[Pulse of Industry] AI: A New Lever to Boost Potential Growth Rate

It is no longer unusual to see robots that autonomously clean every corner of a home or serve food to customers in restaurants. We are truly living in the golden age of artificial intelligence (AI). Although a new era is dawning, our economic conditions remain challenging. There are even concerns that Korea may soon face a future similar to Japan's "Lost 30 Years." In fact, last month the Bank of Korea projected Korea's economic growth rate for this year to be just 0.9%. How can we overcome this daunting challenge?

If we briefly look back at the past, we may find the answer. In 1993, Tim Berners-Lee introduced the web browser, ushering in the era of the internet economy. The United States declared the construction of an information superhighway. Korea also quickly announced plans for a high-speed network and established the Ministry of Information and Communication to implement these changes, thereby riding the wave of the times. As a result, the internet economy era began, and over the past 30 years, 40% of economic growth has come from the ICT sector. Forty percent of total factor productivity (TFP), which was at the core of economic growth, can be attributed to the effects of ICT, enabling smarter capital investment and labor input.

Let us revive these experiences. They can provide clues on how to raise the potential growth rate in the AI era. First, we must improve the quality of labor. Although labor input is stagnating due to low birth rates, we need to reform the certification system so that it can be used for office, sales, and production jobs to enhance labor productivity. It is necessary to significantly expand the provision of education vouchers so that current employees can reskill (transition to a new career) and job seekers can upskill (advance their current career). In addition, companies should be incentivized to pursue reskilling on their own through employment insurance or tax credits. Furthermore, occupational AI competency standards should be established as soon as possible. If these conditions are met, it would be possible to improve the growth rate by 0.2 to 0.4 percentage points per year.

Second, we need to use AI to enhance capital efficiency. AI vouchers and tax credits should be expanded so that companies can adopt AI more efficiently. Support for technology and personnel should be increased to facilitate the development of small language models (sLLM), cloud infrastructure, and data centers for each company. To create synergies, AI adoption should be supported by industrial complex and value chain, and data standardization should be accelerated. AI adoption should be modeled in key sectors such as manufacturing, logistics, healthcare, energy, construction, and safety. In particular, in sectors facing crises such as petrochemicals, restructuring using AI should be considered. The roles of startups and industrial finance are also important. The effective use of various pension funds, such as the Science and Technology Mutual Aid Association, which is operating successfully, is also required. These efforts could enable an additional 0.4 to 0.6 percentage points of growth.

Third, innovation is crucial. Alongside AI adoption, innovation management must be pursued, and the Chief AI Officer system should be more widely adopted. If the ISO 56000 innovation management standard is disseminated, the effects of AI adoption will be multiplied. Since AI management is still in its early stages, various attempts and research on methodologies are needed. AI innovative products should be given preference in public procurement. Efforts to reduce risk, such as establishing a verification system for AI safety, are also necessary. By doing so, an additional 0.5 to 0.8 percentage points of growth potential can be secured.

If the efforts of the various elements that make up the Korean economy are combined, the current growth rate in the 0% range can be sufficiently raised to the 3% range. Although Korea was late to AI, AI transformation (AX) can take the lead, and just as we rode the wave of the internet 30 years ago, AI will become a new lever for progress.

Kang Sungjoo, Visiting Professor at Sejong University (Former Head of Korea Post)