Opinion | Europe must embrace the AI revolution or it will fall into irrelevance

The reality is that while generative AI will have a significant impact across all industry sectors, whether the potential productivity gains can actually be achieved depends on how people, companies, communities and countries implement these changes.

This is a social and political issue, given the potential of generative AI to change the way we work by automating many common activities. Language barriers can be removed thanks to artificial intelligence automatic translationprints the transcript and even indicates the next work program.

McKinsey estimates that current generative AI and other technologies have the potential to automate work-related activities that currently consume 60 to 70 percent of employees’ time. It is therefore not surprising that many employees and employers look to the future and see uncertainty.

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The latest European Industrial Roundtable (ERT) report on industrial competitiveness and benchmarking, published in March, paints a picture of the European Union racing against time as the continent’s industries lose ground in global markets in terms of market share. European companies are becoming less and less important, focusing on the continent technological leadership endangered.

The reason for this is obvious. The European market is much more fragmented than the US or Chinese markets. It is a collection of national markets, not a single one, with many of them sharing the euro currency.

The indicators speak for themselves. The EU’s share of global gross value added in mining, industry and utilities fell to 14.5% in 2021, compared with 28.3% for China and 16% for the US. EU companies accounted for only 15.5% of companies in the EU Fortuna Global 500 in 2023 compared to 31.8 percent in the case of American companies and 27.5 percent in the case of Chinese companies.

Apart from being accepted in Europe 5G technology while far behind China and the United States, it also lags behind in research and development spending – a key driver of innovation and technological leadership. The EU spent 2.2% in 2021. of its GDP on research and development compared to 2.4 percent in China and 3.5 percent in Usa.

This shortcoming is particularly evident in industrial R&D investment among the world’s 2,500 largest companies. The EU’s market share fell to 17.5% in 2022, lagging behind China’s 17.8% and nowhere near the US’s 42.1% market share.

Add all this to the complexity EU regulations and the fact that energy costs in the EU are higher than in the US or China, it is no surprise that the competitiveness of European industry is stagnating. The ERT report shows that Europe’s regulatory environment needs to be modernized to empower and reward innovators, while improving technology adoption through stronger public-private collaboration.

Despite the shocks of the 2008 global financial crisis, Europe has not undertaken the necessary structural reforms to improve competitiveness. The financial sector is dominated by a fragmented banking system and remains risk averse. German, French and Swiss banks remain only a remnant of their former global stature, which has been hit hard more stringent regulations and unsuccessful consolidations.

The real issue is who is driving structural change. In the US, it is clear that the private sector remains dynamic and focused on profits and innovation. In China, the government and the Communist Party play a leading role while allowing corporate competition consistent with national goals.

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There is still tension in the EU between the old neoliberal goal of free markets and the newer penchant for state intervention and Industrial policy. As recent experience has shown, policies and programs can be thwarted by the political process or bogged down in protracted legal challenges due to vested interests seeking to stifle change.

Changing the entire ecosystem is a complex process and requires building a common narrative about the need for change, as well as the concrete implementation of visible projects that demonstrate determination and inspire public trust. If you want the economy to change, appoint business leaders who understand how to manage institutional change while remaining business-friendly.

The AI revolution is already here. Those who hinder the transformation will be marginalized, while those who adapt well will not only survive but also thrive. This is the cruelty of Darwinian competition.

Andrew Sheng is a former central banker who writes about global issues from an Asian perspective