AI boom: ‘one Taiwan, two worlds’

Taiwan is experiencing an unprecedented economic boom on the surface. Despite surging GDP, stock market and artificial intelligence (AI) exports, why do more people feel they have not become wealthier? This contradictory issue cannot be avoided, and the answer lies in the “K-shaped economy.”

According to data from the Directorate-General of Budget, Accounting and Statistics, the economic growth rate reached 14.5 percent in the first half of this year, and is forecast to rise 11.05 percent for the full year. However, the income gap between the top and bottom 20 percent of households grew by 6.17 times last year. In other words, while the overall economy is surging, income distribution has not, and AI dividends are enjoyed by a select few.

The K-shaped economy is creating a phenomenon in which Taiwan experiences an economic polarization. At the top of the “K,” there is a minority dominated by AI, semiconductors, servers and high-tech exports. At the bottom, there lies a vast workforce in traditional manufacturing, small and medium-sized enterprises, and the massive service industry.

The nation is not facing an economic downturn, but rather a reshaping of key production factors amid an economic boom — including capital centralizing in high-return AI industries, more talent shifting to high-paying tech sectors, and a crowding-out effect in energy resources, such as electricity and green power. The Chung-Hua Institution for Economic Research and industry studies warned that this structural polarization is widening.

This year’s World Inequality Report estimates that the top 10 percent in Taiwan hold approximately 61 percent of the nation’s wealth, while the top 1 percent hold 27 percent. This can explain the surreal disconnect between the booming stock market and grassroots public sentiment.

While the stock market is about capital returns and future profits, ordinary families focus on housing prices, rent, living costs, children’s education and monthly salaries — practical realities of what they can afford and spend. The wealthy with great assets can accumulate more wealth through reinvestment as asset values grow, but those without assets can only rely on wages to keep up with price hikes. The same economic growth figure tells different stories for different people.

The issue Taiwan faces is the lack of social mobility caused by the K-shaped economy. The wealthy are running ahead faster through the accumulation of capital, technology and assets, while the workers are struggling to make a living.

At a time when economic growth is primarily driven by a few industries, enterprises and asset holders, the more impressive the GDP becomes, the more divided society might feel. Therefore, a policy challenge is the only way to transform AI dividends from the “K-peak” of a few sectors into a “K-slope” for the overall economy.

How can the nation enable traditional industries to access transformation capital, allow small-and-medium enterprises to integrate into AI supply chains, boost productivity and wages in the service sector, and equip workers with genuine skills to transition careers? More importantly, how can it provide those without assets an opportunity to accumulate wealth or share the dividends of economic growth driven by the whole public?

While AI has boosted GDP, it has failed to deliver the fruits of such growth to every household. At the top of the “K,” Taiwan is finally riding the wave of today’s AI boom after years of hard work. At the bottom, it should pragmatically confront the pressing issue: resolving the contradictory polarization of “one Taiwan, two worlds.”

Jeff Wu is an economic observer.

Translated by Eddy Chang