Thank you so much for including me in the Bund Summit. I’m very honored to be together with you. I just wish it could be in person.
The most important economic relationship in the world is the one between the world’s two largest economies. I mean the United States and China. Listening to the previous two speakers, I was struck by how similar the opportunities both of our countries have and how similar the challenges both of our countries have. And anything that increases the understanding between us is vitally important.
I’m going take a step back from focusing on the financial factor in digitalization to look at the macro economy as a whole.
I spend time in two types of rooms. If I’m in a room with macroeconomists, the discussion is very likely to be about slow productivity growth.
In the United States, productivity used to grow at about 3% a year. Now it grows at about 1% a year. We are not innovating as quickly as we used to. China is also experiencing slower economic growth, just like the United States. And in part it is also in China because productivity growth is slowing. So if I go to a conference with macro economists, that’s what I’m going to hear about – slower productivity growth.
I then go to a conference in San Francisco and I hear about the most amazing new innovations in the digital economy, in machine learning and artificial intelligence, in robotics, and more. I hear about how these innovations are changing everything around us and everything we do.
So how do I square these two contrary stories? The economics conference where I looked at the data and hear about slower productivity growth, and the technology conference where I hear about all the amazing innovations. I think the answer to this puzzle is it is harder to innovate today than it used to be. A lot of the easier inventions have already been invented.
Agriculture is mostly mechanized. Factories are extremely efficient. A lot services are increasingly delivered across the world globally at very low marginal cost. To make further progress is something one can’t take for granted. And yet with this digitalization, with machine learning, with artificial intelligence, we are actually able to continue to make progress, to continue to push productivity growth forward to squeeze more innovation out at a time when you think it will be harder and harder.
I used to go to China and I’m jealous about the digitalization of payments there. The way one could use WeChat or Alipay in just about any store in China to pay just about anyone in China. The United States is behind in that, but we are catching up. And we are catching up in part because the younger people in the United States expect to be able to do everything digitally, expect to use their devices and they are fluent with them.
Most of my friends of my generation has gotten digital payment technology like Venmo because we have babysitters for our children. And that’s the way that the younger people would like us to pay them. And that becomes a network that everyone gets on.
Of course, COVID itself is accelerating the digitalization of the economy. You now see people unfortunately on the streets in United States suffering with no homes. And I see some of them say you don’t have to pay them with cash. You can send them digital payments. And they give you instructions for how to do it.
Much of this doesn’t actually take very innovated technology. It just takes the network that multiple people are using at the same time. I benefit when you use it. You benefit when I use it. Technology though, artificial intelligence and machine learning are just pushing forward in about every area in our economy. They are helping guide the deployment of fertilizer to get more of our crops, helping our doctors diagnose diseases imbedded in our cars to make them safer. And in finance to help decisions about landing and in just about everywhere.
It’s been a fashionable debate in recent years as to who is going win the race for artificial intelligence. There are really only two competitors in this race, United States and China. Those are the only two countries in the world that are large enough and sophisticated enough to pioneer artificial intelligence. The only two countries in the world that are home to leading digital giants that serve a billion and more people.
Kaifu Li talks about the United States having the advantage in the creativity of some of our engineers. But Kiafu Li thinks that would be less important than China’s advantage, which is the sheer number of engineers and the scale of the data. Because he thinks innovation won’t be as important going forward in AI, it will be more about application.
I have a different view. I don’t think that China is going to win the race for artificial intelligence. I don’t think the United States will win the race for artificial intelligence. Because I don't think there is a race for artificial intelligence. When you innovate, when you come up with an idea, you can't keep it. China can’t keep it to itself. The United States can’t keep it to itself. Ideas flow and spillover all around the world.
If you look at the leading conference in artificial intelligence, it used to be sponsored by the organization called the American Association for Artificial Intelligence. That association renamed itself. No longer called American Association. It’s just called the Association for Artificial Intelligence. At their conferences now, more than half of the papers are by researchers from China.
The better China does in artificial intelligence, the more ideas you come up with, the more the United States can copy and adopt these ideas, and vice versa. American ideas are constantly being used and deployed in China. So, whether the United States or China chooses to move towards delinking of our economies, move towards tighter integration, neither one of those can make much of a difference in the spillover of ideas and knowledge. And that is the most important thing in AI. And that’s why the winner ultimately will not be China. That’s why the winner will not be the United States. And that’s why the winner will be all of us.
In order to make advances there is a lot more that needs to be done. The first is many people fear digitalization. They are concerned that digitalization will take jobs, will cause unemployment, will leave people without a way to work.
I think that fear is mostly misguided. I think our biggest problem is that we don’t have enough digitalization. We don’t have enough skills that people have that are being replaced by automation. But we need to confront that fear, not by just explaining how it’s misplaced but also by doing what we can to connect people to jobs, education being the most key component of that.
The second is, this idea, maybe you need to regulate it, artificial intelligence, maybe you need to regulate digital technologies. I think that’s a mistake too. Technologies function best with permission-less innovation. No one asked the government’s permission to make a digital innovation, they went ahead and did it. We do need to regulate auto safety, as we do for all cars, including autonomous vehicles, we need to regulate financial markets as we do for all financial markets, whether it’s automated trading, or not. And so, it’s important to have safety and soundness in all the normal ways, just nothing special for this sector.
The third thing we need is competition. The competition between United States and China is good thing. I think we will both benefit from it in the digital space. I think we even need more competition within United States. We have few large platforms that take advantage of their networks, of their scale, and don’t have many challenges, and don’t have many upcoming companies.
I think it’s a huge mistake for the United States to break up Google, to break up Facebook, to break up Amazon. These are important innovated companies delivering things for all of us. But we should make sure they can’t artificially and abusively maintain their monopolies. We should make it easier for new companies to come in and challenge them. And the United States will succeed not by having national champions but by having incredibly vibrant and dynamic competition with small businesses growing, scaling up and the like.
Finally, more public investment is needed while the majority of innovation in the digital sector is private and done by the private sector. It’s a very important role for the public sector, for public investment, especially in the type if basic R&D that I think is going to remain very important for the next breakthroughs in digitalization.
So, I conclude by saying I’m optimistic that we are going to get beyond our current problem in our economies. I’m optimistic that we are going to be able to have more productivity growth going forward. The digital sector is key to that. Seeing that the digital sector is deployed and used throughout the economy is key to that. And that’s going to happen best if China takes the types of steps that previous speakers were talking about — internally strengthen its digitalization，and if the United States takes the types of steps that I’ve been talking about. And finally, most importantly, if our two economies are able to continue learning from each other and engaging with each other as the two leaders of the global economy.
So, thank you so much for having me here by video and I very much hope to be able to join you at the Bund Summit next year in person. Thank you.
