VCs like ourselves invest in innovative technologies because we believe they’ll improve the lives of millions of people and spur economic growth that “lifts all boats.” We’re not naive enough to think AI and automation technologies won’t displace some workers. The pace of technological change has always resulted in some people losing their jobs, with many others having to learn new skills to remain employed. After all, there are few horse buggy manufacturers, stenographers, and video store clerks left. But we’re convinced technological progress will create a bigger pie: a more robust global economy with more jobs to go around.
Unfortunately, the gloomy perception of AI and robotics has also cast a negative light on those funding innovation in this category. VCs who back AI companies have been called job destroyers. Yet nothing could be further from the truth. According to a study by Stanford Graduate School of Business, despite venture investment only equating to .28% of US GDP, 43% of public companies since 1979 have been venture-backed, representing 57% of overall market capitalization and 38% of total employees. The same study found that 25% of net job growth for publicly-listed companies came from those that received venture funding. What’s more, venture-backed companies are innovation machines; they invest heavily in research, accounting for $131 billion (44%) of the total R&D spending of U.S public companies since in 2013, says the study. In fact, the R&D spending of VC-backed public companies accounted for more than 25% of all total government, academic, and private R&D spending combined. Clearly, the VC asset class fuels innovation and creates millions of jobs. There’s no reason VC-backed companies won’t do the same in the AI space.
AI’s projected range of full job replacement is highly debatable, but most agree that AI in many forms – robots, automation, self-driving cars, intelligent computing etc. – will eliminate some jobs entirely, and change the way many other jobs are performed. Research firm Forrester recently predicted robots will result in a net loss of 7% of American jobs by 2025. The Organization for Economic Cooperation and Development (OECD) estimates that about 9% of all jobs globally are at risk of being automated, while a study from Oxford University paints a bleaker picture with automation putting 47% of US jobs at risk.
Clearly, no one is sure just how many jobs automation will eliminate, nor how many jobs it will create – nor are we sure exactly what the long-term economic ramifications of robots replacing some jobs will be. For example, truck drivers are highly paid and have long enjoyed a robust job market, but with the rise of self-driving cars, this entire profession could soon be a thing of the past. One of only a few jobs that pay a middle-class wage without a college degree, truckers make on average about $73,000 a year, according to the American Trucking Association, and are seeing impressive wage growth. But with up to 1.7 million American truckers at risk of losing their jobs to automation, many will soon be forced into unemployment or lower-paying jobs, which will negatively impact income tax revenues. On the other hand, transport companies will save big not having to hire truckers, so they’ll become more profitable, putting more corporate taxes into government coffers. Will the end of truck drivers have an overall beneficial or negative impact on the global economy? It’s hard to make a 100% accurate prediction.
However, most predictions about how many jobs automation will eliminate miss the critical nuance that technology is constantly creating new jobs while simultaneously making others obsolete—and, on balance, creates more jobs than it destroys. That’s why AI won’t lead to a world without human workers any more than spreadsheets did. Take VC-backed-company Amazon as an example. Amazon has embraced robotics and automation in its warehouses and across its entire distribution system, yet recently announced plans to hire 50,000 people. Even in Amazon warehouses that have deployed robots to replace some workers, those employees have simply moved into new roles. Examples where automation has helped companies improve profitability, so they can in turn hire more people, abound across numerous industries, from hospitality and retail to education, medicine, and financial services.
Of course, implementing AI and other automation technologies will cause disruption, leaving some lesser-skilled workers feeling ill-equipped to support themselves. Most agree the gap between the world’s rich and poor will continue to widen, with less-educated groups being left out of economic expansion. Such fears have even given rise to high-profile businesspeople like Bill Gates advocating for a robot tax to create funds to retrain people and support those who don’t have the capacity to work in an automated society.
But the answer is not to tax companies that invest in innovative technologies; that would stymie economic growth. Instead, governments, private companies, and educational institutions must invest in training the workers of tomorrow, providing free or low-cost education to ensure as many people as possible have the skills to thrive. America’s future competitiveness will hinge on effectively educating the next generation, and retraining those who lose their jobs to automation.
Fearing automation stems from the very human fear of change. But while technology of all kinds does irreversibly change our lives in both positive and negative ways – just think of how smartphones are both a blessing and a curse – there’s no stopping the pace of innovation. Instead of fearing automation as technology that will “displace humans”, venture investors like ourselves are excited about a future where AI and robots are part of our everyday lives. Emerging technology companies funded by VCs will provide AI and other automation tools to companies so they can become vastly more productive and profitable. These thriving companies will hire millions of new workers for jobs that don’t even exist today.
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.