Society
Societal Institutions have critical role in determining prosperity: Economics Nobel winners
Understanding Prosperity: Insights from Nobel Laureates Acemoglu, Johnson, and Robinson
This year’s Nobel laureates in economic sciences—Daron Acemoglu, Simon Johnson, and James Robinson—have shed light on the critical role that societal institutions play in determining a nation’s prosperity. Their research highlights that countries with weak rule of law and exploitative institutions often fail to achieve economic growth or positive change.
The legacy of European colonization serves as a key context for their findings. As colonizers expanded into various regions, the institutions established in these societies were altered significantly, though the extent and nature of these changes varied widely. In some areas, the primary goal was to exploit indigenous populations and extract resources for the benefit of the colonizers. In contrast, other regions saw the establishment of inclusive political and economic systems designed to benefit European settlers over the long term.
The laureates argue that one of the fundamental explanations for disparities in prosperity between nations lies in the types of societal institutions that were implemented during colonization. Often, inclusive institutions were introduced in poorer countries at the time of colonization, leading to the development of generally prosperous populations over time. This historical context offers critical insights into why some former colonies that were rich in resources have become impoverished, while others that began with little have thrived.
However, many nations find themselves trapped in a cycle of extractive institutions and low economic growth. Although the introduction of inclusive institutions could yield long-term benefits for the broader population, those in power are often incentivized to maintain the status quo, which provides them with short-term gains. As long as the political system ensures their control, public trust in promises of economic reform remains elusive. According to the laureates, this lack of trust is a primary reason for the stagnation observed in many societies.
Interestingly, the inability to credibly promise positive change can also explain why democratization occurs in some contexts. When faced with the threat of revolution, political leaders confront a dilemma: they may prefer to cling to power while attempting to appease the masses with promises of reform. Yet, the populace remains skeptical, fearing a return to old practices once the immediate threat subsides. In such scenarios, the only viable path forward may involve transferring power and establishing a democratic system.
“Reducing the vast differences in income between countries is one of our time’s greatest challenges,” remarks Jakob Svensson, Chair of the Committee for the Prize in Economic Sciences. The work of Acemoglu, Johnson, and Robinson underscores the importance of societal institutions in addressing these disparities and fostering equitable economic growth across nations.
Society
Why AI will be the Catalyst for a new era of productivity growth
The dawn of the artificial intelligence (AI) era is often compared to transformative technological advancements such as the steam engine, electricity, and the personal computer. These innovations reshaped industries and daily life, and AI is poised to make an equally revolutionary impact, particularly on global productivity. While the effects of AI are still unfolding, experts believe that its ability to significantly boost productivity could happen in record time—just seven years, compared to decades for earlier technological revolutions.
This optimism comes at a critical juncture in the global economy. Post-pandemic, many countries are grappling with stagnating growth, rising inflation, and mounting debt, alongside the fundamental issue of declining productivity. In fact, several international agencies have noted that the productivity decline following the global economic downturn is unprecedented in recent history. Yet, AI is emerging as a way of hope, offering the potential not only to reverse this trend but to propel productivity to unprecedented heights.
The Economic Impact of AI: A Long-Awaited Leap
The global economy has struggled with low productivity growth for over a decade. For example, U.S. labour productivity growth averaged just 1.68% from 1998 to 2007, a period during which significant technological innovations like the internet and personal computers began to take root. But since 2010, productivity growth has fallen further, dipping to 0.38% between 2010 and 2019.
Some forecasts suggest that generative AI alone could add between $2.6 trillion and $4.4 trillion to the global economy
In this environment, AI is seen as the key to unlocking a new wave of economic efficiency. According to recent reports from the International Monetary Fund (IMF), AI technologies are expected to drive a substantial increase in global productivity. Some forecasts suggest that generative AI alone could add between $2.6 trillion and $4.4 trillion to the global economy.
To understand the potential of AI in the context of productivity growth, it’s useful to compare it to previous technological breakthroughs. The steam engine, for example, took about 60 years to fully transform productivity in manufacturing. Personal computers accelerated productivity growth over 15 years. By contrast, AI is expected to have a profound impact on productivity within just seven years.
