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Welcome to in the City.

Each week we unpack a story that's crucial to the world's financial capitals.

I'm Francis Laqua.

And I'm Allegra Stratton.

So Fran.

It's been going on for years, but it feels like it's reached something of an apoget, this debate about artificial intelligence, and it's of course the ability to deliver big productivity gains, particularly here in the UK, but also the problems with it.

Yeah, and we've we've even seen the government actually double down on this commitment to AI.

Recently the PM focused the Cabinet meeting on how it could potentially be used to improve government services.

But us a living standards.

Right and so for all of us it is unclear how technology, this technology is going to reshape the economy.

But we've got report on Bloomberg that businesses are already changing the way they hire.

A new study from McKinsey looked at how UK companies are reducing hiring for jobs that they think will be impacted by AI.

Postings for jobs were actually already down are a crazy thirty eight percent in industries that will be affected by AI, So in our conversation today we're going to get into what role AI will play is playing in solving the UK's productivity puzzle guess, but also more immediately, how it is already changing the UK's job landscape.

Now joining us is James Kanagasorium.

James's chief research officer at the AI enabled research firm Focal Data, and has been instrumental in implementing data driven decision making processes across various sectors, including finance and tex so.

James, thank you so much for being.

On the show.

Welcome to the City of London, the city of the City of London.

Please mind the gap between the tram.

The financial heart of the country the city the city.

Welcome to in the city, stand clear of the dawn.

We are seeing a debate in America, particularly between big big tech titans in different points of view, about whether AI will demolish the white collar employment cohort.

We've had fort CEO say two weeks ago could be as many as fifty percent of jobs lost for white collar workers from automation.

We've got the anthropic CEO saying he thinks twenty five an increase of twenty percent unemployment you know, these guys are kind of bidding to outbid each other with their apocalyptic record rhetoric, but clearly there is there is a problem.

And then on the other hand, you've got the boss of Nividia saying, guys, we're going to create more jobs through AI.

Tell us where you stand.

I would stand more on the former camp, which is that I can see the immediate upsides, and I can see the fact that different countries might benefit from it differently.

And I think the UK is potentially not that badly positioned, given it's kind of human capital stocks, the fact that it has lots of businesses that are pretty adjacent to AI or are in AI itself.

But the reality is that if you strip away all the rhetoric, firms that hire white collar graduates are hiring fewer of those people, and they're doing so in a degree that you would typically associate with a mass recession.

So again, the numbers that you've talked about, whether it's twenty five, fifty percent, those types of numbers in terms of cohorts of people rolling on is what you'd associate with the mass financial crash.

But the idea that that's a kind of permanent shift is pretty structural.

Sorry to interrupt you.

James mckimsey showed there was a thirty eight percent reduction in what they call AI exposed jobs.

Yeah, exactly, And it depends on who's getting augmented and who's getting exposed.

You know, I'm in one of those jobs in terms of market research, but lucky enough to work at a firm that is actually an AI market research firm, so I'm one of the I work with a few small band of cohort people who are getting augmented to hopefully at the forefront of this role out of this technology.

But there are much wider societal impacts, like what does it mean to literally have a milk ground that is a third to half the size of what it is before?

What does that mean for the tax base?

What does that mean for the university education sector and the number of people graduating with the degrees to expect to go into white collar jobs.

Like a lot of politics and social issues are basically downstream of the gap between people's expectations and then what is delivered in terms of society, jobs and pay.

And the third thing is obviously, I mean, what's really interesting about this is that this is clearly differentially affecting a group of people that you would not necessarily associate with being left behind.

Right we're talking about graduates who I would have expected to basically earn good to great salaries over the course of their careers, who are probably living in cities who could expect some kind of graduate premium.

Then they're suddenly walking into a job market where none of these things exist.

But they've already crystallized a lot of the downsides, so they already have, for example, debt from a university.

They have already moved to cities that have high house prices.

