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This is an audio transcript of the Behind the Money podcast episode: Night School, Class 3 Big Tech vs the insurgents

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Peter Spiegel Welcome to Behind the Money Night School. Im Peter Spiegel. Im the US managing editor of the Financial Times. BTM Night School is a special series made in collaboration with Blinkist that will serve as a guide to the US economy in 2023. For tonights lesson...

John Thornhill I think AI is different. It does disrupt peoples jobs. I dont think it ever tends to replace jobs outright. What it does do is change the nature of those jobs.

Peter SpiegelFrom the rise of ChatGPT to lay-offs at companies like Meta and Amazon, tech has dominated the headlines in 2023. Here to help us make sense of it all is the Financial Times innovation editor John Thornhill.

John, looking at the US economy, 2023 has been a year where weve seen the economy slow, and that is nowhere more apparent than in big tech, where firms like Amazon, Google and Microsoft have all announced some of the biggest lay-offs of any American companies. Why are they being hit so hard?

John Thornhill I think several things are going on at the moment. And youre right. I mean, so far this year, the latest tally, I think about 100,000 jobs have gone from the big tech companies, which is a lot of jobs. Several things, I think. One, last year, I think during the whole Covid pandemic, all of the big tech companies overinvested. They thought the future was gonna arrive quicker than it in fact did. And everyone was going online. They were using Zoom; they were using Google Meet. Everyone is working remotely. So there was a big demand for tech products. And so I think part of the story is were just coming off the peak. The Nasdaq index of kind of tech stocks is down 16 per cent over the past year, although its gone up 12 per cent this year. And I think that really, its just a recalibration when you look at a lot of the hiring figures or the investment levels or the VC funding, 2023 compared to 21, its really still showing an upward tick. Its just that this blowout year of 2022 has now been rolled back.

Peter SpiegelSo these names that we were just talking about that dominate in many ways our daily life Microsofts, the Googles, the Amazons if were coming off the peak, are these lay-offs and the downturn sign that these companies are sort of losing the position in the US economy, that theyre gonna be diminished in the US economy going forward? Or is this a classic case of sort of retrenchment where theyre basically just sort of cutting costs to maintain their leadership position going forward?

John Thornhill Im definitely in the retrenchment school. If you look at the underlying trend lines on ecommerce or the shift to digital advertising or just the uptick of adoption of all these tech products, youre seeing the underlying trend is still moving very sharply northwards. Youre seeing a whole load of new start-ups being formed, partly as a result of the kind of tech lay-offs as well, that there are a lot of kind of surplus tech workers who are now thinking about what theyre gonna do. So theres been a big surge in kind of new business formation weve seen since the Covid pandemic. And I think just generally theres a whole secular trend towards increased use of technology. Five billion people in the world have a smartphone. Increasing amount of commerce is going online, about 20 per cent in the US now. And so I think the secular trend will eventually can outweigh the cyclical downturn.

Peter Spiegel All right. So lets talk about that because theres this trend towards increased use. I think when we talk about technology in general, we tend to focus on these big companies because, as I said, they tend to dominate our lives. But as you pointed out, new companies being started, a secular trend towards more use of technology in our daily lives, so although these big tech groups in Silicon Valley play an important role, its not the only way technology is impacting the US economy. But what are some of these trends that we should be watching, you know, to see whats going to influence our lives and whats going to influence the broader economy?

John ThornhillWell, I think part of the story is that youre gonna see a battle between the big incumbents the Microsofts, the Googles, the Amazons and so on that youve been talking about and the insurgents, if I call them, the next generation of those companies that are emerging. And I think its gonna be fascinating to see how this battle plays out. On the one hand, its been easier and cheaper to launch a company than ever before. You have, everyone can operate in the cloud, which means that the cost has been reduced, the cost of software has plummeted, and finance is more readily available than ever before. So I think we have seen this really interesting trend of new business formation post-the Covid pandemic and how these businesses grow and adopt the new technologies that are coming along. Are they gonna shake the market grip that the big companies have, or are we gonna see a lot more disruption from below?

Peter Spiegel OK, so disruption by insurgents takes us very quickly to what I mentioned at the top, ChatGPT. Now OpenAI, which is sort of the inventor or the developer of it, has gotten some backing from Microsoft, but it clearly has become a disrupter, as you say. And its also convinced a lot of people that AI has finally arrived, and it become a...have a real impact on the real economy. Whats your view? I mean, is AI now ready for prime time? Will it play a role as a disrupter, or should we not believe the hype?

