The Lee Jae Myung administration came to power with little time to prepare, yet it moved quickly to outline the broad direction of state affairs. Among its earliest and most visible initiatives was a sweeping reset of the country’s artificial intelligence policy. The government did not treat AI as just another industrial sector but elevated it to the status of a national transformation project.
Alongside this, it announced the framework for economic policy over the next five years and concluded long-running tariff negotiations with the United States, removing what is undeniably the biggest source of uncertainty in South Korea’s external economic relations.
The problem is not what the administration has done quickly, but what it has yet to show clearly.
What remains conspicuously vague is a convincing strategy for restoring the fundamental drivers of economic growth.
The administration’s answer, at least so far, appears to be an all-encompassing AI transformation. If successful, such a transformation could indeed help lift productivity, expand new industries and raise the country’s potential growth rate. In that sense, the direction itself is not wrong.
The issue is the conditional clause “if successful.”
Since the administration took office, the Kospi has surged by roughly 50 percent, reaching an all-time high. Headlines celebrating record-breaking indices have created an atmosphere of renewed confidence, as if the market itself were confirming the government’s policy direction.
But stock indices are poor substitutes for economic diagnosis.
Gains have been heavily concentrated in a small group of large-cap stocks such as Samsung Electronics, SK hynix, Hyundai Motor, HD Hyundai Heavy Industries, Doosan Enerbility and a handful of others.
These companies are deeply tied to global technology cycles, defense demand or infrastructure investment, and their price increases reflect specific expectations about those sectors rather than a generalized belief in the recovery of the South Korean economy.
If AI bet fails
Moreover, part of the market rally can be explained by money moving out of real estate, as excess liquidity sought an alternative destination after the government strengthened policies aimed at suppressing speculative housing transactions. The stock market, particularly blue-chip stocks perceived as relatively safe, became that destination. This is a financial reallocation effect, not necessarily a sign of expanding real economic activity.
Against this backdrop, the government’s economic narrative has taken on a somewhat simplified structure: achieve an AI transformation, and everything else will follow. Growth will recover, national competitiveness will strengthen and the welfare of households and firms alike will improve.
Yet the South Korean economy has never been simple, and it is not becoming simpler.
The challenges the country faces are multiple and deeply structural: an aging population, declining labor force participation, widening productivity gaps between large firms and small and medium-sized enterprises, household debt, regional inequality and a growing dependence on a narrow set of export industries. Each of these problems has its own causes, and each requires targeted solutions. Some may not have clear solutions at all, at least not within a single political term.
The risk of an AI-centered strategy is not that it is wrong, but that it is insufficient. Even worse, it may create a false sense of security. When policymakers believe they have identified a single master key, they may stop looking carefully at the many locks it does not fit.
There is also a larger uncertainty that cannot be ignored: the future trajectory of the AI innovation cycle itself. The direction and speed of technological development rarely unfold exactly as policymakers or investors expect. History is full of examples where revolutionary technologies arrived later, diffused more unevenly or produced fewer productivity gains than initially promised.
This is why recent warnings from prominent figures deserve attention. Jerome Powell, chair of the US Federal Reserve, has cautioned against excessive optimism surrounding AI-driven productivity gains. Nobel Prize-winning economist Robert Shiller has also warned of the possibility of an AI bubble. Such warnings are not predictions of inevitable collapse, but reminders of how financial markets tend to behave when powerful narratives take hold.
If the AI boom fails to sustain its momentum, or if problems emerge in specific segments of the industry — such as overinvestment in data centers, unsustainable valuations or regulatory backlash — the impact will not be confined to technology firms alone. The AI sector is already deeply intertwined with financial markets. A sharp correction could spread quickly, affecting investment sentiment, corporate financing and household wealth.
In such a scenario, South Korea would be particularly exposed. Having effectively placed its economic policy bets on an AI-led transformation, the country would face the need for rapid and potentially painful policy adjustments. Strategies built on long-term optimism would have to be rewritten under short-term pressure.
This is where the true test of governance lies — not in riding favorable trends, but in preparing for unfavorable ones.
The Lee Jae Myung administration has demonstrated political coordination, administrative speed and a willingness to act decisively. What remains unclear is whether it has developed sufficiently detailed contingency plans for a world in which AI does not deliver as quickly or as broadly as hoped.
Economic policy should not be a wager where all chips are placed on a single outcome. It should resemble a portfolio, diversified across multiple scenarios, resilient to shocks and flexible enough to adapt when assumptions prove wrong. AI can and should be part of that portfolio, but it cannot be the portfolio itself.
If such preparations are already underway, the government would do well to communicate them more clearly. If they are not, then now is the time — not later — to begin thinking seriously about life after the AI boom. At the very least, policymakers should prepare themselves for the possibility that the future will be less linear, and less generous, than current narratives suggest.
In economics, as in politics, optimism is useful. But preparedness is indispensable.
Yoo Choon-sik
Yoo Choon-sik worked for nearly 30 years at Reuters, including as chief Korea economics correspondent, and briefly as a business strategy consultant. The views expressed here are the writer’s own. — Ed.
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