I speak to a lot of CEOs and I mean, these are big CEOs that should one hundred percent understand what AI means for their workforce, and frankly they're not.

I mean, you know, you'll have a coffee with them and they say, I'm looking at AI training, but I don't one hundred percent understand how it's going to impact my organization.

Yet.

We also spoke to the Accenture CEO and she was saying, they're training five hundred thousand staffers because a consulting work in AI is increasing by so much.

So do we actually have a full understanding of the impact of AI in the next three four five years and what sectors will be most affected.

Yeah, I think it's a really good question, like how much of the analysis is evergreen.

One thing that I when I first started this kind of geographic analysis of which jobs were more exposed to AI and therefore what were the kind of community impacts.

The thing that really struck me in a UK context was the government's own analysis of which jobs were AI exposed is basically the opposite in twenty twenty three to its initial analysis in twenty nineteen.

In other words, the jobs, the geographies, the education levels that people four were going to be automated are not just slightly different, but they're almost the opposite.

You know.

Back in twenty nineteen, the Department of Education, I think, released a paper that basically indicated that a lot of the areas that were going to be AI exposed were the same areas that suffered from de industrialization.

That is now the opposite of what the analyses are saying, which is actually the jobs of the AI exposed far more white colar.

But again these are very broad terms.

The analysis that a lot of these things are based on is around emerging technologies, their technologies change, the mixed changes, the applications change.

You know.

One of the bits of feedback that I thought was very interesting to my substack around it was a financier called James Wise, who's one of the lead partners of Balderton, who invests a lot in this area, and he said, look, okay, fine, you've pointed out that white collar jobs are more vulnerable than blue collar, but look at the advances in robotics.

So he was potentially painted an even a more challenging picture.

But I do think there's obviously going to be a one off, cohort effect of people who are clearly going to benefit, right, and we're going to hear a lot from them, and we're going to hit that they're very florid about how the ships might increase things like productivity and efficiencies.

But I'm taking a step back and thinking fundamentally, this is a complete re engineering of the wider structure of how societies work.

We're potentially losing mass seams of upper middle class citizens who very disproportionately form a massive part of the tax space, for better or for worse, and the fact that this is happening at such a high cadence and pace means policymaking or whether it's corporate's find it quite hard to distill.

For me.

The most interesting thing really about all of this was I was speaking to an ext the ex chairman of You Girl, gentleman called Roger Parry.

Quite interesting guy.

You know, he's settled many boards, including companies like Uber, and he was saying, look, there's a degree of parallels to the initial rollout of of the Internet, which was back in the day when it was first, when it first happened.

You often these boards would often get the it guy whose job was hardware to explain the Internet to boards.

And maybe we're a little bit in that phase where we're not quite sure who the experts are, What is the information that companies need to do, what are the amateurs?

How is that communicated to workforces?

But James, it's not showing up in data yet, right.

If what you're explaining is true, then unemployment should go up.

It hasn't gone up yet, So is there going to be Is it like a small drip feed where you lose jobs you don't really understand why the industry is changing and no one really realizes or is it going to be like a recession where suddenly that's it.

You lay off thousands and thousands of staff in a company.

So my job, I'm not not an economists.

My job isn't a forecast the labor market.

What I can fundamentally see, though, is the displacement and substitution that's happening is not offset yet by the creation of new roles.

But we can see new roles right, we see them.

I see them in my own firm.

You know, people who are concentrated around customer success or people who are involved around sales, or people that are used to basically take these technologies and deploy them.

People are getting augmented.

There are new roles, there is a degree in creativity, but the loss of thirty to fifty percent of a white collar industry that is mass displacement.

You know, we should be thinking about this in exactly the same terms as we think about for example, when oil runs out of a particular area, what does that look like?

So the UK that context, that would be north sea oil.

We should be talking about this is is like de industrialization equivalent, but on steroids.

Do well do you see that, James?

