[Square] AI Economy Is the Only Hope

Kang Young-chul, Specially Appointed Professor at Hanyang University

On the 13th, a TV news story featured a dog that miraculously survived a fire. How was the dog rescued from a fire that broke out in an empty house while its human owner was away? Amazon's artificial intelligence (AI) assistant Alexa detected the fire and reported it to the fire department.

Whether we want it or not, the world is rapidly transitioning into the era of artificial intelligence. If you doubt the potential of the AI economy, consider the following statistics. According to a 2019 report by the multinational accounting and consulting firm PwC titled "Securing National Competitive Advantage through AI," the global GDP will increase by 14% by 2030 compared to 2017 due to AI effects. This translates to $15.7 trillion. For reference, South Korea's GDP in 2017 was $1.6223 trillion. The economic impact created by AI is equivalent to ten times the size of the Korean economy. The U.S. GDP in 2017 was $19.8 trillion, so if the AI economy were considered a country, it would create a national economy by 2030 nearly equal to 80% of the U.S. GDP level.

Here is another forecast. Grand View Research, based in San Francisco, projected in September last year that the global AI market size will reach $733.6 billion by 2027. Compared to the GDPs of countries worldwide in 2019, this ranks around 20th globally, surpassing Switzerland's GDP of $703 billion. If South Korea can secure even just 10% of this potential as its share, it could achieve a 4% growth rate based on 2019 figures.

PwC presents an interesting analysis in this report. The concept of production factors will be completely transformed in the AI economy. Traditionally, economics has focused on three main production factors: labor (human capital), money (financial capital), and land (natural resources). However, the world has changed. The era when national wealth was determined by the quantity of labor, capital, and resources is over. With the advent of the information revolution, a new form of capital has emerged: behavioral capital. This means data accumulated by tracking the behaviors of humans, companies, nature, and manufactured goods has been capitalized. Simply put, this is the advent of the data economy. As this develops further, network capital has emerged. Network capital, which appeared with the internet revolution, capitalizes on interactions between humans and humans, and between materials and materials. The new form of capital that has emerged with the AI revolution is cognitive capital. Cognitive capital refers to algorithms, knowledge, and insights synthesized from the flow of information and decision-making between humans and companies. Ultimately, competitiveness in the AI era depends on data, networks, and cognitive capital that extracts new knowledge and insights based on them.

Population decline or a lack of accumulated financial capital is no longer an obstacle for the Korean economy. The concept of potential growth rate is also an outdated notion that relied on labor, land, and physical capital. According to Stanford University's "2019 AI Index Report," Moore's Law, which states that semiconductor integrated circuit performance doubles every two years, is no longer true. Since 2012, the expansion cycle has shortened to 3-4 months. This means the expansion potential of cognitive capital is close to infinite. Ultimately, the only breakthrough for the declining Korean economy is to take the lead in the AI economy.

Youngchul Kang, Special Professor at Hanyang University