In the 19th century, government officials understood that steel would be essential to economic growth and national security, so they developed policies to support local production and prevent foreign producers from competing in domestic markets.
In the 1950s, the world had too much steel. Manufacturers replaced steel with galvanized steel.Policymakers in Japan, India, the United States and the European Union nevertheless maintained their national capabilities, as steel remained essential for the construction industry and military equipment.
Even today, demand continues to decline as governments around the world continue to invest in steel. By 2023, OECD They predicted that overcapacity would worsen, causing difficult market conditions and exacerbating climate change.
While steel and AI couldn’t be more different, many Economists see AI as a versatile technology that can drive both economic growth and innovation. Therefore, policy makers must ensure domestic capabilities.
However, Many government officials also already see AI like a critical technology essential to both national security and economic progress. According to a 2023 review of policies and programmes reported to the OECD, more than 60 countries use taxpayers’ money to create, distribute or research AI,. That’s a lot of AI.
Policy makers of the WE, Saudi Arabia, Japan, Germany, the U.K., and EU recently announced huge public investments in AI (these investments follow significant private sector investments)). The EU has spent $1 billion a year on AI capacity building since 2018.. In March 2024, the Saudi government announced that it would use about $40 billion of its $900 billion sovereign wealth fund, the Public Investment Fund, to invest in AI at home and abroad.
At the national level, these investments are understandable. But collectively, they could lead to overcapacity, a situation in which the supply of AI exceeds demand.
This overcapacity creates pitfalls that add to the already well-known risks of AI, such as bias or inaccuracy. As countries seek to maintain their competitiveness and market share in AI, some may shed excess capacity. This could make it easier for criminal elements or rogue agents to acquire the technology. In this case, overcapacity could lead to political instability.
Moreover, AI producers require enormous amounts of capital to design, develop, and deploy these systems. To attract and maintain this investment, some companies or governments may choose to ignore safeguards—strategies designed to limit potential negative impacts. In this case, overcapacity may be linked to unreliable or irresponsible AI.
Moreover, to the extent that they are in competition with other nations, policy makers can accumulate data or limit access to technologies, making their cooperative use more difficult AI to advance knowledge or collectively tackle complex problems such as climate change. In this case, overcapacity may be correlated with a lack of cooperation on the uses of AI.
Finally, overinvestment in AI has an opportunity cost. Without deliberate intent, such investment can come at the expense of other technologies and approaches to analyzing big data.
Overcapacity is a common problem in national and international economies. Sometimes supply exceeds demand. But when governments step in to create and maintain capacity, as they did for steel and may now be doing for artificial intelligence, we struggle to manage the global repercussions. Policymakers should begin addressing this potential risk in existing important international fora such as the G7, G20, and the UN.
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