Remember when creating a video required bulky equipment, an on-site cameraman, an army of editors, a sound designer, and countless other support staff? Probably not. For most of us, that meant taking out our phones to record, downloading, editing, and then uploading to some platform. Content monopolies have broken down, as evidenced by the fact that some of today's greatest creators are not traditional production companies but random kids from remote towns.
But as of last week, none of that may last for long. There's a new kid on the block, except this time, it's not a Mirpurkha kid or a Patna housewife. Artificial intelligence is now available to everyone, as demonstrated by the demo of OpenAI's new product Soro. Simply enter detailed text prompts to create high-quality videos.
This is clearly part of an incredibly broad wave of advances in artificial intelligence that will change humanity as we know it. But will technological sophistication lead investors to put more money into this space? The answer is not so clear-cut. According to market intelligence platform CB Insights, AI companies around the world raised a total of $42.5 billion in 2,500 deals in 2023.
While this may seem like a big number to us Pakistanis who are short on dollars, in reality, AI funding decreased by 10.2 percent and transactions decreased by 24.1 percent. Without OpenAI, the reduction in investment value would have been even greater. A huge round of $10 billion. So things don't look that impressive, at least at first glance.
Advances in technology are eroding the benefits of abundant and cheap labor.
But when you put the numbers into broader context, the picture looks much better. Sample: Total venture funding in 2023 decreased by a significant 41.7% and deal value decreased by 30.4%. As a result, AI accounted for 17.1% of investment, up from 11.1% a year ago.
So even if AI funding has declined relative to its 2021 and even 2022 highs, the decline has been much more modest than overall investment activity. Also, AI deals tend to be much larger than the typical level.
In fact, AI's average and median transaction value was $23.4 million and $4.4 million, respectively. Not only was this significantly higher than the overall VC mean and median of $12.5 million and $2.8 million, but it was also the highest in the past five years, excluding 2021, of course.
What do all these random numbers have to do with us? Quite simply, the age of AI is here and we must adapt or perish. For decades now, probably our only selling point is that we have a lot of people who happen to have very low costs. Whether sending migrant workers to the Gulf, setting up textile factories in Faisalabad, or providing information technology services to foreign companies, the main advantage has always been worker arbitrage.
Whether sending migrant workers to the Gulf, setting up textile factories in Faisalabad, or providing information technology services to foreign companies, Pakistan's main advantage has always been worker arbitrage.
However, given advances in AI, the benefits may not last long. Or at least as much. Companies will automate processes and reduce headcount. When that happens, what will be left? Yes, there will still be people and they will still be working, but it may be the same as media personnel. They are completely powerless, fighting not only against mismanagement but also against the very trends of the times.
I don't mean to overstate things, but if you don't want to become even more completely irrelevant than you already are, it's time to change trajectory and, more importantly, change your approach. Why is this so? It's easy if you invest in research and development.
Where the relationship is not clear, a country's output is considered to be a function of capital, labor, and total factor productivity (TFP). The latter is a broad input, but is primarily determined by technological advances and also incorporates changes in worker skills. The higher TFP, all else being equal, the higher the national income.
And that TFP is determined by many things, including research and development. Unfortunately, Pakistan spends only 0.16% of its gross domestic product on research and development, well below the global average of her 2.71%. As AI threatens to take away jobs, the least we can do is make our employees more productive. In some cases, it may not be enough in the end, but it's at least worth a try.
The author is co-founder of Data Darbar
Published in The Business and Finance Weekly Dawn on February 19, 2024