John Thornhill Well, these technologies have been developing over several years. I mean, Google really, the first people who came up with the transformer technology, and GPT stands for Generative Pre-trained Transformers. So they were the people who first came up with the technology, and then its been spread and other people have adopted it. As youre saying, OpenAI, which is this fascinating, kind of San Francisco-based research company, has really kind of pioneered the use of what are called large language models or the ChatGPT that came out. And I think theyve had a huge impact. So I think what...the difference is that a lot of the big companies and Google and Microsoft in particular had been developing these generative models. But when we saw the launch of ChatGPT in November last year, they really went mainstream. Millions of people started playing with them. About a hundred million people started using them within two months of launch, which is an astonishingly rapid take-up of a new technology. And I think we all had that kind of wow moment where you prompt a question in ChatGPT and you get this extraordinarily plausible instantaneous text coming out of the machine. And I think it is an amazing thing. But I think people are only just beginning to work out how its gonna have an impact.

Peter Spiegel Let me play the cynic or the sceptic here, because it was not so long ago that we had another, quote unquote, disruptive technology in something called the blockchain. And the most vivid thing we saw about this blockchain was in cryptocurrencies. And yet in the last few months, weve seen a complete collapse of the most prominent part of the crypto exchange called FTX. And that has seemed to raise all sorts of new questions about cryptocurrencies in general, but also whether blockchain is actually as disruptive as we maybe once thought. Take me through your thoughts on blockchain, and why perhaps AI as a disruptive technology is more worth paying attention to or not versus the hype that was around blockchain?

John ThornhillWell, Gartner, the data company, came up with this quite useful model called the hype cycle, which is rather nice (Peter chuckles). And so they plot where each technology is on this chart that they produced according to how much hype there is around a particular technology. So at the moment, AI is very close to the top of the peak of inflated expectations, as they call it. People are getting so excited about it. Metaverse and blockchain have gone over the top of that peak, and theyre now in what the Gartner would call the slough of despond. (Peter laughs) And then after a few months after people have stopped talking about it, then you get the slow adoption. And thats really when I think a lot of these technologies go mainstream. So I think that youre seeing exactly that with blockchain, there is massive overhyping of it. We saw the whole collapse of the FTX crypto empire. People have almost shaken their heads and thrown up their hands in despair and thought, this is never gonna come to anything. But I think people will start thinking, what are the real uses of this? How can we adopt it? And I think we might begin to see some really interesting uses over the next five, 10 years.

Peter SpiegelAnd when you say find ways to use it, do you mean cryptocurrencies specifically or more broadly, the blockchain technologies and how something that is, you know, visible and transparent to the world and cannot be hacked at is something that other industries could use potentially?

John ThornhillI think its the underlying blockchain technology that people are beginning to think, is this a different way of handling data and making transfers in a way that is more decentralised, is not controlled by one central authority and so on? So I think a lot of the models that weve seen emerge so far have failed, but there is still, I think, possibilities that they could get adopted in the future.

Peter Spiegel Lets go back to AI and to a certain extent to ChatGPT, but AI more generally, because if you combine AI with robotics, you have a debate about whether basically increased automation and machine learning through robotics is good or bad for the US economy. So on the upside, theres the obvious economic argument that automation increases productivity and productivity is key to any country increasing its collective wealth. So therefore, on paper at least, this is a good thing for the US economy. But many of us have seen that there are, automation frankly takes jobs away from a lot of blue-collar Americans, which means there are even fewer well-paying jobs for the average American. So in your view, because you are a columnist, is automation and robotics, you know, a plus or a minus for the US economy?

John Thornhill I would say its definitely a plus. I think this debate has been going on for several centuries and in fact, ever since the Industrial Revolution, that its very easy to see which jobs are destroyed by new technologies and very hard to predict which jobs are gonna be created. I think AI is different. Its an incredibly powerful whats called a general purpose technology that infuses the whole economy at large. I think it will have an incredible impact on productivity in a whole load of different areas. And one of the ones Im most interested in is healthcare at the moment. But as you say, it does disrupt peoples jobs. So I dont think it ever tends to replace jobs outright. What it does do is change the nature of those jobs. In healthcare, for example, a lot of speculation out there that it will change the role of a doctor a lot more than it will change the role of a nurse, for example. In the past, when manufacturing was automated, it definitely hit the blue-collar jobs. It was that kind of automation of muscle. What AI is doing is automating the brain. And so I think thats gonna affect a lot more white-collar jobs going forward...

Peter Spiegel Hopefully not journalists...

