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Francis Fukuyama: Generative AI - a new challenge to democracies

Adam Smith’s 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations opens with his famous description of a pin factory. He notes that previously, pins would have been hand-made by a single craftsman; by his day, each step in making the pin from pulling the wire, attaching the head, sharpening the point, and readying the box of pins for market would be done by a different specialist. With a division of labor, ten people could produce 48,000 pins per day, compared to the craftsman who could scarcely produce a single pin in that same time period. 

But who needs 48,000 pins? In Chapter III, Smith notes “That the Division of Labour is Limited by the Extent of the Market.” The scale efficiencies produced by the division of labor will only be incentivized if the producer can sell to a sufficiently broad market. Economies of scale and the size of markets were therefore intimately related. On the eve of the industrial revolution, European manufacturers had greatly increased their productivity by selling to markets that had been vastly widened through the advent of water-borne transportation. The continent’s burgeoning wealth did not originate in the manor houses and countrysides where the aristocracy lived, but in cities with ports located on oceans or large rivers where commerce could support large populations. 

The interplay between the size of markets, the division of labor, and economies of scale remain as important today as they did in Smith’s time.  The globalization that has occurred over the past couple of generations has been driven by stunning decreases in the costs and time required to move goods from one part of the world to another.  The contemporary manifestation of Smith’s division of labor are global supply chains involving thousands of companies spread across multiple time zones and jurisdictions. Added to this are communications technologies that allow coordination of all these activities.  Ports and waterborne transportation remain as important to this system as in Smith’s day; try getting the contents of a Panamax container ship to Central Asia or to the interior of sub-Saharan Africa and you'll see one of the sources of poverty there. The economies of scale that modern markets support then have large consequences for politics and the broader society. 

One manifestation of the enduring importance of scale is artificial intelligence. The dawn of the personal computer and internet in the 1990s raised hopes that digital technology would be made available at a small scale to millions of ordinary users, and would consequently democratize the distribution of power in societies. In some respects this proved true; information became much cheaper and more widely available, while the internet permitted social mobilization across borders.

Francis Fukuyama