Generative AI and Its Promising Future
Generative AI is a form of artificial intelligence that creates new content—whether it’s text, images, or even software code—based on patterns learned from large datasets. The speed with which generative AI is advancing is extraordinary. ChatGPT, released in November 2022, was quickly followed by a more advanced version, GPT-4, and other breakthroughs have appeared throughout 2023. This technology is expanding rapidly, with the capability to process tens of thousands of words in a minute, creating a powerful tool for automating complex tasks.
The applications of generative AI are vast and varied. In the business world, AI systems are already transforming industries like customer operations, marketing, software engineering, and research and development. The banking sector, for example, is projected to see an annual revenue increase of $200 billion to $340 billion through the adoption of AI. The retail and consumer goods sectors could see similar gains, potentially adding up to $600 billion annually.
AI’s potential to automate routine tasks could also free up significant amounts of time for human workers. Studies indicate that generative AI could automate between 60% and 70% of the tasks currently performed by employees, dramatically increasing efficiency. For knowledge-based workers, particularly in high-wage and high-skill sectors, AI is poised to amplify productivity by reducing time spent on routine tasks, such as data analysis, customer service, and administrative work.
Transforming Labour Markets: A Double-Edged Sword
However, the rapid rise of AI is not without its challenges, particularly when it comes to labor markets. Many fear that the widespread adoption of AI could lead to massive job displacement, especially in developed countries where white-collar jobs are more susceptible to automation. According to the IMF, while 30% of U.S. jobs may be at risk of automation by AI, only 13% of jobs in India are likely to be affected, reflecting the differing technological capabilities and labor market structures across the globe.
At the same time, AI’s integration into the economy is expected to create new job opportunities, especially in fields that require advanced technical skills, such as AI development, data science, and cybersecurity. This pattern mirrors historical trends: when previous technological revolutions disrupted the labor market, they also created entirely new industries and job categories. A recent study by MIT found that 60% of the jobs in America today did not exist in 1940, highlighting the constant evolution of the labor market in response to technological innovation.
AI’s Role in Healthcare: Beyond Productivity
AI’s potential extends far beyond traditional sectors like manufacturing or finance. The healthcare industry stands to benefit greatly from AI’s ability to analyze vast amounts of medical data quickly and accurately. For example, AI systems can assist doctors by analyzing scan reports, identifying patterns, and recommending treatment protocols. AI can also reduce the burden of administrative tasks, such as summarizing doctors’ notes and processing insurance claims, thereby improving productivity in healthcare settings while also reducing costs.
Generative AI is now widely recognized as a general-purpose technology (GPT), similar to electricity or the personal computer
Such advancements could lead to significant improvements in healthcare delivery, making it more efficient and cost-effective. This would not only improve outcomes for patients but also contribute to economic growth by lowering healthcare costs for both consumers and governments.
The Path Forward
Generative AI is now widely recognized as a general-purpose technology (GPT), similar to electricity or the personal computer. These technologies have historically contributed to broad-based productivity growth across multiple sectors. The key to AI’s success as a GPT lies in its ability to integrate seamlessly with existing technologies and applications across various industries, driving continuous innovation and productivity gains.
The widespread adoption of AI in industries like logistics, manufacturing, education, and even creative arts has the potential to revolutionize how businesses operate and how workers contribute. As businesses continue to integrate AI into their processes, the resulting efficiencies will likely lead to increased competition, lower prices, and higher wages for workers in industries that embrace these changes.
AI’s transformative potential for global productivity cannot be overstated. Just as the steam engine and personal computers reshaped industries and economies, AI is positioned to trigger an unprecedented leap in productivity across nearly every sector. While challenges related to job displacement and economic inequality remain, the promise of a future in which AI drives substantial economic growth is undeniably exciting.
As AI continues to evolve, it is crucial for businesses, policymakers, and workers to embrace this change, adapting to new technologies and fostering an environment that allows AI to reach its full potential. The future of productivity is unfolding before us, and AI will be at the centre of this revolution.
