The State of AI globally: investment, business use and labour impact
Previously we reviewed the Stanford HIA 2024 AI Index’s findings on developments in AI capability in the last 12 months. This week we review the Index’s findings on the global economic impacts of AI over the last 12 months.
Investment
As the figure below shows, global investment in AI has continued to drop significantly, down over 40% from the high in 2021, but still 13x higher than a decade ago.
Most of this decrease was in M&A activity. Private equity investment (measured by AI start-ups that received over $1.5 million in funding) is only down 7% globally in the last 12 months. As a result, PE now accounts for over half of total global AI investment, up from 30% in 2020. Unsurprisingly, AI investment skewed heavily towards generative AI, which attracted $25.2 billion globally in 2023, nearly nine times the investment of 2022 and about 30 times the amount in 2019.
Business take-up
The 2024 AI Index draws on a McKinsey survey of 1,684 respondents across various regions, industries, company sizes, functional areas, and tenures around the world.
In 2023, over 55% of surveyed enterprises reported using AI in at least one business function, surprisingly only a modest increase of 5% or so in the last 12 months. As the figure below shows, over the last 12 months, most of the growth in AI usage by business is customer facing - marketing and sales - again surprisingly with drops in strategy and corporate finance, risk, and human resources.
The survey also compared the use of general AI vs generative AI in businesses, and found that, as the following figure shows, that general AI still dominates overall, but generative AI is beginning to “permeate” businesses and that its patterns of usage across functions is pretty similar to general AI.
The survey reports that most of the benefits of AI deployment for businesses skew to cost savings over revenue gains. While 42% of respondents reported cost savings and 59% reported revenue increases, two thirds of those reporting cost savings said the savings were 20% or greater while only 10% said the revenue increases were 10% or greater. This has been the pattern over some time: the 2024 AI Index notes that “[c]omparing this and last year’s averages reveals a 10 percentage point increase for cost decreases and a four percentage point decrease for revenue increases across all activities.”
Employment
The 2024 AI Index sets out some of the mounting research on how AI improves employee productivity:
But there is also the risk of employees falling into a ‘computer says no’ mindset. While a study of professional recruiters reviewing resumes found that receiving any AI assistance improved task accuracy by 0.6 points compared to not receiving AI assistance, those that were told they were using “good AI” (i.e. highly reliable) performed materially worse than those who were told their AI was capable but could make mistakes (“bad AI”). The study theorizes that recruiters using “good AI” became complacent, overly trusting the AI’s results, unlike those using “bad AI,” who were more vigilant in scrutinizing AI output.
The 2024 AI Index notes that employer perspectives on the impact of AI adoption on employment levels differ between sectors. As the following figure shows, while job losses are anticipated to be higher in service operations and supply change management, more than half of employers expect a small change or growth across many other functions as a result of AI, including sales and marketing, risk management and product and service development.
How does Australia fare?
In short, Australia ranks low (even relatively given the size of its economy) in most of the 2024 AI Index’s league tables:Australia does comparatively well in some other measures:
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