Jun 18, 2017

How AI is taking over the global economy in one chart

For decades, corporate America has spurned big-lab research-and-development spending, the type that delivered the dizzying and broad tech and economic progress of the last century. But a belief that artificial intelligence is going to drive the next big economic wave has led today's largest companies — like Google, IBM and Microsoft — to revert to the old, ambitious R&D model. And their Chinese competitors — Baidu and Alibaba — aren't far behind.

These five companies — plus Amazon, Facebook and Google — combined are investing more in research and development than many entire economies. In 2015, for instance, the entire U.K. economy — companies and the government — invested $53.8 billion in R&D, less than the $58.2 billion posted by the big eight. Take a look at the chart below.

Data: OECD, Company disclosures; Chart: Andrew Witherspoon / Axios

Why it matters: In an economy in which corporate R&D spending has been conspicuously absent, these companies are investing big on the future. This dynamic underscores the growing advantage that a company like Amazon has over incumbent rivals: Investors bid up Amazon stock to sky-high multiples, lowering its cost of capital and enabling more robust investment and low prices.

A level deeper — more economic inequality: That these companies are investing in the long term is great for the U.S. and Chinese economies. It helps to power economic growth and makes workers more productive. But, at least in the U.S, it's also a sign of growing economic inequality, which underpins income inequality among workers, one reason for the election of President Donald Trump.

One more level down: The outsized spend is also buttressing these companies' market heft and risks a pushback to their monopoly power.

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