Society
Hug the change to keep your business alive
The key to surviving and growing in a changing business environment is to embrace change. Hug the change, for it will keep your business alive and thriving.
In 1974, Xerox, a global leader in photocopiers, printers, and scanners, commanded a dominant 86% market share of copiers. However, by 1984, that share had plummeted to just 17%. At the same time, profits, which stood at $1.15 billion between 1980 and 1984, dramatically fell to only $290 million.
The company found itself grappling with fierce competition, not only from Japanese manufacturers but also from American rivals. As a result, Xerox began losing its once unchallenged monopoly. One of the key challenges was that Japanese companies, with production costs only 40-50% of Xerox’s, were offering superior products at competitive prices. Xerox, which had once reigned supreme in the copier industry, was now struggling to maintain its position. Faced with this difficult situation, it had only two choices: fight or surrender. Xerox chose to fight. But the question remained—how?
The company’s strategy was to closely study its competitors’ operations, from production methods to after-sales service, to understand why they were outperforming Xerox. By comparing each of their processes with those of their rivals, they identified the gaps in their own systems. Armed with this insight, Xerox implemented improvement plans across the board to enhance its processes and regain its competitive edge. This approach helped the company make a strong recovery and regain its footing in the market.
This approach is known as benchmarking—the practice of comparing one’s business processes with those of the best-performing competitors in the industry. The goal is to identify weaknesses and opportunities for improvement. For each function, every process is carefully compared with those of high-performing competitors. Xerox examined every component of its products, comparing them to those of superior offerings, to understand why their competitors’ products were better. They used this knowledge to systematically improve their own processes, ensuring they produced higher-quality products.
In the business world, observing and learning from top performers is not a sign of weakness but a strategic strength. By understanding what makes the best companies successful and striving to improve your own operations, you position your business for success. Benchmarking and adaptability are ongoing processes—businesses that continually evaluate and adjust their practices will thrive in a competitive marketplace.
The key to surviving and growing in a changing business environment is to embrace change. Hug the change, for it will keep your business alive and thriving.
Society
Guerrilla Marketing: Creative strategies that captivate
Guerrilla marketing offers a path to success if you’re willing to invest a bit of time, creativity, and imagination
When I visit the mall to shop with my family, a buzz of conversations surrounds us. As we meander through the crowd, a beautiful song drifts in from an unknown source. Suddenly, a group of youngsters gathers in the central area and begins dancing. We find ourselves drawn to them, surprised by the spectacle. Even shoppers nearby hear the music and rush over. The dance is vibrant, and as the rhythm builds, the song comes to an end. The dancers dramatically pull off their outerwear, revealing T-shirts emblazoned with a brand name and logo. Like magicians, they blend back into the crowd and vanish.
One day, on a bustling street in Tokyo, Japan, passersby are stunned into a standstill. Their eyes widen in disbelief. Above them, on a ten-story building, a giant billboard displays an image of a football field. Two individuals are suspended by ropes, playing football in midair, executing flips and jumps. Within minutes, news and images of this breathtaking scene spread across the globe, earning the title “Picture of the Morning.” This remarkable advertisement by Adidas captures the world’s attention not through money, but through creativity. It stands in stark contrast to conventional marketing strategies. This is GUERRILLA MARKETING.
Guerrilla marketing is not a minor player; it’s a powerful strategy
The earlier dance was a flash mob, a classic example of guerrilla marketing. By appearing unexpectedly in a place where no one anticipates it, guerrilla marketing captivates observers without feeling like an advertisement. It leaves a lasting impression. These techniques can even be adopted by small businesses with limited marketing budgets. While well-funded corporate giants may not worry about advertising costs, small businesses must justify every penny spent. Guerrilla marketing offers a path to success if you’re willing to invest a bit of time, creativity, and imagination. The potential rewards can significantly exceed the costs.
Next time you board a bus or metro train, take a moment to notice the hanging strap you use for support. Is there an advertisement there? Without realising it, that brand may have already made its way into your mind. Guerrilla marketing is not a minor player; it’s a powerful strategy. Let’s dive deeper into the world of creative advertising techniques.
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