AI and the New Digital Cold War

We are entering a new world order, one marked by increased nationalism and greater geopolitical competition. While countries are not going to undo all of the global economic systems that took shape under American unipolarity for the past three decades, certain critical sectors will become decoupled in a process we have previously referred to as “re-globalization.”

Most significantly, the technology ecosystem will be split largely into two spheres dictated by the world’s two economic powerhouses, the United States and China. Other states will need to decide which sphere they want to be part of, putting pressure on the United States and China to outpace the other and establish their technological dominance. Unfolding before us is a heightened form of economic competition we understand as the “Digital Cold War.”

The Digital Cold War will be an economic war, with technological innovations increasingly determining geopolitical prowess. Artificial intelligence (AI), with its capacity to rapidly and radically transform society, will be the most decisive technology in this arena. AI feeds on information, and its most powerful use cases will emerge through its applications across public and private sectors. For the democratic world to pull ahead, companies and countries need to adopt a new approach that prioritizes collaboration and transformation over competition and disruption.

A New Era of Democratic Coordination

Everywhere we are seeing claims that “globalization is dead.” Such declarations are fundamentally misguided. The system we are moving toward is more complicated than a reversion of global interconnection. In many cases, trade is simply being rerouted rather than shut down. Most commercial industries will remain open and global, but certain critical sectors will turn inward, toward localized supply chains.

This trend began not with the United States and its policies but rather with Xi Jinping and his 2015 Made in China plan, which made clear that the Chinese government had begun prioritizing national resilience over market efficiency. Xi laid out a plan to outcompete the United States and other global powers in the commanding areas of the economy, most of all high technology. Indeed, China continues to march towards its goal of 70% self-sufficiency in critical technology by 2025. Since then, the United States has responded with its own series of ambitious measures to retain technological supremacy. This reality leads us into a bipolar high technology future.

When it comes to AI — arguably the most decisive technology in this global contestation — we are heading toward two hermetically sealed ecosystems: one that supports open systems but is also associated with democracy, privacy, and individual rights, versus one that supports state control, information-flow restriction, and politically imposed limits on openness. As much as we might hope that China’s political model will evolve and that its technology will be subject to democratic feedback, we should not be naïve: That is not the trajectory that it is on. For a future to prevail that prizes openness and individual rights, democratic nations need to be market leaders in AI. The only way to ensure this is by promoting international collaboration, especially between democracies and other defenders of the rules-based order.

In the previous era, the United States could innovate on a technology and other countries would simply adopt it. When American technology leaders made groundbreaking advancements with personal computers and the internet, they operated under the assumption that American companies could work in isolation and spread their technologies across the world in a top-down fashion. The cloud revolution amplified this further, with Amazon, Microsoft, and Google owning 65% of the global market for cloud computing. This strategy may have worked when technologies were intended for pure disruption. AI, however, is geared for societal transformation. This requires a new kind of collaboration across stakeholders.

Along with computing capabilities, the power of AI is based on the amount of aggregated data that is fed to it. This means that the United States, or any country, working in isolation with restricted data flows will fail to maximize the potential of its technology — and yet data localization policies doubled worldwide from 2017 to 2021, further obstructing cross-border collaboration. The summation of human knowledge and capabilities is not siloed in any one country or culture. Even Wikipedia’s knowledge base is only 11% in the English language. For AI to thrive in its ability to help us solve our hardest problems, we have to unlock the world’s capacity — from French nuclear scientists to Korean philosophers, from Indian researchers to Kenyan artists, and indeed to Chinese researchers who choose to leave China and work and live in the West.

Plus, the capital requirements for investments in the sector are so large at present that very few national markets are big enough to succeed with AI on their own. For example, consider investment in semiconductors — a key input into AI progress. The U.K.’s recently announced 100 million GBP AI plan and 1 billion GBP semiconductor investment pale in comparison to the U.S.’s $280 billion and the EU’s 43 billion EUR chips packages — and even these packages are constrained compared to the scale of the investment required to fully develop these technologies. Certainly, few investors globally can support fundraising rounds for startups like the one-year-old Inflection AI’s $1.3 billion round.

At the center of this all, a disjointed approach with various patchworks of regulatory frameworks across the West will harm any ability to compete and win against Chinese AI systems. It is not just a function of population, but a function of data points. Chinese society, with a population more than four times larger than the U.S.’s,  has become so digitized with data freely shared between its government and domestic technology champions. Soon their models, based largely on American and foreign research, can leapfrog the capabilities of those in the West.

