It is an analogy Lenin would have appreciated. His oft-quoted dictum — “There are decades where nothing happens; and there are weeks where decades happen” — seems to be the most appropriate phrase to describe what the Artificial Intelligence (AI) disruption is doing to market sentiment. I wrote this article a day after a viral research note by Citrini research — it “is a scenario, not a prediction” — triggered an 800-point drop in the Dow Jones index. The crux of the note is simple: AI driven opportunities to cut skilled labor will trigger a non-stop displacement of “skilled” labor and destruction of entire businesses that thrived on information asymmetry (think third-party agents in all things, even air tickets and hotels). What will follow is a large-scale destruction of (white-collar) mass incomes, aggregate demand, and subsequent order ripple effects in capital and debt markets (read Wall Street).
This is, as yet, a scenario — but one that has spooked markets. The palpitations are happening because parts of the story are already playing out. Advances in AI models have wiped out a massive amount from the market value of software companies in the past few weeks. Just one AI company, Anthropic, surpassed the market cap of all major Indian IT firms a couple of weeks ago.
Citrini is not the only one telling this story right now. Veteran investor Ruchir Sharma, in his Financial Times column on Monday, wrote that gold (as an asset) had entered “a storybook stage” and even though “its price is now far above levels suggested by fundamental forces”, it was “hard to see what might stop its ascent”. Gold’s rise in the world has almost always been linked to uncertainty. There is plenty of that around right now.
Investors are trying to hedge assets. Gold, silver, AI stocks, even cash — everything is being tried. Countries and companies are trying to get a foot in the AI door. If they don’t have large language models (LLMs), they at least want data-centres. If not a company of their own, a collaboration with a leading AI player, at the very least.
What will eventually come out of all this? Will economic fortunes become even more skewed than they are at the moment? Will an overwhelming share of today’s white-collar service sector workforce be pushed out of their jobs as AI and its much smaller minority of AI conductors — mostly super-nerds but some warm bodies as well — take over?
It is important to bring in the service-sector angle because manufacturing has been undergoing automation for a long time now. It is now in the process of cannibalising labor in the Global South after having finished off the shop-floor workforce in the advanced countries. There were times when entire townships were built around automobile factories: Detroit in the US to Uttarpara near Kolkata, which produced the much-maligned Indian Ambassador. The day is not far, when BYD, the new global leader of making cars, will sell to the entire world without shop-floor workers in maybe even four digits.
The rise and proliferation of the white-collar service-sector employee helped mitigate the headwinds automation in industry generated for employment and, by extension, politics. Meritocracy became the proverbial gold rush, and perhaps the most successful of them all, in post golden-age capitalism. Higher education, more than anything else, held the keys to upward mobility at a global level. There was no need to slog it out to achieve national transformation, both political and economic. For countries like India, it also provided a bypass to be able to afford internationally produced goods via services export and remittance earnings without earning the required foreign exchange from merchandise exports.
The service sector managerial revolution made John Lennon’s “They hurt you at home and they hit you at school, they hate you if you’re clever and they despise a fool … A working class hero is something to be” call-to-arms redundant. Good times were a low hanging fruit. You only had to learn coding.
Economic doomsday and self-fulfilling downward spiral predictions notwithstanding, the AI boom will definitely amputate a large part of the managerial elite and enterprise ecosystem. How will this affect the political economy at large?
The losers of this generational disruption can either end up the disenfranchised rust-belt working class way, which has gathered behind economic autarky, social xenophobia and reactionary politics. This is what we are seeing in neo-populism as epitomized by the Donald Trump-led Make America Great Again (MAGA) coalition in the world. Or, they can give up on their larger pursuit of upward mobility, driven by indifference toward society at large — the world isn’t exactly a very equal place even before the AI meteor leaves a huge economic crater — and generate traction for a fairer (not unsustainably populist) state of play.
On this count, it is difficult to disagree with the concluding lines in the Citrini report: “As investors, we still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade. As a society, we still have time to be proactive.”
But not too much, by the looks of it.
The views are personal
