Over the past few months, there has been a historic rethinking of some of the core tenets of EU economic policy, as well as a shift in the European Commission’s approach to tech policy. While this shift towards industrial policy presents the opportunity to reimagine what Europe’s digital future could look like, in its current form, it also comes with risks and challenges. Positioned as a solution to the complex challenges facing the Union, public investments in large-scale Artificial Intelligence (AI) risk further entrenching the power of dominant incumbents, while undermining the EU’s environmental and climate goals. Europe must rethink its approach, and move towards tying public investments to societal goals, addressing concentrated power in the tech sector and ensuring innovation aligns with public interest.
Europe finds itself at a critical juncture. Its economic outlook remains uncertain, exacerbated by a cost-of-living crisis, growing geopolitical tensions, the aftershocks of COVID-19 supply shortages and an energy crisis caused by Russia’s ongoing war against Ukraine.
Despite numerous lawsuits, cases and major court rulings against Big Tech, Europe has largely failed to meaningfully intervene in the lopsided and heavily concentrated global tech sector. Meanwhile, a rise of far-right political parties in key Member States challenges some of the core principles of the European project: the idea of an ‘ever closer union’, democratic norms, fundamental rights and the rule of law. The election of Donald Trump in the United States adds the spectre of significant tariffs, fears of a less dependable transatlantic partner on security and global norms, and the unpredictability that comes with a populist ‘America First’ administration.
Against this backdrop, the pressure is on for the new European Commission to deliver – not just on economic growth and prosperity, but on securing a more independent and competitive place in the world that could make the EU more resilient against future shocks.
Over the past few months, we have seen nothing less than a historic rethinking of some of the core tenets of EU economic policy, as well as a shift in the European Commission’s approach to tech policy. From von der Leyen’s political roadmap to the Draghi report, the tune of the hour is massive investments to boost the Union’s competitiveness, especially vis-à-vis the United States and China.
In the analysis of Europe’s decline and the narrative of its possible resurrection, AI has risen to the front stage of policy. Europe’s position as a laggard in the AI “race” has become a symbol for the continent’s real and perceived lack of competitiveness and digital sovereignty, especially compared to the US and China. At the same time, AI’s potential is situated as central to a whole range of complex problems the continent is facing: the climate crisis, slowing economic growth and deteriorating public services.
For Green and left-of-centre political parties, this shift presents both opportunities and significant pitfalls. Let’s start with the opportunities.
The opportunity: tying social and environmental conditionalities to industrial policy
Europe’s shift towards industrial policy, and the prospect of mobilising billions of euros, is an opportunity to reimagine what Europe’s digital future could look like – if done well. Public investments could create the conditions for alternative innovation trajectories to emerge, outside the narrow constraints set by a digital and AI market that is heavily dominated by a handful of US tech incumbents. Public investments are also useful, because transformative and long-term investments, such as public digital infrastructure, do not easily fit the short-term nature and rapid scalability imperative underlying tech’s dominant venture capital funding model, which typically directs funding at readily commercialisable products, such as software and products, not long-term infrastructure.
More immediately, Europe’s nascent industrial policy strategy is also an opportunity to inject values and broader societal goals into the economy. The 2022 US CHIPS Act, for instance, included not just environmental, but also social conditionalities, but the Department of Commerce also required companies applying for $150 million or more in CHIPS grants to submit plans to provide child care for manufacturing and construction workers.
Past EU ventures into industrial policy, most notably the European Chips Act, failed to include social, environmental or redistributive conditions on the public subsidies granted, as investigations done by Margarida Silva and Jeroen Mer from the Centre for Research on Multinational Corporations show. Not only was the public excluded from the negotiations, the ability to scrutinise the resulting agreements was also severely limited.
Public funding or access to other public resources (including land, water and energy) must be attached to conditions that guarantee outcomes that serve the broader public interest. This includes accountability, climate and labour conditionalities and standards. Conditionalities must be crafted through participatory processes that involve civil society, trade unions and affected communities, with guaranteed transparency into their implementation. A reform of public procurement, allowing public authorities to choose vendors not merely based on the lowest offer, is another avenue through which the EU can more proactively shape the digital economy, as Kim van Sparrentak has suggested.
The challenge: industrial policy in an inflated and highly concentrated market
While the shift to industrial policy presents opportunities, the outsized emphasis placed on large-scale AI poses some existential challenges, including for Green and left-of-centre political parties. First and foremost, the environmental impact of large-scale AI.
In European policy discussions, investing in AI is often framed as a necessity to achieve Europe’s climate goals, either directly by using ‘AI for good’ to fight climate change, or indirectly by securing the prosperity Europe needs to fund the ‘green transition’. In reality, the current trajectory of large-scale AIs has serious climate impacts that might stand in irreconcilable tension with Europe’s environmental and green transition goals. In this context, positioning AI as a climate solution is not just misleading – it also distracts from an urgent policy priority, allowing unsustainable and inequitable systems to thrive while delaying crucial policy actions.
Beyond the environmental impact of large-scale AI, bigger questions loom about whether investments in large-scale AI can in fact deliver the kind of economic growth, productivity gains and increased efficiency that the European Commission hopes for (the evidence base remains mixed). The proposed investments are not only meagre compared to what Big Tech is spending, but the European Commission’s emerging industrial strategy on AI also fails to account for Big Tech’s stronghold across the AI technology stack.
As a result, Europe’s AI market presents a complex landscape: with giants in control of chips, cloud infrastructure, talent and often data, nascent European AI companies have had to adapt, many shifting their focus from high-capital model training to downstream applications. Any vision for the values and goals that should drive Europe’s industrial strategy on AI needs to seriously wrestle with concentrated power and the entanglements within the AI ecosystem. Without doing so, there is a real risk that public money will end up primarily flowing toward the companies that already dominate the market.
When it comes to hopes that AI adoption will increase productivity and efficiency in the EU economy, an evidence-based approach is needed. Incentivising blanket AI adoption in the public sector, in particular, could contribute to a hollowing out of the state, a waste of public funds, single points of failure and rights abuses, especially when deployed in risky contexts or in ways that are incompatible with AI’s inherent limitations. Pressures to invest in defence, paired with an outsized emphasis placed on AI, deserve special scrutiny.
Where to go from here: Europe needs a clear public interest vision for AI
Rather than pit innovation against regulation, industrial policy investments should move in tandem with bold regulatory enforcement, with the goal of shaping innovation in the public interest. At a minimum, industrial policy should be designed so that it doesn’t worsen the concentrations of power in the AI stack by funnelling public money to companies that already dominate the market. Ideally, industrial policy presents an opportunity to tie subsidies, investments and public procurement to broader societal missions.
At a time when the European Central Bank is warning of potential global financial instability and an AI asset price bubble, Europe needs a clear-eyed view, and a much sharper vision on the role that large-scale AI, in particular, can and should play in Europe’s digital future.
This article draws from Frederike Kaltheuner, Leevi Saari, Amba Kak and Sarah Myers West, eds., “Redirecting Europe’s AI Industrial Policy: From Competitiveness to Public Interest”, AI Now Institute, October 2024
The views and opinions in this article do not necessarily reflect those of Heinrich-Böll-Stiftung European Union.
