[Policy Pulse] Quo Vadis, Korea: Korea's Choice in the Later Digital Era 1

Korea has developed as a fast follower
It must take the lead in the AI era
Urgent need to design institutions that sustainably balance productivity, economic growth and social distribution

"Quo Vadis, Domine?" ("Lord, where are you going?") The question that the Apostle Peter is said to have asked Jesus as he set out to flee Roman persecution was not simply a question about his destination. It was a question about the path he must take and the calling he must fulfill. Today, the Republic of Korea faces a similar question. Having worked hard as a fast follower, South Korea now stands at a point where it must rise to become a leader in the coming AI-driven digital era. In this respect, it is in a position much like Peter's.

◆Reading future opportunities in the history of industrial revolutions

Human progress has continued through antiquity, the Middle Ages, modern times, and the contemporary era, but the pace of change has never been constant. Changes that once took 1,000 years unfolded within 100 years in the modern era, while changes that took decades in the past now occur in just a few years. Humanity has experienced four industrial revolutions. The First and Second Industrial Revolutions were revolutions in industrial production centered on mechanization and electrification, while the Third and Fourth Industrial Revolutions can be seen as revolutions in "industry and lifestyles" driven by IT and digital technologies. What is important here is that the period when technological innovations emerged and developed (1760-1840) did not necessarily coincide with the period when those technologies generated substantial added value on a large scale. After the steam engine was improved in the late 18th century, the expansion of railways and the shift to mechanized factory systems that made use of it fundamentally changed production methods, leading to economic added value. In other words, it was only later, after the Industrial Revolution, that electricity, steel, chemicals, internal combustion engines, communications technology, and mass production systems came together to dramatically increase productivity and generate substantial added value. The added value that began to grow in industrial sectors first in Britain, and later in countries such as Germany and the United States, grew even more as production, distribution, and consumption systems were transformed.

The concentration of wealth, labor issues, financial market instability, overproduction, and imbalances in demand that emerged during industrialization gave rise to new socioeconomic conflicts. Political instability and changes in the international order following the Great Depression of 1929 were among the factors that led to the world wars. The lesson history offers us is clear: technological innovation alone does not guarantee national prosperity. Countries needed the industrial capacity to turn innovation into tangible added value, as well as the social and institutional capacity to make those gains sustainable. Only countries with both have maintained their places among the advanced economies to this day.

◆When will the digital revolution truly pay off?

AI, which emerged conceptually in the 1950s, experienced two "AI winters" before advances in semiconductor performance, data accumulation, and algorithms made it a battleground for dominance among today's Big Tech companies. The development of large language models (LLMs), generative AI, and superintelligence is demanding changes to the very nature of human labor, decision-making, and production. If we regard the information revolution based on computers and the internet in the latter half of the 20th century, through to today's AI, as an extension of the Third and Fourth Industrial Revolutions, then, as in the First and Second Revolutions, the creation of genuine added value based on high-value-added industries is likely to take place in the Fourth Industrial Revolution, following the Third, the information revolution. In this context, to become a true winner in the Fourth Industrial Revolution and AI, it is crucial to predict "when and how industries will be reshaped from this point onward, and when the AI transformation (AX) will take place." This question can help us prepare to answer "where should we go, applying the historical lessons demonstrated by the First and Second Industrial Revolutions to today's circumstances?" In other words, the current AI revolution is still at a stage of technological innovation with room for improvement, and I believe that the full-scale creation of added value through AI will come somewhat later, when the technology has matured further.

Countries around the world and global companies are investing astronomical sums in AI semiconductors, data centers, and the development of massive models. South Korea, too, has secured global competitiveness in advanced semiconductors, including HBM, and has achieved considerable economic results. However, I do not believe that rising semiconductor exports and increased investment in AI infrastructure alone amount to the ultimate fruits of the digital revolution. Just as the later-stage production system, established through electrification and mass production, advanced industry and generated much broader economic value than the invention of the steam engine did during the Industrial Revolution, the explosive growth in genuine added value in the later phase of the AI-driven digital revolution is likely to emerge when AI is deeply applied across society, including manufacturing, services, healthcare, logistics, energy, defense, and public administration. The point is that even greater economic opportunities will open up when the AX era takes hold in earnest, fundamentally reshaping industries and organizations, moving beyond today's competition over the performance of AI models.

◆Becoming a first mover in the later digital era

Let us call the AI-filled era at the close of the Fourth Industrial Revolution, beyond the Third, the "later digital era." Here, "later" does not mean a period in which AI digital technologies decline. It refers to the stage of maturity and expansion in which their economic value is realized in earnest across industry and society, beyond their development and adoption. It is difficult to say exactly when this period will arrive, but strategic preparations that will determine national competitiveness over the next 5, 10, and even 20 years are crucial and must be designed and set in motion now. Over the past half-century, South Korea has achieved industrial success that has drawn the world's attention. Through a fast-follower strategy in steel, shipbuilding, automobiles, electronics, semiconductors, and IT, it has grown into a manufacturing powerhouse. But in the AI-centered industrial order ahead, it will be difficult to succeed by relying solely on the same approach as before. Above all, the future shape of new technologies and industries has yet to be clearly defined, and there is no proven, complete success model for us to emulate.