With its size, centralized government, and inroads in other countries, China has the potential to develop one comprehensive AI model that outcompetes the multiplicity of models coming out of democratic nations if there is no international coordination. While the United States is still the AI leader — with the companies that are doing the most cutting-edge research — and while AI seems to have a bias toward open systems with unfettered access to information, the United States risks losing its edge if it fails to coalesce around a uniform strategy with other democratic nations. If this were to happen, Chinese companies could bring their technology to Western markets, influencing democratic politics and signaling to the world China’s economic dominance — and its broader colonization of digital infrastructure around the world.

AI is becoming an increasingly critical part of this global infrastructure, and the West must act swiftly and in a unified fashion to ensure the technology remains open and democratically controlled. To develop the most powerful AI models across sectors, the United States will need to collaborate with other allied countries — to name a few, India, Singapore, Japan, South Korea, and European nations — by adopting data-sharing policies and encouraging the co-creation of technological innovations. Much can be gleaned from the European Data Governance Act approved by the EU in 2022, which facilitates data-sharing across member countries to maximize benefits for its citizens and businesses.

Failure to course correct will severely limit the impact of AI. For models tackling climate change, siloed data is an immediate death sentence. Medical and healthcare data and innovations are not limited to any one country, nor any one research institution. Industrial AI powering global supply chains cannot be effective without the constant flow of interconnected data. In consumer applications, varying copyright frameworks would stymie cultural relevance and influence, favoring those with free access to data over others. Moreover, piecemeal data regulation and sovereignty requirements raise compliance costs and complexity, harming the innovation economy’s ability to succeed. This is not to suggest that governments should abstain from regulating AI, but rather that they should work together to establish uniform standards and practices across countries. Coordination among democratic nations will empower each country to individually feel resilient when it comes to AI, but also elevate the West as a bloc to be the leader in AI.

Responsible Innovation for AI Transformation

In addition to collaborating across states, if Western companies want to become true market leaders, they will also need to collaborate within states, namely with governmental institutions and civil society. While most of the current discourse surrounding AI focuses on large language models and other generative capabilities, AI’s most significant long-term impacts will come from the ways in which it transforms industries and society as a whole. And genuine transformation cannot come about if private actors are disconnected from the wider society.

Already we are seeing AI’s transformative potential beginning to take shape. AI has the capacity to massively level the playing field for who has access to information and insights. In the classroom, AI can give individualized attention to students who have never had access to those resources before. In the workplace, AI can free up workers from monotonous tasks like patient data entry in hospitals so they can focus on higher level problems. AI also has the ability to spot things we cannot. Take drug discovery, where AI can test millions of combinations of drugs solving for conditions we can’t yet treat. Or medical imaging, where AI can spot diseases much earlier than we have before. Or climate change, where AI can outperform existing prediction models and capture the chances of rare but deadly disasters for vulnerable populations. In defense technology, where perhaps the stakes are greatest, AI can bring clarity to the fog of war and enhance deterrence against acts of aggression. But none of this is guaranteed. Just as AI offers enormous opportunities, it also presents substantial risks.

A lot of recent attention has fixated on the existential threat AI could pose to humanity in the somewhat distant future. But AI is also destabilizing democratic systems in the here and now, providing new avenues for mis- and dis-information through sophisticated bots and realistic deep-fakes. AI will also throw into question the value of democracy itself. What happens when authoritarian systems, augmented by AI, can outperform their democratic counterparts, for instance by massively reducing crime with expanded surveillance? Or by providing vastly better healthcare because of access to centralized information with no restrictions for privacy? Undemocratic alternatives will only become more tempting as AI develops, and these possibilities are not too far off.

We are at a fork in the road when it comes to AI. We can go down the path that leads to automation and destruction, replacing human work and meaning, or we can go down the path that leads to copiloting and enablement, making us more productive, helping us live more balanced lives, and becoming greater masters of our craft. Unlike the social media revolution, which, if regulators really wanted to, they could have slowed or redirected, the AI revolution can only charge forward. Unlike previous platform revolutions, this is a technological revolution, and its mantle has already been picked up by stakeholders across society.

The most successful companies will be those that embrace this forward-looking vision and build to endure, by centering a core set of values that align with society and abide by self-regulatory mechanisms. Taking the further step of partnering with the public sector and incumbent ecosystems is also crucial. We cannot risk AI going awry and putting democracies off track in this competitive race. Since the impacts of AI will be felt across every sector of society, accounting for broad stakeholder interests is both a moral responsibility and the only way to bring about sustainable transformation. In the age of AI, companies will need to pursue an agenda of responsible innovation, working outside of the usual technological silos.

To win the Digital Cold War, the United States and its allies must be the market leaders in AI. And to build the best AI companies, they need to prioritize international collaboration and engender a new mindset — one that aims to innovate responsibly and unleash human potential.

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