The white collar job loss perma-cycle
Generative AI has landed but what does that mean for the "offline" world?
Generative AI - such as ChatGPT - has recently made leaps to a point where it’s reasonable to begin thinking about what work and which jobs it may replace. Taking ChatGPT as an example: it’s incredibly good at finding data, presenting data, being asked questions, repeating and refining. At the end of that process you end up with exactly the answer, song, context, explanation, or intellectual sparring partner that you wanted. Cue: death to the value brought by economists, teachers, you, me, etc. Knowledge workers be damned. But what does all this mean for work and workers in less-skilled industries and jobs?
Sam Altman, former President of famed startup accelerator Y-Combinator and the founder of OpenAI (where a lot of the world’s leading Generative AI projects are underway, including ChatGPT), is in a good place to assess the nature of disruption that his company’s software may bring.
In the tweet above, he’s highlighted that the effects of AI may do more ‘damage’ to the economics of work reliant on technology.
On reflection this makes total sense. The (very) general vibe of the tech world in the last decade has been a belief that value will accrue to the tech economy as software eats the world. That likely remains the case however its effects on a more micro-level may not be distributed evenly.
More jobs and higher salaries have come hand-in-hand alongside working with technology….and now that work has become an attractive target for the hungry software monster. It’s an uncomfortable truth and one that might be a herald of the white collar job loss perma-cycle. Overall the tech economy still goes up and to the right, but many roles within it will become commoditised and value will migrate to the agent of commoditisation (businesses like OpenAI).
The relative value of offline work in the AI age is increasing
The same isn’t true for the offline world. Without a doubt there is a massive wedge of value yet to be realised from the digital transition of many parts of our economy, small and large businesses alike. However AI, generative or otherwise, is unlikely to be able to do the work of maintaining or upgrading our road and rail infrastructure. It won’t build new houses or improve the existing housing stock in the UK. It may make some contributing work better/quicker but the overall effect on unit economics will be considerably less than on work which solely or in majority takes place behind a screen.
This trend of relative value increases in the offline economy has been with us for a while too. Electricians and bricklayers are expensive. They’re often paid more than architects and accountants. This effect is even more pronounced in markets with structural supply/demand imbalances like big cities: Pimlico Plumbers in London have been advertising roles salaried at £100-150k.
This is one of the many reasons why we believe that there’s huge value in investing in old-school businesses in un-fancied markets. The value that they deliver (a) endures as software feeds on itself and (b) can be boosted by helping companies adopt best practices and substituting labour for technology where possible and appropriate. There’s also the added bonus that there’s less competition for deals, less efficient pricing, more alpha. It’s great fun too which is no small part of the reason why we do it.
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At Tikto, we purchase majority stakes in EBITDA profitable businesses and follow that up with incremental growth capital. We bring our network of experienced operators to help execute a business plan for the next phase of our portfolio companies’ growth.
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NB// thanks to one of our readers for coming up with the title “white collar job loss perma-cycle”. We were having a conversation about AI when he came up with this gem. We feel as though it captures the anxieties induced by software’s onward march particularly well.