Do?

What is what are those I mean Obviously it's sort of difficult to dynamically predict what new jobs spring up because of AI.

But certainly that is Navidia CEO's position.

Isn't it that the jobs are going to be more and they're going to be better.

But as you say, we're not yet completely take your point that you can see in your own firm.

But are they as many jobs as the ones that are being displaced?

Do you think?

I'm skeptical, is what I would say, But jury is out.

We're just of the foothills of these pretty large ships in both the labor market and how we understand work.

A lot of companies don't know how they would create the new jobs that exist.

The duo Lingo CEO right saying, you know, we're not hiring anyone if we think they're you know, exposed in any kind of way.

I think we're still getting to the stage where we're trying to understand what are the jobs that could be expanded, what are the ones that could be augmented.

It's clearly not going to be all negatives, and it's clearly not all going to be positives from this aspect, but certainly from what I can see in the most automatable industries.

Like take something really really basic, like a young investment banker would spend a lot of their time building things like discal cashlow models in Excel and pulling financials and doing research into certain sectors.

These are jobs that cannot just be done with a few lines of code, but can also then be done by a lot of these technologies.

And we're talking.

Yeah, I was thinking about to my first graduate job when I worked in the city, and I was just thinking how few people would now be needed to conduct that.

I mean, there's a much wider conversation to be had about skills and training.

So how do people come experts in an era where basically the whole of society has this big red button that they can push to basically push the automatically get along pushed someone.

But that's something This is this is what question I wanted to ask you.

I mean, Neil focus and was writing a couple of weekends the historian and economists writing a couple of weekends about setting up a university, and the university is not going to allow the use of AI.

So how much do you think in the years ahead, Maybe not immediately, maybe he'll be an outlive for a while, But how much is some of this going to be about?

The kind of refused nick mentality, which is, yes, AI can do a whole lot of this, but at some point, if we think we're looking at thirty to fifty percent unemployment, we have to choose not to do.

Some of this.

So there's there's there's a lot of different things baited into that question, so sorry.

The first is what does it know?

It's brilliant.

I love it, So there's like what what?

The first is what does it do to people's learning frameworks MIT?

I think have Reas recently released a paper on what the consequences are for using lllms and different aspects of AI, and basically it leads to quite a drastic reduction in basically your computation.

In other words, we're basically leasing out bits of our brains for technology to basically execute.

I think we'll start to see AI three labels like we do with food with organic and that you might start to see kind of things like two tier pricing systems where what people are really trying to passe because when you pay for something, you've obviously got cost based pricing.

How does someone value that?

And it's the idea.

Let's say you've got a consultancy that comes in and does a project for you, and you know that it's all kind of been done with human minds versus once it's been augmented.

Will people start to think about that pricing differently.

I don't know.

Will people be happy to pay the same half million pounds for a consulting project if they know that it's basically being conducted by by one human and ten bots and one co pilot.

Maybe we don't know.

This is really at the kind of frontier of kind of human psychology and economics.

But I do think you'll start to see the refuse next, as you put at Allegra both in terms of political parties, by giving away too much of my yeah, I'm actually more I'm more optimistic than perhaps my column indicated.

I was giving the bare case about how it's going to change our politics as opposed to kind of a labor market pieces, which is that all the people who have done quite well basically out of a globalized financial system, expanded higher education, and slightly medium to large immigration levels have done pretty There's a group of people who've done pretty well.

They all live in certain parts of the UK and the US and other English speaking countries.

Those appeared to be the same geographies that are most day are exposed, which produces a very interesting politics of people who's previously very well starting to feel much more threatened.

As we say, I mean that feels like the Trumford already, doesn't it.

Well for me?

One of the really interesting things of politics over the last twenty five years has been this decoupling of people's income household income and basically their levels of education.

Because back in say, for example, the early nineties, really up until about twenty ten, they kind of walked to lockstep.

