The great decoupling: The real ChatGPT revolution

ChatGPT and other AI’s have been in the news a lot. With 100 million new adopters of the technology in its first two months, its pace of adoption has concerned many people for its social, economic and ethical implications.

One fact is not in doubt: AI technology is here to stay. Fighting it by, for example, prohibiting its use will be like trying to stop waves at the beach with your arms. Many fears focus on the potential ills it may cause, including job displacement or outright elimination, cheating on exams, and how easily hackers could influence an AI.

AI’s positive impact on productivity will override all concerns. The U.S. and other developed (and developing) nations rely on service economies. It is devilishly difficult to improve productivity in a service economy because service productivity is chained to the speed of human decision-making. Whether that service is law, engineering or waiting tables, one human being can only make decisions and act so quickly.

ChatGPT and AI change everything because they will decouple the speed of decision-making from humans, bringing economies of scale to decision-making. AI will take care of mundane and straightforward decision-making based on facts and evidence. Think everything from filling out financial paperwork to diagnosing diseases to processing run-of-the-mill customer inquiries and orders. AI excels at these sorts of tasks, outperforming even experienced human experts.

Imagine a supply chain where the supply chain managers can automate decisions that drive the repetitive, low value adding tasks. It will free them up to focus on issues that AI cannot deal with that involve social context and judgment such as negotiating, strategy, motivating workers, innovation, and maintaining customer and supplier relationships. Most importantly, humans will be free to develop solutions to never-before-seen issues that AI will struggle to solve.

Some see job elimination but consider the consequence of one supply chain manager being able to create value that used to require four or ten salaries. That level of productivity will bring down the cost per transaction so that supply chain management (and many other services) becomes accessible to everyone. The supply chain manager’s salary relative to the amount of value produced will become almost inconsequential.

Such high returns on investment tend to increase investments. We saw similar phenomena in the late 1800s when the first big corporations invested in capital that multiplied labor productivity combined with reduced transportation costs. That lead to the building of more factories and the hiring of more workers. The same thing happened leading up to the Great Depression thanks to the rise of the automotive and other manufacturing that combined the Ford production system, an early proto-type of lean. Modern management techniques, all motivated by the electric motor and early office automation, lead to a significant increase in labor productivity and the founding of many famous manufacturing powerhouses. The golden age of productivity growth occurred from 1948 to 1973 as the result of many technological developments initially driven by World War II. Think improvements in chemistry, jet engines, transistors and solid-state circuitry, and the early forms of the personal computer, the internet and wireless communications.

Similar to these past productivity booms, AI’s decoupling of decision-making economies of scale from the human body count will have a tremendous impact on services productivity, which is our current most serious challenge at the root of economic growth. Smart companies will start training workers to leverage AI, invest in R&D to develop better AI that is industry-specific, and start developing forecasts for how AI will change business models. Do you have the kind of workers who are critical thinkers and think in terms of systems and feedback loops?

One obvious impact will be that providing basic services will become table stakes. Do you know which problems your customers will need resolved once their mundane needs become virtually automated? How will you create value? The companies who take the lead on answering these questions will be the ones with the strongest relationships with their customers, and in an increasingly “winner takes all” competitive environment, they will capture the lion’s share of the economic boom that is in the making.

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