EC – Technology Liberation Front https://techliberation.com Keeping politicians' hands off the Net & everything else related to technology Wed, 14 Dec 2022 20:59:51 +0000 en-US hourly 1 6772528 Why the Future of AI Will Not Be Invented in Europe https://techliberation.com/2022/08/01/why-the-future-of-ai-will-not-be-invented-in-europe/ https://techliberation.com/2022/08/01/why-the-future-of-ai-will-not-be-invented-in-europe/#comments Mon, 01 Aug 2022 18:28:40 +0000 https://techliberation.com/?p=77016

For my latest column in The Hill, I explored the European Union’s (EU) endlessly expanding push to regulate all facets of the modern data economy. That now includes a new effort to regulate artificial intelligence (AI) using the same sort of top-down, heavy-handed, bureaucratic compliance regime that has stifled digital innovation on the continent over the past quarter century.

The European Commission (EC) is advancing a new Artificial Intelligence Act, which proposes banning some AI technologies while classifying many others under a heavily controlled “high-risk” category. A new bureaucracy, the European Artificial Intelligence Board, will be tasked with enforcing a wide variety of new rules, including “prior conformity assessments,” which are like permission slips for algorithmic innovators. Steep fines are also part of the plan. There’s a lengthy list of covered sectors and technologies, with many others that could be added in coming years. It’s no wonder, then, that the measure has been labelled the measure “the mother of all AI laws” and analysts have argued it will further burden innovation and investment in Europe.

As I noted in my new column, the consensus about Europe’s future on the emerging technology front is dismal to put it mildly. The International Economy journal recently asked 11 experts from Europe and the U.S. where the EU currently stood in global tech competition. Responses were nearly unanimous and bluntly summarized by the symposium’s title: “The Biggest Loser.” Respondents said Europe is “lagging behind in the global tech race,” and “unlikely to become a global hub of innovation.” “The future will not be invented in Europe,” another analyst bluntly concluded.

That’s a grim assessment, but there is no doubt that European competitiveness is suffering today and that excessive regulation plays a fairly significant role in causing it. As I noted in my column, “the EU’s risk-averse culture and preference for paperwork compliance over entrepreneurial freedom” had serious consequences for continent-wide innovation.  I note in my recent column how:

After the continent piled on layers of data restrictions beginning in the mid-1990s, innovation and investment suffered. Regulation grew more complex with the 2018 General Data Protection Regulation (GDPR), which further limits data collection and use. As a result of all the red tape, the EU came away from the digital revolution with “the complete absence of superstar companies.” There are no serious European versions of Microsoft, Google, Facebook, Apple or Amazon. Europe’s leading providers of digital technology services today are American-based companies.

Let’s take a look at a few numbers that illustrate what’s happened in Europe’s tech sector over the past quarter century. Here’s an old KPGM breakdown of market caps for public Internet companies over an important 20 year period, from 1995 to 2015, when the digital technology marketplace was taking shape. Besides the remarkable amount of churn over that period (with only Apple appearing on both lists), the other notable thing is the complete absence of any European companies in 2015.

Next, here’s a chart I constructed using CB Insights data for global unicorns ($billion valued companies) from 2010 up through early 2022. It shows how the U.S. dominates fully half the list with China having a 16% share, but all of the European Union’s firms equal just a 9 percent slice of the world’s share.

If you want to see a per capita breakdown of VC investment by country, here’s a handy Crunchbase News chart. While the U.S. is geographically much larger than Europe, a breakdown of VC funding on a per capita basis reveals that only Estonia ($915B) and Sweden ($700B) have startup investment on par with America ($808B). No other European country has even half as much per capita VC investment as the U.S., and most don’t even have a quarter as much.

As we enter the “age of AI,” what will the EU’s same regulatory model for mean for AI, machine learning, and robotics in Europe? We do have some early data on that, too. Here’s a breakdown of AI-related VC activity and AI unicorn in 2021 from the recent State of AI Report 2021, with European countries already trailing far behind:

Also, here’s some data on recent AI investment by region from the latest Stanford “AI Index Report 2022” which again highlights a gap that is only growing larger:

It’s important to listen to what actual AI innovators across the Atlantic have to say about the new EU regulatory efforts. Just last month, the UK-based Coalition for a Digital Economy (Coadec), an advocacy group for Britain’s technology-led startups, published a report entitled, “What do AI Startups Want from Regulation?” Coadec surveyed its members to gauge their feelings about the EU’s proposed approach to AI regulation, as well as the UK’s. 76% of those startups said that their business model would be either negatively affected or become infeasible if the UK were to echo the EU by making AI developers liable, and an equal percentage said they had varying concerns about whether it’s technically even feasible to make their datasets “free of errors,” as the EU looks set to demand. Respondents also said they feared that the new AI Act would be particularly burdensome to small and mid-size entrepreneurs because they cannot afford to deal with the costly compliance hassles like the larger competitors they face. This would end of being a replay of the burdens they faced from GDPR, which decimated small businesses. “The experience of GDPR demonstrated how unclear, complex and expensive regulations drove many startups out of business, and disproportionately impact startups that survived–GDPR compliance cost startups significantly more than it did the Tech Giants,” the Coadec report concluded.