John Thornhill Well, maybe some journalists (laughs), but not columnists, I think.

Peter SpiegelBefore I let you go, I want to change topic slightly from the hard science and the disruptive nature of technology to sort of the policy side of things, because one of the biggest stories in technology, I would argue, is that its become in many ways the big battleground in geopolitical conflict, particularly between China and the US. So almost on every sector in technology microprocessors, quantum computing, renewables, green technologies, 5G you have the US and China at loggerheads, sanctions, bans, all these kinds of things. Just to throw this out there, who do you think is winning the global tech war? Because there is a lot of nervousness in Washington that China has taken a quantum leap ahead of the west on many of these technologies. Is that paranoia? Is that actually happening? What would be your view in terms of where China and the US stand right now in advanced technologies?

John ThornhillIf I can put it in a slightly different way, I think both sides are winning, which means also both sides are losing. In some areas like 5G telecoms infrastructure that you were talking about, no doubt China has won that war. I think in open areas that are still now very competitive, in particular, three I would pick out. One is chips that you mentioned. At the moment, 90 per cent of the worlds leading chips are manufactured in Taiwan, which a lot of people in Washington worry is an incredible kind of geostrategic hotspot. What happens if Taiwan came off market? Thats obviously an enormous kind of strategic challenge for America, which is, explains why theres been this massive investment in kind of chip production in the US. AI, I think, is one of the other areas when you look at the papers that are now coming up. China has put an enormous effort into increasing its capability in that area. I think for the moment, as far as anyone can tell, America still has the significant edge in terms of research. But I think China has probably got the edge in terms of the application of a lot of these AI models, certainly kind of ecommerce and online world and digital payments and so on. So I think thats an even contest in a way. And then I think the real joker is quantum, and weve been spending quite a lot of time at the FT trying to investigate quantum computing. In truth, nobody knows who is ahead in this field.

The idea is that if one side or the other did develop a fully functioning quantum computer, they would be able to crack open the other sides encryption methods, the so-called Q-Day, which would have an enormous strategic impact if one of those two sides got ahead of the other. But the truth is that we have no idea really who is where at the cutting edge of this technology. So thats definitely an open race.

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Peter Spiegel OK, John, Im gonna ask you, if our listeners were to just walk away and say, here are the three things I need to take away from John Thornhills discussion, what are the three most important things do you think right now?

John ThornhillWell, first, I think the macro trend towards tech is still very strong. We had this blip in 22. Weve had the retrenchment in 23. But I think we still are gonna see a very strong uptake of technology, particularly in ecommerce, a whole load of software services and in generative AI. Number two would be the impact of generative AI. I think people are still trying to figure this out. Huge numbers of start-ups being created and getting funded right now, who are trying to work out how they can apply AI. Ninety per cent of the start-ups are gonna go bust, but the 10 per cent of them are gonna transform the workplace, I believe. And I think in many areas theyre gonna augment human creativity. Theyre gonna threaten a number of jobs, particularly kind of white-collar jobs. Theyre going to change the nature of work. But I think they will also augment human creativity and lead to a lot of increased productivity. And the third one is really how this all fits into the context of the US-China tech war. I think people have kind of pulled back from calling it the new cold war, but theres certainly very heightened rivalry between the two powers, most particularly in chips, where America is kind of really squeezing China. And China is putting huge effort into trying to develop state-of-the-art computer chips. But were also seeing it in the areas of kind of AI quantum computing and also synthetic biology.

Peter SpiegelOK, Im gonna be very unfair and push you even further. If theres one thing that our listeners should take away about technology and the US economy, what do you think that one thing is?

John ThornhillIts all about the humans, rather perversely. I would argue that technology is a subject that everyone gets obsessed by and they look at the kind of capabilities of the technology and what it could do. But technology is only useful when its applied, and thats all about how people use it. And so I think humans very much are in the driving seat still. Were trying to figure out how we use this technology. We can use it for wonderful, productive ends. We can also use it for very harmful purposes as well. Dont forget the humans.

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Peter SpiegelThanks again for listening. Im Peter Spiegel. You can find more of Johns reporting on FT.com. This episode was done in collaboration with Blinkist. If you want to find out more about conversations and topics like this, check out the Blinkist app. This episode was produced by Zach St. Louis. Topher Forhecz is our executive producer. Sound design by Breen Turner and Sam Giovinco. Cheryl Brumley is our global head of audio. Thanks for listening. Class dismissed.

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Night School, Class 3: Big Tech vs the insurgents - Financial Times