The world is awash in wealth but starved for productivity—and that imbalance is distorting growth, debt, and opportunity. We need AI to come through
AI could be the disruption of the century, and a positive one. But that is far from inevitable.
The good news is that the world is richer than ever, with $600 trillion in wealth. The bad news is that it is out of financial balance.
Since 2000, asset values have risen much faster than GDP; that’s a boon for those who have assets to begin with but doesn’t do much for those who are just getting started and need broad-based income gains. Only about a quarter of the wealth generated came from investment, the remainder was mostly on paper. Moreover, debt has soared, with every dollar in investment generating $1.90 in debt. Wealth inequality is entrenched, with the top 1% in major economies accounting for at least 20% of wealth. And, finally, international financial imbalances are growing, contributing to today’s touchy trade and political environment.
The size and shape of the imbalance differ from place to place. But there are two commonalities. First, rapid productivity growth is the most effective counterweight to today’s tilted profile. And second, artificial intelligence (AI) can help—up to a point. For AI to fulfill its potential, countries must not only position themselves to benefit from its capabilities in technological and business terms, but also macro-economically. Otherwise, it would be like eating a heaping bowl of carbohydrates to fuel a workout—and then skipping the gym. The results won’t be pretty.
Consider the United States. It is at the forefront of AI-related innovation, investment, and adoption. To keep up the positive momentum, however, it needs to save more (i.e., borrow less). The national debt is, almost 120% of GDP, more than double what it was in 2000. If annual budget deficits keep growing, potentially higher inflation, interest rates, and long-term uncertainty could destabilize the economy and threaten the investment needed for a continued AI boom. Wealth could erode by almost $100,000 per capita in real terms by 2033.
While AI-based growth might boost fiscal revenues, there are also ways that AI might exacerbate US fiscal challenges. If labor market disruptions are significant, that could drive up related costs, such as unemployment insurance. Higher productivity, even if concentrated in a handful of sectors, pushes up wages generally; but that would translate into higher public-sector labor costs. Plus, many social benefits are tied to income. The bottom line: more AI without a healthier fiscal picture could simply add to the stress.
In China, the challenge is different; the economy needs to save less and consume more. In the wake of the prolonged downturn in the property market, Chinese households have bulked up their deposit savings—on the order of nearly seven percentage points of GDP compared to the their average levels in the 2010s. Deflation has ensued. Meanwhile, private corporate investment has slowed sharply, down to 1% of GDP a year recently, compared to 7% from 2017-21. While investment by state-owned enterprises (SOEs) has risen, . Overall, 23% of China’s industrial enterprises are losing money, the highest figure in more than two decades. Economic growth is therefore largely being driven by net exports, which is tricky given mounting international pressure to reduce imbalances in trade and investment. The most promising alternative is for consumers to spend more of their income.