Small businesses must be able to share AI's gains

By Cai Fang

For small and micro-enterprises, sharing in the opportunities created by artificial intelligence is especially important. AI is a major new source of total factor productivity growth. By using data and algorithms, it can sharply reduce waste in resource allocation and turn the reallocation of resources from broad, block-level shifts into a more detailed and precise process. Its potential is enormous.

But AI also brings "creative destruction". It can accelerate the birth and death of businesses, as well as the destruction and creation of jobs. Small and micro-enterprises are often the first to feel this pressure. They are relatively more vulnerable and may face shorter survival cycles. This could worsen structural employment mismatches and widen income gaps.

The future path of employment destruction and creation is likely to follow a "J-shaped" curve. In the short term, job losses may happen before new jobs are created. Whether the creation effect materializes, and how strong it becomes, will depend on how proactive and effective the policies are.

The policy logic should therefore change: businesses may compete and be selected by the market, but people should not be divided into winners and losers. The zero marginal cost and open-source nature of AI should be used to narrow the digital and intelligence divide facing small businesses and workers, so that they can share in the gains from higher productivity.

To achieve this, investment in physical assets must be better combined with investment in people.

More resources should go into inclusive social protection and human capital, giving entrepreneurs basic support even after business failure. Policies should also adapt to the fact that new forms of employment are becoming the new normal.

Social security and labor market systems need to be updated to support small businesses and workers caught in the cycle of creative destruction.

Whether AI becomes a blessing or a burden for small and micro-enterprises depends on whether its empowering features can be fully utilized. This is an external technological change that no individual business can avoid. To help small businesses share the benefits, they need targeted support.

For example, the government can coordinate with large technology companies to use AI's zero marginal cost advantage by sharing models, platform APIs, tokens and other technical resources, helping close the digital divide.

Using the empowering capability of technology to offset its disruptive effects is necessary to help small and micro-enterprises survive. It is also essential for keeping the overall economic cycle sustainable.

Cai Fang is an academician of the Chinese Academy of Social Sciences. The views don't necessarily reflect those of China Daily.

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