The proving ground for Europe and its innovation conundrum is clear: AI.
Inferences from Minerva Technology Policy Advisors. Vol.31 - 19 September, 2024
A scathing report on the bloc’s competitiveness and a changing of the guard in Brussels offer a chance for the EU to think differently about innovation and productivity growth.
What’s happening? Mario Draghi, the former President of the European Central Bank, delivered a landmark report last week highlighting the need for Europe to close its innovation and productivity gap with the US.
Meanwhile Commissioner for the bloc’s Internal Market and former CEO of France Télécom, Thierry Breton — who led the EU’s charge on “digital sovereignty” — resigned in a huff after an apparent snub by Commission President Ursula von der Leyen.
EU competition supremo Margrethe Vestager is also taking a victory lap after a decade of attempting to bring Big Tech to heel, with a couple of big antitrust judgements against US tech leaders in her back pocket.
Is a reality check needed? In the report, Draghi portrayed the dynamism gap between Europe and the US in stark terms. The killer stat; over the past 50 years, the EU has not given rise to a single newly founded company with a market valuation of over EUR 100 billion; over the same period, the US has spawned half a dozen trillion-dollar-plus corporate behemoths.
So what? This matters if you think that the race to capitalize on innovation in artificial intelligence is a struggle between giants. And there are reasons to think it is. Today, the cutting edge of generative artificial intelligence is being advanced less by scrappy entrepreneurs in startups than by a handful of well-resourced and well-connected labs at hyperscale tech companies. It’s no coincidence that the trillion-dollar companies that Draghi referred to in his report are among the world’s leaders in “frontier AI”.
Why? Financial firepower. These well-capitalized firms can afford to invest the billions of dollars a year needed to cover the massive compute costs of training frontier models. They can also dedicate staff to complying with the EU AI Act and other forthcoming regulatory regimes while they wait for business models to mature.
Many other companies will rely on servers and software built by these industry leaders to apply AI in their sectors, diffusing a combination of large and small models fine-tuned for specific business or research cases.
What’s Draghi’s fix? The former central banker’s proposals to jump-start European tech sector competitiveness include a big slug of new close-to-home spending on research and development (including supercomputing infrastructure in Europe), making it easier for small companies to scale up by removing regulatory barriers, and further integrating the EU’s single market and capital markets. However, they also focus on promoting uptake and adoption of AI in European industry.
Here’s the rub; as we have been writing at length in Inferences, innovation and diffusion are two different things when it comes to cutting-edge AI. This presents both a conundrum and an opportunity for Europe.
The conundrum? It’s hard to see the EU catching up on cutting-edge AI innovation any time soon, as long as progress in the field remains tied to scaling effects. Breton’s digital sovereignty agenda, focused on ensuring that the EU maintains the ability to control its own destiny in tech, has delivered plenty of new regulation, but in pure market terms, it hasn’t yielded meaningful progress.
Efforts to develop federated European cloud computing infrastructure remain stalled. Aleph Alpha, one of two significant European AI “unicorns” that has raised substantial cash, recently said it is pivoting away from cutting-edge research.
Vestager’s competition victories may likewise end up struggling to move the needle on tech competitiveness, if more opportunities for smaller companies attempting to compete with sprawling tech conglomerates do not translate into big, game-changing innovation breakthroughs.
The opportunity? Along with a big focus on R&D investments and creating conditions for bigger EU firms, the Draghi report focuses on the need to promote wider AI diffusion.
The most direct route to wider use of artificial intelligence in Europe would be for automakers, pharmaceutical companies, engineering firms, banks, and healthcare providers to apply existing tools already available on the market to their specific business problems. Embracing a diffusion strategy would require the new EU Commission to think differently about the tradeoffs of building on top of US-based technology infrastructure.
In his report, Draghi attempts to square the circle. He writes:
“Given the dominance of US providers, the EU must find a middle way between promoting its domestic cloud industry and ensuring access to the technologies it needs. It is too late for the EU to try and develop systematic challengers to the major US cloud providers: the investment needs involved are too large and would divert resources away from sectors and companies where the EU’s innovative prospects are better. However, for reasons of European sovereignty, the EU should ensure that it has a competitive domestic industry that can meet the demand for “sovereign cloud” solutions.”
In short, he’s advocating that the new Commission take a more nuanced and practical approach to digital sovereignty and competition issues than it has in the past.
Who’ll take on the challenge? The next commission’s competition chief-desigate, Teresa Ribera, is already talking about the need to tweak antitrust rules to ensure that EU companies can match the scale of US and Chinese counterparts.
Von der Leyen has also tapped the Finnish politician Henna Virkkunen to take on the role of Executive Vice President for Tech Sovereignty, Security, and Democracy, responsible for both enforcing the bloc’s digital rulebook and pushing innovation in AI, semiconductors, and other “frontier technologies.” Stéphane Séjourné, the French politician nominated by French president Emmanuel Macron to replace Breton, will take on responsibility for the EU’s industrial strategy.
We’ll be watching how these key players work together for signs that Draghi’s message is sinking in.
What we’re reading:
Reports on the drying up of venture capital in China.
European Commission President Ursula von der Leyen’s mission letter to Henna Virkkunen, the EU’s new tech czar, whose job title suggests that “digital sovereignty” will remain a key priority in the next commission.
A look at why “the EU should aim to move closer to the U.S. example in terms of productivity growth and innovation.”
What we’re looking ahead to:
22 - 23 September: UN Summit of the Future.
12 - 14 November: IEEE World Technology Summit on AI Infrastructure.
10 - 11 February 2025: AI Action Summit in Paris, France.
2 - 4 June 2025: AI+ Expo and Ash Carter Exchange in Washington, DC.