, especially, majortechnologies with such broad potential application that theyqualify as GPTs. These will ultimately have an importanteffect on aggregate statistics and welfare. Still, the moreprofound and far-reaching the potential restructuring fromtransformative technology, the longer it will take to see thefull impact on the economy and society.The primary source of the delay between recognition ofa new technology’s potential and its measureable effectsis the time it takes to build and scale the new technologyto have an aggregate effect. The other requirement is thatcomplementary investments are necessary to obtain thefull benefit of the new technology. Therefore, while thefundamental importance of the core invention and itspotential for society might be clearly recognizable at theoutset, the myriad necessary co-inventions, obstacles,and adjustments needed along the way await discoveryover time; the required path may be lengthy and arduous.THE PROMISE OF AIThis explanation resolves the paradox by acknowledgingthat its two seemingly contradictory parts are not actuallyin conflict. Rather, both parts are in some sense naturalmanifestations of the same underlying phenomenon ofbuilding and implementing a new technology.Historical stagnation does not justify forward-lookingpessimism. In addition, simply extrapolating recentproductivity growth rates forward is not a good way toestimate the next decade’s productivity growth either.One does not have to dig too deeply into the pool ofexisting technologies or assume incredibly large benefitsfrom any one of them to make a case that existing, but stillnascent, technologies can potentially combine to createnoticeable accelerations in aggregate productivity growth.Take the example of autonomous vehicles. According tothe U.S. Bureau of Labor Statistics, in 2016 there were3.5 million people working in private industry as “motorvehicle operators” of one sort or another (this includestruck drivers, taxi drivers, bus drivers, and other similaroccupations). Suppose that over time, autonomousvehicles were to reduce the number of drivers necessaryto do the current workload to 1.5 million—not a far-fetchedscenario given the potential of the technology. Totalnonfarm private employment in mid-2016 was 122 million.Therefore, autonomous vehicles would reduce thenumber of workers necessary to achieve the sameoutput to 120 million. This would result in an increasein aggregate labor productivity (calculated using thestandard BLS non-farm, private series) of 1.7 percent( 122/120). If this transition occurred over 10 years,IDE.MIT.EDU3

MIT IDE RESEARCH BRIEFVOL. 2018.01AI AND THE MODERN PRODUCTIVITY PARADOXErik Brynjolfsson, Daniel Rock, and Chad Syversonthis single technology would provide a direct boost of 0.17percent to annual productivity growth over that decade.more traditional retailers’ sales and stock market valuations.Self-driving cars may follow a similar adoption curve.This gain is significant, and it doesn’t include manypotential complementary productivity gains that couldaccompany the diffusion of autonomous vehicles. Forinstance, transportation-as-a-service might increase overindividual car ownership. Thus, in addition to the obviousimprovements in labor productivity from replacing drivers,capital productivity would also be significantly improved. Ofcourse, the speed of adoption is important for estimation ofthe impact of these technologies.As important as specific applications of AI may be, we arguethat the more important economic effects of AI, machinelearning, and associated new technologies stem from thefact that they embody the characteristics of GPT. Mostimportantly, machine learning systems can spur a varietyof complementary innovations. For instance, machinelearning has transformed the abilities of machines toperform a number of basic types of perception that enablea broader set of applications.Although this and other examples suggest non-trivialproductivity gains, they are only a fraction of the set ofapplications for AI and machine learning that have beenidentified so far. James Manyika and his colleaguesanalyzed 2,000 tasks and estimated that about 45% ofthe activities that people are paid to perform in the U.S.economy could be automated using existing levels of AI andother technologies. The researchers stress that the paceof automation also will depend on non-technical factors,including the costs of automation, regulatory barriers, andsocial acceptance.When one thinks of AI as a GPT, the implications for outputand welfare gains are much larger than in our earlieranalysis. For example, self-driving cars could substantiallytransform many non-transport industries. Retail could shiftmuch further toward on-demand home delivery, creatingconsumer welfare gains and further freeing up valuableland now used for parking. Traffic and safety could beoptimized, and insurance risks could fall. With over 30,000deaths due to automobile crashes in the U.S. each year,and nearly a million worldwide, there is an opportunity tosave many lives.GENERAL-PURPOSE TECHNOLOGIESTAKE TIMEWhat’s more, the required adjustment costs, organizationalchanges, and new skills can be modeled as intangiblecapital. A portion of the value of this intangible capital isalready reflected in the market value of firms. However, weneed to ensure that national statistics don’t fail to measurethe full benefits of the new technologies and their true valuein the future.The relatively slow adoption of IT systems and E-businesstransformation are good indicators of AI adoption rates-organizational inertia, hiring, and complementaryrestructuring must be tackled in order for the technologyto have maximum impact. The potential of E-commerceto revolutionize retailing was widely recognized, andeven hyped in the late 1990s, but its actual share ofretail commerce was miniscule, 0.2% of all retail salesin 1999. Only after two decades of widely predicted, yettime-consuming change in the industry, is E-commercein 2017 starting to approach 10% of total retail sales andcompanies like Amazon are having a first-order effect onRealizing the benefits of AI is far from automatic, andit’s probably more subtle than we—and shareholders—typically imagine. Theory predicts that the winners willbe those with the lowest adjustment costs and the rightcomplements. With a realistic roadmap, we all can prepareand share in the eventual benefits.IDE.MIT.EDU4

