Capitalism must evolve to ensure wealth is spread throughout societies, and not confined to the elites, Larry Fink, CEO and co-founder of investment firm BlackRock and chair of the World Economic Forum (WEF), told the Forum’s annual conference at Davos.‘Since the fall of the Berlin Wall, more wealth has been created than in any time prior in human history, but in advanced economies that wealth has accrued to a far narrower share of people than any healthy society can ultimately sustain,’ he said. Christine Lagarde, President of the European Central Bank, made a similar point: ‘We have to be careful about the disparity that is getting deeper and bigger. If we don't pay attention to that, we are heading for real trouble.’Speakers and delegates also discussed whether the AI revolution could accelerate inequality. The combination of hyper-scaling in AI, and a model in which wealth accrues to owners of assets and, increasingly, owners of data, could mean the rest of society feels it is suffering as a consequence, especially if there is significant job displacement as AI is adopted more widely.Businesses need a social licence to operate, and they depend on the support of public services. An emerging issue is the use of the electricity grid to power increasingly large data centres being constructed to support the expansion of AI. If low-income households face rising electricity bills in part to pay for the very data centres that put them out of work, there is a looming problem of legitimacy.In an interview in Davos with Larry Fink, Satya Nadella, CEO of Microsoft, one of the hyper-scalers in AI, discussed the risk that tech firms could lose the social permission to use energy from the grid if AI is not making substantial improvements to health outcomes, education, public sector efficiency, and private sector competitiveness.The two leaders agreed that ‘diffusion’ – by which they meant embedding AI throughout businesses and the economy – is a challenge that business leaders and policy-makers ought to address. The companies or the countries that diffuse AI fastest will gain more than the technology creators, Fink said.Nadella does not believe that there is a bubble in AI-related economy, because the benefits are being realised across all sectors. If it were a bubble, all the discussion would be about the tech firms. But the real test of the significance of AI lies in potential breakthroughs in sectors such as pharmaceuticals, for example highly effective new treatments brought to market quickly because AI accelerated the clinical trial. Such developments are already occurring, he said.In addition to AI, the other major disruptor to global businesses today is geopolitics, and was a prominent topic of discussion at Davos. Both forces are disruptive, of significant impact with a high degree of unpredictability. China has invested significantly in technology, and could become an AI superpower to rival the US.Geopolitics and the diffusion of AI may work in opposition to each other. In supply chains, for example, AI and blockchain technologies hold the promise of efficiency improvements, but trade wars and the shifting patterns of the global formation of alliances, mean that resilience can be more important than efficiency. The cost base for an entire supply chain can change quite rapidly owing to political decisions and trade deals or changes in tariff policy.There is also the rise of economic nationalism at the level of the consumer. Tourism is down in the US, especially from Canada, as a result of President Donald Trump’s policies. Chinese consumers are moving away from prestige European brands such as Valentino’s or Versace towards local upmarket brands. In the early decades of globalisation, brands such as Nike, McDonalds and Coca Cola sought to be truly global, with much success, but we could be moving towards a world that is more one of regional blocs. Another potential growing divide in the economic world where AI is widespread is between owners of assets and data, and those without ownership.Capitalism may not be in full-blown crisis. At Davos, Dr Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation, noted that over 70% of global trade flows are under WTO rules. So we may be entering a period of technological, geopolitical and social disruption, rather than a breakdown, but the dynamics are unpredictable.The author is a Qatari banker, with many years of experience in the banking sector in senior positions.
