There are two-axis events to gauge the direction of macroeconomic policy around the world. It is the Jackson Hole meeting held 15 days ago and the Sintra Forum held in Portugal at the end of June. Both are events where central bank governors, economists, financial market experts, and journalists from major countries gather every year to discuss global economic diagnosis and monetary policy directions. The only difference is that the former is hosted by the U.S. central bank (to be precise, the Federal Reserve Bank of Kansas City) and the latter by the European Central Bank. This year, it clearly showed how different the economic situation and the direction of concern between the U.S. and Europe are. This was especially true of the artificial intelligence (AI) revolution.
U.S. Fed Chairman Kevin Wash, who made his debut in Jackson Hole on the 100th day of his inauguration, looked as confident as the U.S. economy. He cited the explosive increase in private facility investment from AI as a key driver of solid U.S. economic growth. It recorded the highest 9% since 2021, with more than half of the increase in private facility investment attributed to AI.
On the other hand, European Central Bank President Christine Lagarde did not mention AI or new technologies anywhere in her speech. The center of structural change facing Europe is not the AI revolution, but the response to the largest increase in defense costs, decarbonization of energy, and the weaponization of geopolitical supply chains in decades. Rather than increasing future productivity, the speech focused on the allocation of defensive resources to protect European systems from external shocks. The more thoughtful the Lagarde speech was, the more frustrating the structural limitations of Europe were revealed. Since 2018, the difference in real GDP growth per hour between the United States and Europe has been seven times.
In this respect, the Bart Pan Ak paper presented at the Sintra Forum is impressive. It is the follow-up to the Draghi Report, a desperate reflection on the European economy written by former European Central Bank President Mario Draghi two years ago. Over the past decade or so, we have the same sense of crisis due to the rapid widening of the gap in productivity between the United States and Europe, but we have made more progress in causes and solutions. The Pan-Ark report refuted the view that the European crisis is simply a lack of state-of-the-art innovation or a lack of total investment. It presented three key obstacles to European productivity growth. He pointed out that it has failed to grow the size of the company due to limitations in the capital market, fragmented regulations are preventing the spread of technology, and the lack of capacity of companies has prevented cutting-edge technologies from leading to actual productivity improvement.
According to a comparative analysis of 57 industries, the fundamental cause of European productivity stagnation is that it has been pushed back by the U.S. in new technology “diffusion.” It is important to develop advanced technologies, but it is argued that policies should be implemented to make it easier to absorb and utilize new technologies in most general companies and service sites. It exactly overlaps with what Stanford University professor Eric Brignolpson claimed at the World Knowledge Forum last week. Professor Brignolpson stressed several times, “We need to invest more in intangible assets, such as redesigning our work process and retraining our workforce (for productivity to explode).”
There is also something that Korea should be reminded of. The Pan Ak report cited the rigidity of European goods and labor, and capital market regulations and resource relocation as the main reasons for the sluggish productivity. AI is an innovation that completely changes the work itself and process, but rigid labor market regulations fundamentally prevent the actual introduction itself. The enactment of the world’s first AI law is also interpreted as a regulatory priority, holding back technology competition. Europe feels like it is being judged harshly by its inflexible ideology and misjudgment by its predecessors. The problem is that ordinary people carry the pain belatedly.
[Knowledge Director Song Sung Hoon]