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Europe’s place in the global AI race

History is a good predictor of the future. In the Eighteenth Century the industrial revolution led to technological, socio-economic and cultural changes that eventually transformed not just our quality of life, but also our expectations from life. The early adopters of technological change have compounded their progress ever since, and the earliest industrialized nations continue to hold substantial wealth per capita.

Today the world stands at the precipice of a technological revolution that has the same potential to shape entire economies for centuries to come. Artificial intelligence has the potential to bring unprecedented improvements and efficiencies into every segment of economic activity, creating compounding new advantages for its early adopters.

The precise future value of the global AI economy is uncertain. Management consulting firm McKinsey thinks that AI will deliver $13 trillion of economic activity by 2030. AI-investor Tej Kohli* has proposed that the global AI economy could eventually be worth $150 trillion.  What is certain is that the prize is substantial.  And because of this, competition to lead the AI revolution is fierce. 

The competitiveness of individual countries in mastering the opportunities of the AI ‘revolution’ can be measured in terms of their market share, investment, and innovation prowess. The strength of their regulatory and ethical frameworks also matters, since omnipresent AI also poses a catalogue of ethical dilemmas.

AI Market Share

2018 study ‘Artificial Intelligence – A Strategy For European Startups’  found that the top three leading nations when measured in terms of their number of AI startups were the United States with 1,393 startups (40%), China with 383 (11%) and Israel with 362 (11%).

Four European countries featured amongst the top ten, including the UK (4th), France (7th), Germany (8th) and Sweden (10th). Collectively pre-Brexit Europe was second only to the United States, with 22% of the global total of AI startups.  As of the 2018 study, a Europe with a single digital market had the potential to be a major player in the AI revolution.  The impact of the United Kingdom subsequently then leaving Europe remains to be seen.

Fragmented European AI

The United States holds the most AI patent applications also receives the overwhelming majority of AI-related investment (66%) globally, and is home to the FAANGS, the world’s highest-valued digital players in the form of Facebook, Amazon, Apple, Netflix and Google.

By contrast Europe underperforms in terms of its AI-related patent applications.  Filings for technologies related to the Internet of Things and the Fourth Industrial Revolution grew in Europe by 54% in 2016, but between 2013 and 2017 the number of patents in deep learning and AI published in China grew at a much faster rate (notably also outstripping the USA).

Part of the problem is that Europe’s technology assets are scattered across different countries. The absence of a true single market for digital services creates Europe-wide barriers to the cross-border flows of data and the development of the 5G networks that form a core component of AI-capability. 

Whilst efforts to strengthen the digital single market are progressing, Brexit meant that a key European country took a different direction. London was Europe’s most important AI hub, with 1,000 AI companies, thirty-five tech hubs, and reputed research centers such as the Alan Turing Institute. It seems inevitable that the loss of its AI-leader will significantly impede Europe’s collective progress on AI.

European Collaboration

The continues improvement of AI requires close collaboration between industry, academia, and government to develop new solutions. These are actually things which Europe is traditionally good at, and which therefore could provide a strategic advantage. This is part of the reason that European companies are ahead of Chinese and American ones in the adoption of robotic process automation.  

Whilst as many AI journal and conference papers are published per year in China as in all of Europe; European AI researchers nonetheless  enjoy excellent scientific standing. Cross-border academic research teams in Europe creates opportunities for cross-pollination, whilst research clusters across Europe have the potential to help cross-pollination.

Initiatives such as the Nordic AI Artificial Intelligence Institute, the Benelux Association for Artificial Intelligence, and the Robot Technology Transfer Network seek to facilitate cross-pollination of European-wide AI-innovations and to better exploit Europe’s AI potential.

Europe’s AI Investment Landscape

The United States is by far the leader in AI-related investment and venture capital, with Europe lagging far behind. Whereas academic institutions within the USA conduct the majority of basic research, the private sector is extremely active in applying exploiting this research commercially. These same academic and private-sector players are also exceptionally good at attracting top global talent.

The situation in China is different, because Chinese AI startups benefit from very close ties with the government, which gives them access to huge amounts of public-sector funding and early-adopter institutions.  In the domain of facial recognition, Chinese startup CloudWalk received a $301 million grant from the Guangzhou Municipal Government in 2017, whilst Megvii raised $460 million in a round led by the Chinese government’s venture capital fund.

According to the European Commission, in 2016 Europe devoted €2.4bn to €3.2bn in AI-related investment funds, whereas Asia invested €6.5bn to €9.7bn and North America invested €12.1bn to €18.6bn. Private equity and venture capital firms have accounted for 75 percent of all AI-related deal volume in Europe in the last ten years, with the lions share of private AI investment being transacted within the UK.

Notably, many of Europe’s most successful digital companies—such as Skype(Estonia/Sweden), Shazam (UK) and Momondo (UK) have been acquired by American or Chinese tech giants, rendering Europe a net importer of digital services despite its significant levels of home grown innovation and its many digital startups.

Europe’s Innovation Prowess

Europe spends 0.8% of its GDP on R&D, which is less every year than the United States and 1.5% of GDP less than Japan.  Within the EU, innovation performance has increased substantially since 2011, but China is catching up fast with a growth rate for innovation performance that is three times that of the EU.  Canada, Australia, and Japan all perform better than the EU when it comes to innovation. This might explain why the EU is home to only 33 unicorn companies, compared to 151 in the United States and 83 in China.  

Europe’s private research, development, and innovation investments are also lagging behind, representing 1.3% of EU GDP compared to 1.6% in China, 2% in the United States, 2.6% in Japan, and 3.3% in South Korea. In 2018 R&D intensity (gross expenditures on R&D as a percentage of GDP) exceeded 2% for the first time in the EU, but this was mainly due to positive trends in Germany, Poland and, most notably, the UK, which has since left.

Europe’s AI Outlook

AI will play a major role in shaping global competitiveness and productivity. It will grant early adopters’ decades or even centuries of societal, economic, and strategic advantages. Europe is lagging behind the United States and China on many of the key dimensions of AI competitiveness; a situation that has been aggravated further by the departure of Europe’s largest AI-innovator and biggest destination for AI investment, the United Kingdom.

Europe’s biggest asset in the emerging AI revolution might not be in driving innovation or investments into AI, but in exploiting its first-mover advantage in establishing regulatory frameworks pertaining to the development and use of AI. AI has the potential to have negative impacts on societies, and the EU focus on responsible AI could give it some edge. But overall Europe is still punching far below its weight in the global race for AI supremacy.

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