When Progress Stops Paying: AI and the Loss of Economic Breathing Space
Historically, businesses have sought to discover what the market will bear. Increasingly, technology offers the possibility of discovering what each individual will bear.
That distinction matters.
Many years ago, I was involved in building a business with a colleague. As we worked through the practical challenges of turning an idea into a viable commercial venture, I asked what I thought was a relatively simple question:
“How do we decide what to charge for our product?”
His answer came back immediately.
“We charge the maximum the market can bear.”
At the time, I understood the logic. Businesses exist to generate revenue, and every organisation has to find the point at which a product is valued by customers while remaining profitable for shareholders, owners, or investors. Yet something about that answer always sat uneasily with me. It reduced the relationship between supplier and customer to a simple calculation: extract as much value as possible without driving the customer away.
For years, I regarded that conversation as little more than an illustration of a particular commercial mindset. Recently, however, it has returned to my thoughts as artificial intelligence and behavioural analytics reshape how prices are determined.
Historically, productivity improvements and competition often translated into lower prices, better products, and rising living standards. Not always, and not evenly, but there was an expectation that at least some of the gains from progress would be shared.
But what happens if AI changes that relationship?
What if the same technologies that make businesses more efficient also enable them to identify, with increasing precision, exactly how much each customer can afford, how dependent they are on a service, and how unlikely they are to switch providers?
What if the gains from efficiency can be captured before they ever reach the consumer?
What if AI creates not a more prosperous society, but a more efficient system for extracting value from it?
For most people, the impact would not be experienced as a sudden slide into poverty. It would be felt in something more familiar: the gradual loss of economic breathing space.
Economic breathing space is the margin between getting by and getting ahead. It is the money left once the bills have been paid. The ability to absorb an unexpected expense, build savings, reduce debt, help family members, take a holiday, invest in education, or simply make choices without constant financial anxiety.
Economists might view part of this as disposable income, but I prefer the phrase economic breathing space because it captures something broader. Disposable income suggests money available to spend. Economic breathing space is about freedom, resilience, and opportunity. It is the capacity to save, invest in yourself, cope with setbacks, seize opportunities, and exercise meaningful choice over the direction of your life.
For many households, it is this margin, rather than income alone, that determines whether life feels secure. And it is precisely this margin that may come under increasing pressure if technology becomes better at identifying and capturing every spare pound consumers have available.
Why Economic Breathing Space Matters
Historically, one of the promises of economic progress was that this breathing space would gradually expand. As productivity increased, prices often fell, wages gradually rose, and new products became affordable to larger sections of society. The benefits were never distributed equally, but ordinary people generally shared in some of the gains created by innovation.
What happens if technological progress no longer reduces the cost of living, but instead becomes increasingly effective at identifying how much each person can afford to pay?
What happens if AI is used not primarily to lower prices, but to keep them as close as possible to the maximum each individual will tolerate?
Most people do not judge their quality of life by income alone. What matters is what remains after the essentials have been paid for.
In such a world, increased productivity does not automatically create greater prosperity for households. The gains still exist, but there is no guarantee they are shared. Improvements in efficiency can be captured as profit just as easily as they can be passed on through lower prices, higher wages, or better services.
This is why AI-driven pricing and customer analytics deserve scrutiny. The question is not whether they make organisations more efficient, but whether the benefits of that efficiency will be shared. If the answer is increasingly “no”, the long-term consequence may not simply be higher prices, but the gradual disappearance of economic breathing space.
And when that breathing space disappears, societies slowly lose their ability to move forward.
Why Breathing Space Keeps Shrinking
Consider how much of modern life is now organised around subscriptions rather than ownership.
A decade or two ago, many products were purchased outright. Increasingly, they are accessed through recurring monthly payments.
Individually, these subscriptions appear affordable. A few pounds here, a few pounds there, for streaming services, cloud storage, office software, mobile contracts, broadband, fitness apps, smart home services, and countless others.
Each subscription quietly claims a small portion of a household’s economic breathing space. Because payments are automated and ongoing, price increases are often absorbed with little resistance. An extra pound per month may seem insignificant. Multiplied across millions of customers and dozens of services, however, those increments become a powerful mechanism for extracting additional value.
