[Tech Talk] Was the Country Destined to Profit from AI Already Decided?

Conditions for AI Innovation According to IMF
High Value-Added Professional Services
Strong Legal, Accounting, and Science Sectors Needed for Benefits

There are predictions that artificial intelligence (AI) could bring about a tremendous productivity revolution comparable to the Industrial Revolution. On the other hand, there are also voices warning of an 'AI bubble.' So, whose prediction is correct? And when will we be able to directly experience the AI revolution?

London, England. [Image source=Pixabay]

Recently, the International Monetary Fund (IMF) released a very interesting report on this topic. However, the content might be somewhat bleak. To get straight to the point, the countries that will generate enormous profits from AI were likely determined a long time ago.

IMF Predicts the Potential of AI-Driven Productivity Innovation for the First Time

The IMF publishes reports twice a year, in April and October, forecasting economic growth rates for over 200 countries worldwide. In the 2024 forecast report released last month, South Korea's nominal Gross Domestic Product (GDP) is estimated at about $1.76 trillion (approximately 2,390 trillion won), ranking 14th globally.

While national GDP rankings and growth rates are frequently reported by domestic and international media, the 'detailed contents' of these reports are rarely covered. However, the reports discuss not only economic growth forecasts but also each country's macroeconomic conditions, the impact of global geopolitical situations on trade and growth, and potential productivity improvements driven by technological advancements.

Financial industry and professional services hub, the City of London, UK
[Image source=Yonhap News]

In the April report, the IMF predicted the potential for 'productivity improvements due to AI' for the first time. However, there is a problem. The industries where AI will increase productivity have already been determined. These are the 'professional scientific services' industries.

The concept of professional scientific services may be somewhat unfamiliar to most people. Professional scientific services refer to what we commonly call professional occupations, such as legal, accounting, and consulting fields. Additionally, it includes various scientific service areas such as research and development (R&D) services, testing services, and medical information analysis.

The Most Important Condition for AI Benefits Is Being a 'Service Industry Powerhouse'

In fact, this is not surprising. Current AI development is focused on generative AI, including chatbots, image generation, and simulators. There have been several previous forecasts that generative AI will improve the efficiency of knowledge industries and white-collar jobs. The IMF's recent report is closer to a more detailed analysis of AI's 'penetration rate' in knowledge industries.

The IMF predicts that thanks to AI, the total factor productivity (TFP?all factors contributing to productivity growth) in the United Kingdom will increase by 0.9% to 1.5% annually. Other advanced countries lag slightly behind the UK. In contrast, developing countries fall significantly behind, resulting in the global average TFP growth rate being halved to only 0.1% to 0.8% per year.

OpenAI logo
Photo by Reuters Yonhap News

The reason for the significant differences in productivity improvement factors by country also lies in the professional scientific services industry. The UK is the world's leading service powerhouse with the largest share of the professional scientific services industry. According to the UK Office for National Statistics (ONS), 12% to 13% of the country's gross value added (GVA) is generated by the professional scientific services industry.

Countries like the United States and France have similar shares, though with some variation in concentration. However, developing countries lack these high value-added service industries significantly. This means the penetration rate of the AI industry into their national economies is low. South Korea, while a global leader in manufacturing, has a notably lower share of advanced service industries compared to developed countries.

Growth or Redistribution... A Crossroads Ahead

However, the bigger issue is not the penetration rate of AI industries by country but the rapid widening of inequality within countries. In the UK, which the IMF expects to benefit the most from AI, the productivity increase of high-skilled service workers is projected to raise their wages by up to 14%. Meanwhile, during the same period, the real wages of low-wage service workers are expected to increase by only 2%.

Professional services are already high-paying jobs in any country. If the wage growth gap between high-income and low-income groups widens to nearly seven times, the wealth gap will become unimaginably severe.

Ultimately, this IMF report reconfirms both the opportunities and dilemmas that AI will bring. It is certainly a valuable chance to escape the low-growth trend entrenched since the 2008 subprime mortgage crisis, but at the same time, it is a time bomb that could trigger social and political turmoil due to polarization. Therefore, it is increasingly important to design wise policies that maximize the economic growth benefits brought by AI while minimizing its side effects.