by Giles Merritt
In the race to develop artificial intelligence (AI), could it be that the European tortoise will win out over the American hare?
The transatlantic gap on AI is widening almost daily, and paradoxically, that’s why the odds on a triumphant tortoise are shortening. The United States may have so over-reached itself in its AI enthusiasm that financial market analysts fear the bubble is about to burst.
Whether Europe’s faltering performance on AI could be turned into a coherent strategy in the event of a US financial crisis remains to be seen. Europeans would need to greatly boost their spending on AI, and also harness the new technology to improve their lacklustre productivity. These are tall orders when set against Europe’s dismal track record since the onset of the digital revolution.
Yet the US’s unstinting embrace of AI could prove a heaven-sent opportunity for Europe. The stage is set for a meltdown of potentially mammoth proportions that would leave Silicon Valley and Wall Street licking their wounds for years, thus allowing Europe to catch up and possibly overtake. Americans seem dazzled by the AI hype and misled over its value; the “real” US economy would be flatlining were it not for the AI and crypto bull markets.
Events of course never quite turn out as forecast. But the market signals on AI closely resemble the dot.com disaster of 2000, and are possibly even scarier. If the AI bubble were to burst with full force, then some experts – including a former IMF chief economist – warn that $35tn in investments could be wiped out. That’s about a third of this year’s global GDP, and US stakeholders’ $20tn at risk would amount to 70% of the US’s GDP.
The alarm bells over the spate of money pouring into loss-making AI start-ups now sound more like emergency klaxons. The last 12 months have seen a trillion dollars ploughed, mainly by American investors, into 10 start-ups with no clear path to profitability. Markets are watching for the first pebble that triggers an avalanche.
None of these jitters can gainsay the obvious fact that AI is here to stay, and to disrupt. It is already revolutionising activities ranging from scientific R&D to manufacturing to the accounting and legal professions. Corporate Europe must therefore pay close attention to the lesson it should have learned in the 1990s, when US businesses embraced computerisation and left their European rivals standing. Productivity in Europe that had outstripped the US was reversed, leaving Europe in economic doldrums it has yet to escape from.
The challenge for Europe is to develop AI’s strengths while avoiding its disruptive impact. A costly financial shake-out of the US’s AI sector would offer the EU a breathing space to fashion a strategy that balances risks and rewards.
Jim O’Neill, the British economics guru who coined the term ‘BRICS’ to describe globalisation’s rising giants, recently summed up the elements of such a strategy. It should be to “develop a serious, clear, evidence-based plan to ensure that AI contributes to productivity growth where it is needed most.”
So far, the European Union has no clear strategy, although it has very laudably championed safeguards against the misuse of AI – including ‘rogue’ scenarios of mankind’s extinction. It has also launched a number of ambitious initiatives to make Europe “a world-class hub for AI”, the latest being this month’s ‘Apply AI’ as part of the drive for Europe to invest €200bn over the coming years.
Productivity doesn’t feature much in the EU’s narrative. That probably reflects the slow take-up of AI across Europe. The European Commission says only 13.5% of European businesses have begun to introduce OpenAI systems, while the AI indicator that high-tech experts look for is the ‘acceptance rate’ measuring public enthusiasm; in China it is 69%, whereas in Europe even top-scoring Latvia achieves just 36%.
How the EU-US race will play out vis-à-vis China is anyone’s guess. But AI’s value to society is in any case to streamline the production of goods and services while compensating for job losses and economic disruption. The noise and chaos of the war in Ukraine and Trump’s bullying have, meanwhile, drowned out fundamental questions surrounding AI. This underlines the need for political and business leaders to raise their voices and shape a crucially important pan-European debate.
*Published first on friendsofeurope.org
By: N. Peter Kramer