When Italy declared UDI and banned ChatGPT they quickly relented (actually a move by a right wing appointee to show their strength). But this is different, large AI providers, such as Google, and Facebook, are taking the initiative and simply not releasing AI services in EU countries. This new Digital Divide may soon be between the EU and the rest of the world and could have serious consequences.
On the other hand, the EU is a huge and wealthy market, so the large tech companies will not take these decisions lightly. The problem is that the EU's legislation is often bureaucratic and cumbersome, involving lots of paperwork, hits on productivity. and is a stick and not carrot mechanism. The famous pop-up consent solution ‘Manage all cookies’ is GDPR nonsense, as no one reads the consent forms, it is therefore largely a waste of time. It was the result of bad legislation, producing a massive hit on productivity with no tangible benefits. One side overlegislates, the other is perhaps too lax and defensive – the net result is a Digital Divide.
With the release of Baidu's Ernie 3.5, which is neck to neck with ChatGPT4 on performance, this has turned into a two horse race - US and China. There's a third horse, but that's a moral high horse, which has barely left the stalls - that's the EU.
Economic environment
Let’s start with the big picture.
“In 2008 the EU economy was larger than America’s. In 2008 the EU’s economy was nearly 10% larger than America’s at $16.2tn versus $14.7tn. By 2022, the US economy had grown to $25tn, whereas the EU and the UK together had only reached $19.8tn… Now the US is nearly one-third bigger. It is more than 50 per cent larger than the EU without the UK…” (FT 20 June 2023) and that gap is growing.
The US has trounced Europe in terms of productivity, economic growth, investment models, research, investment, the creation of tech companies, defence and energy policy. It has also trounced the EU in terms of AI research and implementation. If the EU cannot develop a strong tech-based economy it will have to rely on low growth legacy markets, such as tourism and luxury goods, meaning it will fall further behind.
Productivity deficit
AI matters as ‘productivity’ needs a well-educated and skilled workforce, good infrastructure, and a favourable business and investment environment. Importantly, those with the more sophisticated tools tend to be the more productive. The evidence for the productivity gains using AI, within just a few months, is clear. If the EU either ban such tools or create an environment where angels fear to tread, then productivity on coding, management and general output, as these tools affect almost every sector, will start to lag. We had a dry run when Italy banned ChatGPT and there were reports of falls in productivity.
Training and education deficit
The University research and teaching system that feeds AI tech in terms of core research and skilled labour is dominated by the US, UK and China. EU Universities barely figure in the major rankings. An additional problem is the now deeply rooted anti-corporate sentiment in Higher Education in the EU. The sneering attitude towards the private sector, even OpenAI as a not-for profit, is now the norm, often accompanied by a failure to understand its actual structure. A symptom of this is that the debate in Higher Education focused largely, not on learning, but plagiarism. Far too little debate has taken place on the benefits in education and health.
Effort in AI is skewed towards often vague ethical initiatives making the overall atmosphere one of negativity, slowing down progress. The danger is that the benefits will be realised elsewhere while the EU remains rooted in old, analogue instititutions, where everything in tech is seen as a moral problem. There is nothing wrong with the moral debate but it is so often driven by fearmongering and activism, and not objective moral debate, which is to look at the moral issues and consequences, good and bad, not just the bad.
An additional problem is the unlikely adoption of AI in education in the EU. The real initiatives such as Khan Academy and Duolingo have been funded and implemented in the US, aided by philanthropic investment. There is little of that energy and type of investment in Europe. As AI becomes integrated into education and training in the US, its absence here will mean less productivity.
Investment freeze
Investors looked askance at Italy’s surprise ban and widened their astonished gaze across the whole of the EU. If one country can do this, so can others. Investors have a currency – it is called ‘risk’. They assess and quantify risks and base decisions based on that risk analysis. Anyone who has been through the process knows that they do their homework and due diligence. One of those risks is already baked in, the Italy ChatGPT ban, huge punishment fines is another, the generally negative rhetoric and cultural context is yet another. Why would large scale investors pump cash into a territory where bans, fines and an absence of services have become the norm? Investors like a favourable business environment not one that is based on negativity and punishment.
