Artificial Intelligence Plus Machine Learning’s Impact on Capitalism
Exploiting artificial intelligence and machine learning (AI/ML) and such other technologies for business advantage has given rise to a new form of capitalism, which is a lot more egalitarian than what was seen traditionally. AI/ML technologies automate some of the mental work done by humans, which opens up a whole new world of opportunities for future entrepreneurs.
In his book entitled “Capital in the 21st Century,” published in 2013, Thomas Piketty proposed that inequality is not an accident, but a feature of capitalism, and can only be reversed through state intervention. The book argued that the world is returning to “patrimonial capitalism,” in which much of the economy is dominated by inherited wealth. So inheritance, and not productive work, begets riches.
Swaminathan Aiyar has countered the above argument with the rise of “unicorns”— start-up companies that have risen meteorically and are worth over a billion dollars. This shows we have a new, fairer capitalism that enables talented newcomers to thrash influential but less talented oldies. Globally, there are about 315 unicorns, (e.g., Uber, Airbnb, UiPath), with India also having a few notable examples including Flipkart, Paytm, OYO Rooms, Ola Cabs, Byju’s, and Swiggy. Aiyar ascribes the rise of the unicorns to the:
- Availability of funds from private equity and venture capital funds to startups, despite no prior track record
- Willingness of these venture capital funds to pour money into such startups, which have the potential to grow ultrafast leveraging the internet/smartphones
- Revenue growth and gaining market share often play a bigger role than actually returning profits
- Crowd-sourced funds becoming available.
In addition, one thing that is common among many of these unicorns is their reliance on emerging technologies of information processing. Applying artificial intelligence/machine learning (AI/ML) technologies to big data and delivering them via multiple channels, including smartphones, gives them a differentiator against their competitors. AI/ML technologies convert data into information which, in turn, enables them to take actions that influence customer behavior. These companies thrive on the maxim that “data is the new oil,” and rely heavily on discovering patterns from the voluminous amount of data, something that is further complicated due to its enormous variety and high velocity of arrival. Such companies have proven that exploiting technology can breed a new form of capitalism that is fairer than the old one. It is no longer the prerogative of the rich and well-connected to establish profit-making institutions. In simple terms, exploiting AI/ML and such other technologies for business advantage has given rise to a new form of capitalism, which is a lot more egalitarian than the patrimonial capitalism to which Piketty referred.
From an automation perspective, replacing physical human labor with cheaper, faster, better machine power has always been the aim of traditional companies trying to maximize their profits, increase productivity, or improve consistency of quality. The industrial revolution thrived on such efficiency improvements and enabled industrialized economies to grow at a faster pace than the relatively non-industrialized economies.
In contrast to such automation, AI/ML thrives on the premise that some of the mental work done by humans (e.g., decision-making, pattern recognition, etc.) can now be delegated to machines. Companies like Uber and Ola Cabs have built the decision-making capabilities within their app to discover surges in demand for cab rides, and automatically increase the price to extract greater fares from their loyal customers. E-tailers such as Flipkart and Amazon rely on collaborative filtering mechanisms to recommend goods that other customers of similar demographic profile have purchased, thereby enticing customers to purchase items that they had not originally planned on buying. Also, their ability to personalize such recommendations based on past buying patterns is akin to a bartender who remembers a patron’s drink and pours out the right one, without any prompting – thereby ensuring customer delight.
Practically, anyone with a brilliant idea of “on-the-fly” decision-making, can exploit AI/ML technologies to their advantage, provided they can lay their hands on a vast amount of relevant data. Of the 300+ unicorns, even if only 10% of them succeed over the next several years, we shall witness the creation of 30+ billionaires, who have relied on technology to make their fortunes. Thus, capitalism will continue to thrive and people around the world will continue to have something to look forward to in their quest for wealth creation.