It is no longer enough to simply follow quickly along paths pioneered by others. We need to become first movers who set our own course and create new markets and industry standards. To do so, we need to take a more strategic view of the AI industry's value chain. It can broadly be divided into four areas: 1) foundational infrastructure such as data centers and power; 2) hardware and software systems, including semiconductors; 3) AI models; and 4) industry-specific applications and AX.

It seems unlikely that we can excel in all four areas. We could compete in general-purpose, massive AI models, but a strategy of focus and selectivity may be more necessary: securing technological sovereignty and core model capabilities needed to transform and innovate industries through AI. In other words, we should recognize and invest in the potential to lead the world in AI infrastructure, integrated hardware and software systems, and industry-specific applications and AX. It is true that the United States and Japan face challenges in building infrastructure due to difficulties with social acceptance and risks from natural disasters such as earthquakes. South Korea also faces constraints, including high electricity costs, limited available sites, and the concentration of resources in the capital region. However, by combining its world-class semiconductor competitiveness with advanced manufacturing, telecommunications infrastructure, and skilled workers, and by securing a stable power supply, South Korea can build a distinctive industrial edge in the later digital era.

As a manufacturing asset, South Korea still has a broad industrial ecosystem, spanning shipbuilding, automobiles, steel, semiconductors, and electronics, as well as defense and advanced manufacturing. In particular, while several European countries have reduced or restructured production capacity in some areas of defense and manufacturing since World War II, South Korea has been able to steadily develop its defense technology and production base in the unique security environment created by the division of the Korean Peninsula. The recent adoption of Korean tanks, self-propelled artillery, aircraft, and other defense products by Poland and other European countries shows that these industrial capabilities can translate into a new source of international competitiveness. Building on its globally advanced digital infrastructure and high acceptance of technology, South Korea now needs to become a first mover. Ultimately, South Korea's strengths do not lie solely in AI technology itself. I believe it can transform into a first mover because it has industrial sites where AI can be applied, skilled workers, a production base, and broad social acceptance of digital technologies.

◆Designing national wealth creation and social prosperity together

Technological innovation and industrial competitiveness alone will not determine the country's future. South Korea faces a complex set of challenges: low birth rates and an aging population, regional decline, economic polarization, and structural changes in the labor market. It cannot be assumed that shorter working hours or expanded welfare in themselves cause economic decline. What matters more is designing institutions that allow productivity, economic growth, and social distribution to achieve a sustainable balance. If productivity gains from AI benefit only some companies and capital, technological innovation could instead deepen social inequality and conflict. Conversely, if productivity gains lead to new industries and jobs, higher incomes, and a broader fiscal base, they could also help overcome the structural crises of an aging population and population decline. To this end, South Korea's AI strategy must go beyond simply supporting technology development or fostering the semiconductor industry. A long-term national strategy and institutional framework are needed to connect AI infrastructure and power, industrial data, talent development, regulatory reform, and AX in public services. To promote balanced development, there is also a need to connect the industries, talent, and capital concentrated in the capital region with regional manufacturing and industrial hubs, creating AI ecosystems tailored to the characteristics of each region. At the same time, regulatory reform is necessary because the capital region must also compete globally. A collaborative system is needed in which the central government establishes the direction and institutional foundations, while local governments, universities, and businesses drive tangible industrial innovation. Ministry of Education anchor programs and similar initiatives should also be adapted to this context and sustained. The immigration and social conflicts experienced in Europe also offer clues about how to address labor needs and immigration in an era of low birth rates. Change and innovation should not be tied to the term of a particular government or short-term performance indicators. Rather, national capabilities should be focused with a horizon of at least 10 years, allowing the gains from technological innovation to accumulate across industry and society.

◆South Korea, where are you going?

There have never been permanent champions in the history of industry. Nor have the countries that first began technological innovation necessarily reaped the greatest economic rewards from those technologies. Today's digital revolution will be no different. The current competition over AI models and semiconductors cannot be seen as determining the ultimate winners in the industrial order of the future. What matters more is who secures the lead in the later digital era, when AI spreads deeply across all industries and creates new added value. South Korea is a country that can seize this opportunity. It is one of the few countries that possesses all the necessary and sufficient conditions at the same time.

With a manufacturing base, semiconductor competitiveness, and digital infrastructure, South Korea needs the ability to connect these assets under a unified national vision and apply AI across industry, turning it into productivity and added value. The experience that helped it succeed as a fast follower is valuable, but past methods cannot guarantee future success. South Korea must now become a country that creates new paths for industry rather than following paths pioneered by others. The task is to build a country that continuously creates national wealth, translates those gains into social prosperity, and passes greater opportunities and possibilities on to the next generation. What answers will we offer to the challenges of increasing national wealth and social prosperity, including politics that ensure sustainability, economic development through industrial AX, frameworks for reaching mature social consensus, and innovations that transform our strong enthusiasm for education into an optimal system for developing talent? These are fundamental questions for South Korean society today. "Quo Vadis, Korea?"

Choi Kiju, President of Ajou University

This content was produced with the assistance of AI translation services.