03 April 2024

Artificial Intelligence heavily impacts our economy

Artificial intelligence plays an increasingly important role in our lives and economy, which has been further accelerated by the massive deployment of Generative AI (ChatGPT and others). Studies all over the globe indicate that GenAI alone could add up between 5% and 9% to global GDP across industries.

Not surprisingly, the World Economic Forum’s Future of Jobs Report 2023 states that technology adoption will remain a key driver of business transformation for years to come. Even though the net impact on jobs is expected to be positive, employers estimate that 44% of workers’ skills will be disrupted in the next five years.

So how are we doing in Europe with respect to this huge economic opportunity? The first State of the Digital Decade report reviewed digital policy developments and described how the EU is advancing towards the agreed targets and objectives, thus outlining where the EU stands at the outset of the implementation of the Digital Decade Policy Programme. It shows the AI-uptake severly lagging behind other targets, having reached only 11% of the envisaged adoption rate. And what’s even worse, the EU’s share of global revenue in the ICT market has drastically fallen in the last decade, from 21.8% in 2013 to 11.3% in 2022, while the US’s share increased from 26.8% to 36%.

A European approach to AI

So how is Europe dealing with that massive challenge? The EU’s approach to artificial intelligence centers on excellence and trust and aims to boost research and industrial capacity while ensuring safety and fundamental rights.

Through the Horizon Europe and Digital Europe programmes, as well as the Recovery and Resilience Facility, game-changing investments are being made. And the EU AI Act is now firmly putting in place a regulatory framework supportive of innovation yet within boundaries of safety and security, in line with European values. 

Yet, the Financial Times stated in February 2024 that investment in AI is around 50 times higher in the US than in Europe, and that European tech is falling behind its competitors at an alarming rate.

Lack of (sufficiently ambitious) investments, an incomplete European single market, low attractiveness for European talent, a shortage of data and regulatory complexity are just some of the obstacles preventing Europe from becoming competitive and innovative – in short, a true global technological powerhouse.

As Anu Bradford argues, “AI should be used as a wake-up call for the European Union. If it is not to be left behind, we must ensure that the European Union can innovate”. This is why, faced with the technological revolution brought about by AI, regulation alone is not enough: innovation is necessary.

Public procurement as an engine for responsible, sustainable AI

One strategy for boosting innovation in the tech industry with a proven track record in the US and Israel is to leverage public spending to not only accelerate innovation, but also steer the conditions that it should meet. They clearly demonstrated that technological breakthroughs achieved primarily through publicly funded research rely on public coordination for commercial development, public funding for early-stage capital, and public contracts to stimulate demand.

Silicon Valley exemplifies this point. As a matter of fact, the region is only called “Silicon Valley” because the U.S. Air Force preferred silicon-based wafers in the early integrated circuits for which they were the primary customer. The online services and “apps” Silicon Valley produces today are the happy byproduct of intensive investment in a far more technologically complex ecosystem developed over 50 years through government funding and decision-making, not venture capital.

Admittedly, American innovation has since stalled, while technological leadership has migrated to other nations that learned the lesson America seems to have forgotten. Every key underlying technology in the iPhone was developed with support from the American government – but the expertise, production, and continued innovation have since been based overseas.

AI procurement potential in Europe

At the same time, the European Commission is gearing up to play catch-up, in expressing its intention to make the public sector a trailblazer for using AI in the 2021 Review of the Coordinated Plan on Artificial Intelligence.

The COVID-19 crisis clearly showed that public procurement strategies, practices and systems directly affect the quality of life and wellbeing of citizens. The insight followed that public institutions should not only support AI-innovations through R&D-grants and subsidy programmes; they should also consider more aggressive innovative procurement approaches. These have the potential to foster innovation, create competitive markets for AI-systems, and uphold public trust in the public-sector adoption of AI.

With public procurement expenditure holding steady between 12% and 15% of GDP in the past decade across the OECD (and the EU general government total expenditure around 50% of GDP), this provides a massive budget to drive innovation through the procurement of AI-solutions. Moreover, the blueprint for doing so has already been laid out. A few years back, World Economic Forum launched its “AI Procurement in a Box”: a practical guide that helps governments rethink the procurement of AI technologies with a focus on innovation, efficiency and ethics. The only thing that remains to be done in order to leverage this incredible opportunity is to make sure every single public buyer across the EU is aware and familiar with the how, and that our public expenditure is unleashed to its fullest potential.

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