Unlocking services productivity: the only thing that matters
Demographics make unlocking services productivity our biggest economic challenge. This is the only opportunity that makes sense for AI. But there are plenty of barriers to overcome.
Reminder: I have set up Project Two to gather stories, observations and frustrations about how you are using AI today. You can share your experiences in any format - text/ audio or video. Use this simple form, message me below or book a call. And I have just added a whatsapp option so you can ping sunstone on +44 (0) 7864 749216
I have spent some time this past two weeks talking about my advisory business. I am in the process of rethinking and rebooting this for the AI age.
It’s work in progress so expect more soon. The eventual shape will depend on developing a better understanding of what is really going on. Project Two is my way of doing this - love your help
Back to the topic. During those conversations, I have found myself framing a macro view of the future. As far as I can see, unlocking services productivity is the only things that matters for AI.
Here's how I reached that point:
Services are what matters in our economies. As the table below shows, this is true for all major economies - even China and India.
Whatever the politics, manufacturing and agriculture have become cheaper and much more efficient for decades. Services still lag behind.
This thread shows various analyses of UK productivity since the pandemic. Healthcare is the biggest drag but plenty of other service led sectors are also underperforming. Including Info & Comms - the tech sector basically.
Services demand is rising and will only continue to grow:
Demographics. Ageing populations require more services. Health and social care is already the largest sector in developed economies.
Growing richer. Much of the world's population is rising out of poverty. This is great news. Experience shows it is especially good news for services. As people have more money, they want to consume more services of all kinds.
At the same time, services suffer severe constraints on supply. Back to demographics. People deliver services. We will have fewer people of working age which means the capacity to deliver services is likely to shrink.
The only way to square this circle is technology.
So services is the only opportunity that makes sense for AI. Delivering on the scale predicted for AI means unlocking the value in services.
Services is what we do well. Right now, the US, the UK and Europe lead the world in delivering services. We must seize the opportunity that AI represents. Not sure I see any clear direction on this from politicians, investors or anyone else.
Let's not be naive about the barriers. There are big obstacles to transforming services:
Baumol's cost disease. Economics teaches us that wages in low productivity industries will rise in response to improvements in productivity in other sectors. That is what we observe in our economy today. Overcoming this by flipping into higher productivity is not simple.
A lot of services sit in the public sector. With the best of intentions, these sectors are not easy to change and change often steers in the wrong direction. In the UK and Scotland specifically, this manifests itself as a top down culture of grand programmes, missions and strategy. This stuff just gets in the way.
In general, there are a lot of vested interests in service sectors. Professional bodies long protected (and frustrated) by entrenched regulations and standards. The bulk of our trade unions. And many public interest groups led by campaigners and influencers with various agendas.
There is plenty of regulation that will get in the way too. Much of this is based around a series of implicit assumptions that depend on the existing people driven models.
There is a long road ahead but the business opportunities are worth it. I believe that people will drive change. Ordinary people using AI tools to find a better way to do what they do (yes - this means please contribute to Project Two).
I am going to try to corral my undisciplined brain into focusing on this stuff for the time being. Don't set your expectations too high!
And a final stray thought from limited knowledge - why do I keep feeling that Palantir has the right business model for this challenge?
Thanks for reading