Investment model
The model that emerged post-war in the US has proved superior to that in the EU – private sector, investors, government and Universities working together on large projects with a real focus on impact. In AI we now see the fruits of that system in the US, where ground-breaking research on foundation models take place in large tech companies and not-for-profits, such as OpenAI. Europe scoffs, and gets bogged down in long-winded, bureaucratic and low impact Horizon projects, while the US and China gets on with getting things done. In truth we now look to the US for investment and that is the market most want to expand in, as it is the largest growth market on the planet. They have become so dominant that they merely buy European companies in AI.
Ethical quicksand
Generative AI has launched a thousand quangos, groups and bad PhDs on ‘AI
and ethics’ across Europe. You can’t move for reports, frameworks and ideas for regulations which rain down on us from publicly funded organisations, with far too little attention on potential solutions and benefits.
Debate on the benefits has been swept aside by pontificating and grand-standing. It is easy to stand on the sidelines as part of the jeering, pessimist mob, less easy to do something positive to actually solve these issues. Rather than solve the problems of safety, security, alignment and guard-railing with real solutions, the EU has chosen to see the glass, not as half full, but as brimming with hemlock. It sees laws and fines as the solution, not design and engineering.
The EU also has no laws banning VPNs and their use is becoming more common. This is a huge loophole when using AI services. It is already happening with Bard, as the internet is like water, it tends to seep round and into places, based on demand.
Punishment strategy
The EU has been issuing fines for some time now, although not is all as it appears. You may note that many of these large fines are issued from Ireland, but there has been a long and bitter fight between Dublin and Brussels. Ireland gains a good portion of its GDP from a small number of US tech companies and because they are based there, the GDPR fines come from there. They have fought these fines tooth and nail but, in the end, had to bend the knee to Brussels.
There is something reasonable in these latest fines as the data transferred may be used by US surveillance agencies (they have a bad track record here). In practice Meta have until later in the year to comply. This is a bit of a cat and mouse game, with politics at the heart of it all. On the other had the EU puts up with Ireland and Luxembourg stealing other countries tax revenues through massive tax evasion. It is all a bit of a tangled mess.
The bottom line, however, is that this tactic is resulting in a deeper rift. Twitter quit the EU’s voluntary code of practice in mid-May as it could be fined up to 6% of its global revenue (£145m) or be banned across the EU if it does not comply with the Digital Services Act. Facebook are making noises about abandoning the EU.
Solutions
If as much effort went into solutions, than regulations, fines and rhetoric, we would progress at the right pace, solving problems as we go, rather than trying to punish people into submission. Hacker-led safety testing, well funded research, effort on international ISO standards not regional efforts with a focus only on large operation and parameter models and implementations would all help. Above all third-party professional hacker teams can be deployed to identify security and data weaknesses before release. Incident reporting can also be useful. This collaborative, non-confrontational approach is far preferable to the negativity and sledgehammer of legislation and punishing fines.
Conclusion
These battles have been raging for some time, mostly behind the scenes but Google and Facebook have also had run ins with Canada and Australia. Some of this has been resolved, some not. There is something predictable about it all - the old world versus the new.
It is an inconvenient truth but the EU is too late to the party, the US and China have forged ahead in IT and AI with their own tech giants. The EU has failed to create tech giants and has also deliberately chosen the path of being some sort of global regulator but it has a weak economy, weak research, weak investment and a weak entrepreneurial culture. In the same way that the Ukraine war showed the EUs lack of investment in defence and a lack of any overall defence policy, where not for the first time it had to rely on the US to come to its aid and provide arms, cash and expertise, so it is with AI.
The investment is low, there is no policy other than taking a morally superior stance. So much energy has gone into ethical hand-wringing that Europe is reduced to being a bystander. It thinks it has sway but it is a fraction of the world’s population, shrinking, and white Eurocentrism now seems more than a little dated. It rides its lumbering moral high-horse, looking down on the rest of the world, while others like the US feed it a little hay to keep it happy and speed past. It would surely be better developing AI solutions that have identified benefits in productivity, learning and healthcare, than simply regulating it.
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