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Finance Fuels Innovation In The Ai Age
Through this article, Rob Garlick highlights the critical role of finance in enabling innovation, particularly in the era of AI. He discusses how financing supports the growth of ideas and the dynamic process of capital allocation. Garlick underscores the transformative potential of AI, the need for upskilling and the importance of balancing investment in both human and technological advancements to drive economic growth.
In 1899 Charles Duell, the US commissioner of the Office for Patents, purportedly said that ‘everything that can be invented has been invented.’
invented has been invented.’ It’s a good job Charles was not correct (and was not an investor). Innovation brings progress. What I had not fully realised when I entered finance 30+ years ago was quite how integral finance is to enabling both innovation and progress.
Anyone can have an idea, but almost always financing is needed to grow that idea, from working capital to facilitate sales or pay employees, to bank loans, VC investments or public market finance. Along this chain returns on investments matter as ideas compete against each other. I got lucky to have a ringside seat as entrepreneurs and CEOs pitched to major investors who reallocated their capital depending on a myriad of factors. It is a dynamic, fascinating and needed process.
Arguably we have entered a new wave of innovation, driven by extraordinary and exponential developments in AI. Indeed, some believe we are entering a new Renaissance in which ideas will spread and multiply, impacting billions of people.
AI is of course not new—it was first coined in the 1950s - but having had a seat at the allocation of capital into most major areas of innovation in the last 30 years, it does appear that this time is different in both the pace and scope of change.
AI is a GPT - a General Purpose Technology. GPTs don’t come along very often in one’s lifetime and AI has the potential to impact most divisions of most companies, in most sectors, in most countries. For example, AI can already do the majority of the hiring process in big firms, accelerate technology projects, improve content synthesis and generation, speed up design or maintenance, or be used widely in customer service, the list goes on.
Companies, investors and politicians are getting excited by recent AI studies showing a productivity wave could follow. Most advanced countries need a productivity boost to improve economic growth. This could create a virtuous circle, with more investment enabling more innovation, more progress and more economic growth. Indeed, VC investments in AI rose a hundred-fold in the decade before ChatGPT burst on the scene in 2022.
WHETHER YOU CHEER OR HAVE CONCERNS FOR AI, THE PACE OF INNOVATION AND CHANGE IS UNLIKELY TO SLOW. CERTAINLY, AI’S PROGRESS IS NOT WAITING JUST BECAUSE EVERYONE IS BUSY
History suggests however that innovation waves are not straight lines. In finance reward almost always comes with risk. AI will disrupt business models and the current wave of innovation appears to be making existing processes more efficient rather than growing new big revenue streams. Given one way of funding AI is by substituting people, resistance is also possible. We saw signs of this in the Hollywood strikes in 2023, which had parallels to the backlash by Luddites in 1812.
There are several solutions to concerns over job disruption, including making gains widely shared—for example, the tax code that currently favours investing in capital over labour could be changed; pointing towards AI augmentation to make jobs better; or directing AI to the areas of greatest value to humanity, such as improving health and education
Lastly, everyone agrees that upskilling and reskilling is a needed bridge between old and new jobs opportunities. The problem is this has been more rhetoric than reality so far. Over the last two decades, real spending by corporations on Learning and Development has fallen by over 25 percent in the UK and the US. An innovation wave with augmentation, could change this with companies upskilling their employees to maximise the productivity opportunities from AI. The companies that get this right are more likely to attract and retain the best talent
Part of any upskilling trend change will be in AI literacy and H2M (Human-to-machine) collaboration. The other part however will be more upskilling and credentialing of human skills that machines cannot master—a mixture of hand (ie dexterity), head (higher cognitive areas such as critical thinking and ethics, alongside change areas such as perspective and adaptability) and heart skills (including EQ, communication and leadership).
In an AI age, we may be facing peak head and need to learn to recognise and value more heart roles. That may be tough for the way education institutions and shareholder primacy have operated for the last 50+ years, but one of my biggest learnings over the last 30 years looking at innovation and finance is we can adapt. Some however adapt quicker than others, whether that is investors and financiers, employees and employers, governments and educationalists, parents and students. All need to invest in the future.
Whether you cheer or fear AI, the pace of innovation and change is unlikely to slow. Certainly, the machines aren’t hanging around waiting just because everyone is busy. And if we have entered a new AI Age in which AQ > EQ > IQ, a question we can all ask and act on is how will your investment in yourself change?