If you went to an area that had lots of people who'd gone to university, it was probably richer, and you know, there were some differences.

But I think what we've seen basically since higher education has been expanded out to be fifty percent in a lot of countries, but actually the promise them of that delivering higher incomes has declined, and also the growth of secure blue collar employment has meant this really really odd decoupling of the two.

And it was I think Thomas Packetti was really the guy who's you know, he's the economist who is most just work on inequality.

But he pointed out, actually the future that we may see is of secure blue collar workers, which he called the merchant right making a march on society, versus what he called the Brahman left, which is the person who's got three degrees but no mortgage and very very low salary.

And I think we haven't quite thought through what the consequences of that, because the politics of those two groups are drastically different to classically left and classically right.

One question on the just the kind of the politics of the left and right that we have right now.

You've worked in politics yourself, James, and listeners don't know.

But when I first came across you, as we say, you were the guy who coined the term the red wall, didn't you?

It was really brilliant analysis and it has come to live and live and then get smashed down as well as a political entity.

But how do you think this government?

Do you think this government, the labor government is understanding the scale of what we've been talking about.

And then the country that I've been really about recently, Sweden, they brought in a furlough type scheme to help people skill up while in work in order to deal with these sort of existential threats, but we can't really necessarily afford.

That right now.

Yeah, it's very interesting couple of points.

So the first is the whole political system, where is the UK or US is currently dealing with we can only describe as an omni crisis of the arrival of aire, geopolitical instability, financial market instability.

Particularly I think about the UK and the potential for a debt crisis.

There is not necessarily the bandwidth or the expertise within government to basically pass and understand these technologies and then work out what should we do because they're basically trying to survive day to day governments.

As you will note, alegra live Pole by Pole and this one has lost twenty points in less than a year and a half.

So are they going to be doing the long term thinking about what the labor market is going to be looking like when effectively they've lost the most a man of votes share for a majority elected government in living memory?

Unlikely?

Do they have the MPs?

Do they have the MPs to understand?

There are good MPs that sit on the government benches who really understand this.

You see them, you know, I think there's that the Labor Growth Group.

I think there are a lot a lot of MPs there who are very interested in the sector.

I think MP's like Jake Richard's conditionnarian who really understands some of these kind of technologies, who are kind of thinking about what the long term kind of consequences are.

But let's, you know, will the UK have the appetite for another furlough scheme depends.

I think a lot of the issues that we have now is that the UK is quite vulnerable in terms of its its debt pile, it's deficit, the problems it has with its labor market and the number of people who are out of work.

I think the idea that there's going to be another labor market collapse that's going to require unilateral government support might win on voters very very to see where the markets would absorb it, like the idea that we still paying for the last one.

They are are white collar workers, I mean, do they tend to vote conservative or labor Because one of the best analysis that I've ever seen was actually the fact that you know, you start maybe a little bit idealist at like eighteen, nineteen, twenty years old, and then you buy a house and you turn a little bit more to the right.

And actually, if you can't afford to buy a house anymore than it completely changes the politics, and it changes the politics of this country.

I mean, can you see the same with with actually AI, what's the analysis?

Yeah, So in terms of white collar work, how people split politically is very much down to a couple of acces.

So I'll just run through them.

So the first is basically where is your wealth from?

So in general, if the white collar work is a function of business that is very government adjacent or is actually government, those voters, irrespective of their age, tends to tilt to the left.

So that might be for example, working for a NGO in be working for a you know, a quango or kind of government body, or it might be working for a company who the majority of whose contracts are basically at the pleasure of federal government spending, and where the work is much more downstream of you know, kind of pure play private sector that tends to tilt much more to the right.

Then you've got age where that's a clear effect as you just described.

Then of course, if we're just talking about white collar work, talk about industry.

So industries have hugely different political tilts and the US we know this from donation data, where you can basically track who's donated to which party in aggregate.

By industry, certain industries tilt much more strongly to the right.