The issue becomes even more significant when a service is no longer merely desirable but essential. Internet access, mobile connectivity, digital payments, cloud services, and online platforms have become integral to work, education, and daily life. The cost of leaving such services can be far greater than the monthly fee itself.
This shifts the question from “What is this product worth?” to “How dependent has the customer become on this service?”
If AI allows organisations to assess not only spending habits but also dependence on particular products and services, pricing becomes far more powerful. The goal may no longer be to maximise the value of a product, but to maximise the value that can be extracted from a customer over the lifetime of the relationship.
If every improvement in efficiency and every reduction in operating costs is captured through increasingly sophisticated pricing models, consumers may find themselves funding progress without ever fully benefiting from it.
Are We Already There?
The promise of modern technology has always been that greater efficiency would create greater prosperity. Yet many people look around today and struggle to recognise that promise in their own lives.
Across much of the developed world, households face rising housing costs, increasing utility
bills, higher food prices, growing insurance premiums, and an expanding collection of subscriptions required to participate fully in modern life. At the same time, many large organisations continue to report healthy profits and substantial returns to investors.
This is not an argument against profit. Businesses need profits to invest, innovate, employ people, and create value. But if people feel they are working harder and earning more while struggling to achieve the financial breathing space previous generations enjoyed, perhaps the issue is not simply inflation or economic cycles, it is that our economic systems have become exceptionally good at extracting value and increasingly poor at distributing it.
If so, AI may not represent a change in direction. It may simply accelerate a trend already underway.
Protecting Economic Breathing Space
If the concern is real, what can be done about it?
The answer is not to reject technology, artificial intelligence, or profit. Throughout history, innovation and enterprise have been responsible for much of the prosperity we enjoy today. The challenge is ensuring that the benefits of progress are shared rather than continuously concentrated.
The first step may be recognising that economic breathing space has value in its own right.
For decades, economic success has often been measured through growth, productivity, profits, and shareholder returns. These indicators matter, but they tell only part of the story. A society can become wealthier on paper while large numbers of people feel increasingly constrained in their daily lives.
Perhaps a more meaningful question is this:
Are ordinary people gaining greater financial freedom, or simply becoming more efficient contributors to someone else’s growth?
If technological progress increases efficiency but households end up with less disposable income, fewer choices, and greater dependence on subscription-based services, then something important may be missing from how we define success.
Transparency would be one place to start.
If organisations use algorithms to personalise pricing, customers should understand how those decisions are made. Most people would accept discounts being tailored to individual circumstances. They may feel differently if identical products are being sold at different prices based on an assessment of their ability to pay.
Competition remains equally important.
Economic breathing space grows when consumers have genuine alternatives. The easier it is to switch providers, cancel subscriptions, move data, and retain ownership of digital assets, the harder it becomes for organisations to exploit customer dependency. The reductions in companies competing as a result of corporate buyouts and mergers should be a real concern for governments and consumers alike.
Perhaps the most important protection of all is maintaining a social expectation that productivity gains should benefit everyone.
For much of modern history there was an implicit social contract. Businesses innovated, productivity increased, profits were earned, and consumers benefited through lower prices, improved products, rising wages, or some combination of all three.
The arrival of AI forces us to revisit that understanding.
Summing Up
If AI enables organisations to become dramatically more efficient, who should benefit from those gains? Should the rewards flow primarily to shareholders and owners, or should part of the value be reflected in lower costs, improved services, higher wages, shorter working hours, or greater financial resilience?
These are not technical questions. They are societal choices.
The technologies themselves are neither moral nor immoral. They will do what we design them to do. Artificial intelligence can lower costs, unlock innovation, and improve lives. Equally, it can be used to identify, measure, and extract value with unprecedented precision.
The real question is whether efficiency exists to serve people, or whether people increasingly exist to serve efficiency.
One vision sees technology as a means of expanding prosperity and opportunity. The other sees technology as a means of optimising the extraction of value wherever it can be found.
If economic breathing space continues to shrink while productivity continues to rise, we may eventually discover that the question was never how much the market could bear.
It was how much society could bear.