The AI Advantage of Nations in the Fourth Industrial Revolution

By Juergen Braunstein and Marion Laboure - 17 April 2018
The AI Advantage of Nations in the Fourth Industrial Revolution

Like revolutions in the past the on-going AI revolution will produce winners and losers. The first industrial revolution in the 18th century changed the world of production and paved the way for Britain’s global leadership. Similarly, the current digital revolution is redefining the service sector and China’s role in the world.

What is artificial intelligence and why it matters? AI refers to the simulation of human intelligence behavior by computer systems. These processes include learning (information acquisition and information rules), reasoning (reaching approximate or definite conclusions thanks to rules to), and self-correction. AI will impact our lives (both leisure and work) and all industries with the most common applications being expert systems, speech recognition and machine vision. 

AI will be most disruptive in the service sectors. In OECD countries service sector account for more than 60% of the total gross value added. As such the country which will lead the AI revolution will be shaping the world economy. Every technology revolution over the last three centuries has shaped the rise and decline of nations and firms.

Last year, the Chinese government unveiled a plan to become the world AI leader by 2030. Three out of the top 5 most valuable unicorns are in China: Ant Financial leading the top by far valued at $60 billion, Didi Chuxing (at $56 bn) and then Xiaomi ($45 bn). China’s largest firms in terms of market capitalization are (No1) Tencent Holdings ($277.1bn), (No2) Alibaba ($264bn), No 3 ICBC $229.8bn, No 4 Petro China $204.dbn, Baidu ($59.9bn) and Netease ($36.8b).

While Former Industrial Revolutions Were Led By Western Economies...

Abundant cheap coal combined with a supportive institutional environment were critical conditions for advancements in mechanisation in the late 18th century. This together with financial reforms has led to the emergence of a stock market and joint stock companies and the first large factories, such as the Marshall Mill in Leeds.

The Second Industrial Revolution was increasingly led by the United States and characterised by mass production. This was facilitated by the invention of the combustion engine and access to electricity, telegraph, production lines and to the emergence of world re-known companies in the transport (e.g. Ford, Goodyear) and energy sector (e.g. Exxon Mobile, Edison International).

The Third Industrial revolution – mid-20th century – under the leadership of the US has been characterized by automatization and computerisation. Favourable conditions such as deep capital markets and property rights (creation of World Intellectual Property Organization in 1960s) facilitated the global expansion or creation of firms like IBM Microsoft, Apple and Google.

… The Forthcoming Artificial Intelligence Revolution May Look Chinese...

The lead of China is likely to persist and reinforce. A combination of cultural and social factors together with abundance of capital puts China in a pole position to lead the AI revolution. 

Machine learning, as an approach to achieve artificial intelligence, needs data. By definition, machine learning requires vast amount of data to learn from. The readily available data becomes a great advantage for Chinese technology firms to develop their artificial intelligence programs.

This is good news for Chinese technology firms. The lack of data privacy gives China’s tech giants an advantage in developing AI programs, compared to their Western counterparts. This is evident in Alibaba’s controversial attempt of collecting consumer data to construct a credit score system, which can potentially feed into Alibaba’s lending practices via machine learning techniques.    

Key elements of the fourth industrial revolution (i.e. information and data) are related to the sensitive topics of privacy and individual rights. Non-Western countries’ perceptions on individual freedoms and privacy often differ from those of Western liberal democracies. This situation produces a lot of AI Angst among Western policy makers and security experts. Seeing China as the leading country in AI does not mitigate this angst among Western countries, especially the US. Increasing number of experts and policy makers in the US consider restricting Chinese investments into strategic US AI firms.



Juergen Braunstein is a research fellow at the Harvard Kennedy School’s Belfer Center. 

Marion Laboure, former economist at the Luxembourg Central Bank, European Commission, and Barclays, is an associate of the Department of Economics at Harvard University.

Image credit: Linus Bohman via Flickr (CC BY 2.0)

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