good morning. And thank you for inviting me to give the keynote speech at this year’s Spring Policy Conference. It’s nice to see familiar faces here.
Today we’re talking about artificial intelligence (AI), a technology that is changing the way we live and work. We look at how AI is impacting today’s economy and what the future holds.
Although AI may seem like a relatively new trend, the core technology has been around and steadily improving for about 75 years. What has changed is that recent advances have made AI much more powerful and accessible. AI represents a significant technological advancement that has the potential to increase productivity and improve living standards based on current and promised applications.
As AI continues to improve and its adoption spreads, it has the potential to permanently change the way Canada’s economy works. By reducing costs and increasing efficiency for businesses, AI has the potential to support wage growth, lower prices for consumers, and encourage new investment.
There are also questions about what AI means for work. When economists look back at past breakthrough innovations, they find that while the transition period may have been disruptive to workers, widespread adoption did not result in net job losses. But some worry this time will be different.
AI also impacts financial markets and financial stability. Its rapid rise has raised concerns about overinvestment and overvaluation in AI-focused stocks. And AI could make sophisticated cyber-attacks easier to carry out and therefore more likely to occur.
Simply put, the Bank of Canada is focused on AI because it can have a significant impact on productivity, economic growth, employment, and inflation. AI also has the potential to impact the financial system, creating both new efficiencies and new risks.
These developments shape the assessment of the economy and are therefore important for monetary policy decisions and banks’ efforts to promote a stable and efficient financial system.
Governor Tiff Macklem first spoke about AI in a speech in September 2024. At the time, he cited both his enthusiasm for AI and his uncertainty about how it will unfold. A lot has happened in the 20 months since that speech.
In my speech today, I would like to update you on how AI adoption is progressing in Canada and the impact it has and may have on employment and productivity. Before we get into that, I’d like to put the recent buzz around AI into context by comparing it to some of the great innovations of the past.
Let’s dive in.
Understand innovative technology
AI is both a transformative innovation and a potential driver of structural change. To put this into perspective, let’s take a step back and explore the concept of technological change.
Technological change refers to the way new tools and methods change the way work is done. This rewiring typically increases efficiency and productivity. New products and services are also often introduced.
Changes in technology don’t happen overnight. Starting from an idea, through research and development, to commercialization and adoption is often a long process. Most of the time, these changes occur gradually in the background. people don’t notice them. That’s because they tend to be incremental, that is, small steps that add up over time, or changes that are limited to one industry.
But sometimes technological change accelerates and leads to far-reaching transformations. Technologies such as the steam engine, electricity, the internal combustion engine, computing, and the Internet have reshaped economies and entire societies. Economists call these transformational innovations General purpose technologyor GPT.
Accelerating technological change: general purpose technology
GPT has distinct features that set it apart from other technologies.
For one, GPT is built around a single technology core that can be tracked over time. Initially small and with a lot of room for improvement, it eventually improves dramatically and is widely used and applied in a variety of ways throughout the economy.
For example, when computers were introduced in the late 1930s, they were huge machines used for code-breaking and complex calculations. Since then, computing has given rise to laptops, smartphones, streaming services, and even wearable products like fitness watches that can send text messages and monitor your sleep.
Another way that GPT differs from smaller technologies is that it fundamentally changes the way businesses and organizations operate. As we progress, new laws and regulations often emerge.
And importantly, they create significant ramifications. These include investments to support infrastructure that fosters more research and development and broader adoption. This investment will generate other complementary innovations, some of which may eventually become GPTs themselves.
For example, computers began as an aftereffect of electricity, which itself was an aftereffect of the steam engine. Second, computers are creating unique ripple effects across many industries and in a variety of applications. These include things as small as digital watches, and as big as software ecosystems, the internet, robotics, and now AI.
Finally, GPT is far from quiet. Their influence on society is so great that they permeate popular culture and provoke significant debate.
At the time of the advent of computerization, there was much public debate about what computers meant to humanity. These included concerns that workers would be replaced by machines and hopes that machines would give humans unlimited free time. Does it sound like something you’ve heard recently?
Now, let’s get to the core of the problem. Is AI GPT?
It’s fair to say that AI has many of the characteristics of GPT, but not all of them yet. AI has been evolving for decades, but we still Early days of introduction (Figure 1).