MIT IDE RESEARCH BRIEFVOL. 2018.01AI AND THE MODERN PRODUCTIVITY PARADOXErik Brynjolfsson, Daniel Rock, and Chad SyversonAdditional ReferencesEsteva, A., Kuprel, B., Novoa, R. A., Ko, J., Swetter, S. M., Blau, H. M.,& Thrun, S. 2017. “Dermatologist-Level Classification of Skin Cancerwith Deep Neural Networks.” Nature, 542(7639):115-18.Manyika, James, Michael Chui, Mehdi Miremadi, Jacques Bughin,Katy George, Paul Willmott, and Martin Dewhurst (2017) “Harnessingautomation for a future that works.” McKinsey Global Institute,January. rksSaon, G., Kurata, G., Sercu, T., Audhkhasi, K., Thomas, S., Dimitriadis,D., et al. (2017) English conversational telephone speech recognitionby humans and machines. arXiv preprint arXiv:1703.02136.The full working paper can be found here: http://www.nber.org/papers/w24001Erik Brynjolfsson (@erikbryn) is the Schussel Family Professor at the MIT Sloan School, the Directorof the MIT Initiative on the Digital Economy.Daniel Rock is a Ph.D. Candidate at MIT Sloan and Researcher at the MIT Initiative on the DigitalEconomy.Chad Syverson is the J. Baum Harris Professor of Economics at the University of Chicago BoothSchool of BusinessMIT INITIATIVE ON THE DIGITAL ECONOMYSUPPORT THE MIT IDEThe MIT IDE is solely focused on the digital economy.We conduct groundbreaking research, convene thebrightest minds, promote dialogue, expand knowledgeand awareness, and implement solutions that providecritical, actionable insight for people, businesses, andgovernment. We are solving the most pressing issuesof the second machine age, such as defining the futureof work in this time of unprecendented disruptive digitaltransformation.The generous support of individuals, foundations, andcorporations are critical to the success of the IDE. Theircontributions fuel cutting-edge research by MIT facultyand graduate students, and enables new faculty hiring,curriculum development, events, and fellowships.Contact Christie Ko (cko@mit.edu) to learn how youor your organization can support the IDE.TO LEARN MORE ABOUT THE IDE, INCLUDING UPCOMINGEVENTS, VISIT IDE.MIT.EDUIDE.MIT.EDU5

using artificial intelligence (AI)—and machine learning in particular—increasingly match or surpass human-level performance; news about the rapid pace of technological advancement abounds, and market capitalizations for technology firms are at all-time highs. Yet, measured productivity growth in the United States has declined by half over the past decade, and real income has stagnated .

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