Europe Must Act Now on AI’s Transformative Power

Christine Lagarde, President of the European Central Bank (ECB), recently addressed the BratislavAI Forum, highlighting the urgent need for Europe to embrace the transformative power of artificial intelligence (AI). The forum was part of an OECD high-level event commemorating the 25th anniversary of “Better Policies for Better Lives.”

The Current State of AI Investment

In recent years, global investment in AI has skyrocketed. In the previous year alone, corporate spending on AI reached USD 252 billion, while private firms raised nearly USD 100 billion. Leading U.S. investors mainly focus on AI technologies, demonstrating a shift from a decade ago when they were not among the top AI investors.

Despite this impressive growth, some experts express concerns that it may reflect short-term exuberance rather than sustainable progress. However, history suggests that waves of investment in transformative technologies can pave the way for future productivity gains, which Europe must not overlook.

The Historical Context of Technological Disruptions

Historically, economic disruptions such as those caused by electricity, computers, and the internet have shown a pattern: initial disruption followed by delayed benefits. For instance, it took about thirty years for the effects of electrical grid construction to be fully realized. Similarly, the rise of computers required substantial long-term investments before leading to significant economic improvements.

Lagarde observed that if AI follows a similar trajectory, productivity could increase by 1.3 percentage points, similar to the impact of electricity. Conversely, following the U.S. digital boom could see increases closer to 0.8 percentage points, a notable improvement for Europe.

Accelerated Benefits of AI

AI’s unique characteristics may allow it to bypass the traditional slower cycles of technology diffusion. Two notable features are innovation and diffusion. The recursive nature of AI enhances its own performance, which can lower production costs and accelerate idea generation.

For example, while science took fifty years to predict 200,000 protein structures, AI achieved 200 million predictions in just one year. This rapid expansion of knowledge indicates that AI could significantly raise productivity and growth rates beyond previous technology phases.

Europe’s Opportunity

Europe stands at a critical juncture. With significant advancements in AI primarily occurring in the United States and China, it risks falling behind as a first mover in this domain. However, it can still become a competitive second mover by focusing on rapid AI adoption across various industries.

• Europe’s economy is diverse, with lower market concentration compared to the U.S.
• Generative AI is being adopted at a pace similar to that in the U.S.
• Many European companies are heavily investing in cloud solutions and AI technologies.

To capitalize on these advancements, Europe needs to foster collaboration across sectors. Industrial-scale data spaces, such as Manufacturing-X and Catena-X, facilitate data sharing to enhance AI model training. The European Health Data Space allows interoperability, leveraging anonymous patient data effectively.

Addressing Strategic Dependencies

For Europe to remain competitive in the AI landscape, it must overcome several challenges. Reliance on foreign technology stacks could increase strategic dependencies. Ensuring a minimum capacity in compute resources and enforcing open standards are essential steps.

Additionally, high energy costs, fragmented regulations, and inadequate capital market integration could impede AI diffusion, resulting in decreased competitiveness across various sectors.

Conclusion: The Urgency of Action

Demis Hassabis, a Nobel laureate for his AI research, remarked, “It’ll be ten times bigger than the Industrial Revolution – and maybe ten times faster.” This underscores the urgency for European institutions to act promptly, removing barriers to AI adoption. The time to leverage the transformative potential of AI is now, ensuring prosperity for all Europeans in the decades to come.