They tend to be more in kind of computing, parts of finance, particularly those more to do the kind of asset management real estate.

And then there are other sectors that tilt very strongly to the left, whether that would be the education sector, the health sector.

Again, the other thing think about is you unionization.

You think of people who belong to unions, is all blue collar?

They're not, you know, millions of private sector union numbers.

That's another very very strong tilt.

So I think the answer is quite quite complicated.

But the effect of AI, I think it's to rob countries of a of a classic kind of managerial cohorn of people that's sufficiently large, and I wonder where they're all going to go is what I think what we're seeing with a lot of these of these kind of what ecre scalable companies is there aren't that many people who work in them versus their size, and I'm not sure we thought about what that looks like in terms of in terms of white collar wealth.

Okay, let's let's let's take a turn for them more optimistic.

If you said, you said halfway through this conversation that actually your piece was was bearish, but give us the bull case in two sentences, why is it going to be?

Okay, James.

So, so the thing I'm very bullish on is that we are going to see a reappraisal the qualities of creativity and intellectual plasticity and dynamism.

Why because actually, if you look at the analysis, So if you're wondering where does this AI exposure analysis all come from, it's very boring, becus I should go through the methodology.

But basically, you can break down human skills into fifty two components A typologist card, yeah, yes, this is a lot.

A guy called Fleischer break down basically human skills and capabilities into fifty two dimensions.

And then basically most of the AI exposure analysis is basically taking those fifty two skills and asking across each one, what is the degree to which that skill is exposed to a certain type of technology.

Now, for me, what was very interesting when I did the initial analysis is basically a matrix is the skills the human skills that are least exposed, our creativity and kind of problem solving and kind of domain switching in other words, that kind of intellectual dynamism and being able to kind of context switch.

And for me, that's really interesting because that's it kind of reminds us what's very human and what we most value in people.

And I'm very interested to see whether the education systems start to kind of re engineer around that, Like how much of the processes and education exams we have to really examine pure intellectual creativity.

But quite skeptical, doesn't it puts introverts as at a natural disadvantage.

It depends on your definition of creativity.

You know, someone could write something that's an incredible memo that explains the world in a different way that you'd never thought of before, but they never spoke it.

They've just delivered it into your inbox.

Creativity can have all sorts of import I do think on the kind of what is it the humans are going to do, it's going to be around uh, communication connectivity.

Still you know, people still sell to people, people still talk to people, And you're right, there's there's a bit of humanity there that's much more kind of extrovert, kind of tilted.

That's going to have some value.

But you know, these things come in waves.

The key thing is these technologies keep on changing.

The point that James wise I spoke about earlier in terms of robotics, that may change things up again.

Let's see.

Okay, all right, well we got there.

We got there to upbeat to an upbeat note.

Thank you so much for joining us, James.

Thank you, James, Thank you both.

So we have some news everybody.

This is actually our last in the City episode.

Oh I know, the.

Grand emoji is in full force.

In the podcast studio, We've had so much fun, like huge fun.

It's been sort of like a little Bloomberg confessional for our guests occasionally for us.

You can't see it at home, but it's it's a small podcast studio, but it's surrounded by glass and we can see lots of people working outside on Bloomberg terminals, so it has a very good atmosphere in here.

Yeah, and it's also nice to work with colleagues that you respect and kind of exchange ideas with and every week trying to figure out the topic of the week and actually how we can make a little difference in explaining things that are not always easy to understand or understood by everyone.

Totally.

It's made me sharper and know and hear about things that I wouldn't have done otherwise.

So thank you from.

No it's been great.

We're missing Dave exactly.

Thank you and all of the brilliant Bloomberg reporters who you will all be familiar with, who join us so often.

It's been a.

Blast, it has been, and thank you to our producers.

But keep an eye out on the feed because we have something new.

It'll be coming out soon, so more conversations with great guests and we'll tell you more soon about that.

D