At least those UK-based innovators might be in a slightly better position post-Brexit with the British government now looking to chart a different–and much less burdensome–governance approach for digital technologies. In fact, the UK government recently released a major policy document on “Establishing a Pro-Innovation Approach to Regulating AI,” which makes a concerted effort to distinguish its approach from the EU’s. “We will ask that regulators focus on high risk concerns rather than hypothetical or low risks associated with AI,” the report noted. “We want to encourage innovation and avoid placing unnecessary barriers in its way.” This is consistent with what the UK government has been saying on technology governance more generally. For example, in recent report advocating for Innovation Friendly Regulation, the UK government’s Regulatory Horizons Council argued that, when it comes to the regulation of emerging technologies like AI, “it is also necessary to consider the risk that the intervention itself poses.” “This would include the potential impact on benefits from a particular innovation that might be foregone; it would also include the potential creation of a ‘chilling effect’ on innovation more generally,” the Council concluded. Clearly, this approach to technology policy stands in stark contrast to the EU’s heavy-handed model. So, there is a chance that at least some innovators based in the UK can escape the EU’s regulatory hell.

What about AI innovators stuck on the European continent? What are they saying about the regulations they will soon face? The European DIGITAL SME Alliance, which is the largest network of small and medium sized enterprises (SMEs) in the European ICT sector, represents roughly 45,000 digital SMEs. In comments to the EC about the impact of the law, the Alliance highlighted how costly the AI Act’s conformity assessments and other regulations will be for smaller innovators. “This may put a burden on AI innovation” the Alliance argued, because smaller developers have limited financial and human resources of SMEs.” “[A] regulation that requires SMEs to make these significant investments, will likely push SMEs out of the market,” the group noted. “This is exactly the opposite of the intention to support a thriving and innovative AI ecosystem in Europe.” Moreover, “SMEs will not be able to pass on these costs to their customers in the final customer end pricing,” the Alliance correctly noted because, “[t[he market is global and highly competitive. Therefore, customers will choose cheaper solutions and Europe risks to be left behind in technology development and global competition.”

In March, the Alliance also hosted a forum on “The European AI Act and Digital SMEs,” which featured comments from some operators in this space. Some speakers were quite timid and you could sense that they might have feared pushing back too aggressively against the European Commission so as not to get on the bad side of regulators before the rules go into effect. But Mislav Malenica, Founder & CEO Mindsmiths didn’t pull any punches in his remarks. His company Mindsmiths is trying to build autonomous support systems in many different fields, but their ability to innovate and compete globally will be severely curtailed by the EU AI Act, he argued.

I usually don’t spend time transcribing people’s comments from events, but I went back and watched Malenica’s multiple times because his remarks are so powerful and I wanted to make sure others hear what he was saying. [Malenica’s opening comments during the event run from 42:29 to 49:34 of the video and then he has more to say during Q&A beginning at the 1:27:28 of the video.] Here’s a quick summary of a few of Malenica’s key points (listed chronologically):

  • “I’m not sure we are doing everything we can do actually to create an environment that’s innovation friendly.”
  • “we see a lot of uncertainty. We see fear.”
  • “basically we won’t be able to get funding here.”
  • while reading through the AI Act, he notes, “I don’t see start-ups being mentioned anywhere, and startups are the main vehicles of innovation.” […] “I find it very arrogant”
  • if AI Act becomes law, “what we’ll do in Europe is we’ll create a new market and that’s the AI markets based on fear,” and in how to just build products that avoid the wrath of government or lawsuits.
  • “we are really stifling innovation” and that means Europeans will have to import autonomous products from foreign companies instead of making them there.

Later, during in the Q&A period, Malenica notes how his first virtual currency startup had to use half it’s investment capital just dealing with regulatory compliance issues, and most venture capitalists wouldn’t get behind launching in Europe because of such legal hassles. He reflects upon what this mean for other innovators going forward as the EU prepares to expand their regulatory regime for AI sectors:

  • “I don’t think we’re missing talent. That’s just a consequence” of all the regulation. “We are missing a sense that you have opportunities here. If you the opportunities here, then the talent will come, the funding will come, and so on because people see that they’ll be able to make money, they’ll be able to build companies, and so on.”
  • “If we now take a look at the 10 biggest companies market capitalizations in the world, we’ll see that none of them comes actually from Europe” with U.S. tech companies dominating the list. “So, we missed that wave completely.” Why? “Because we didn’t inspire anyone to take action,” and that is about to happen for AI.
  • “We need to decide if we are going to be a land of opportunities, or will we be just consumers of other people’s tech, the same we are right now” for digital software and services.
  • “We’re already finding excuses for the loss” of the AI market, he argues.

Malenica’s comments are extraordinarily demoralizing if you care about innovation. Now, I’m an American and one way to look at this dismal situation is that, by hobbling its own startups and existing AI innovators, Europe is doing the U.S. another favor by essentially taking itself out of the running in next great global tech race. Europe’s actions may also mean that America gains many of their best and brightest if they come to the U.S. when looking to create the next great algorithmic service or application because they can’t do so in the EU. This is exactly what happened over the past few decades for Internet startups, Malenica noted.

But that’s dismal news in another sense. Europe is filled with brilliant innovators, highly-skilled talent, world-class educational institutions, and even many venture capitalists looking to invest in this arena. Unfortunately, the continent’s suffocating regulatory approach makes it nearly impossible for digital technology innovators to have a fighting chance. Through their heavy-handed policies, European officials have essentially declared their innovators “guilty until proven innocent.” And that means that Europeans and the rest of the world are being deprived of many important life-enriching and life-saving AI applications that those innovators could create. Technological innovation is not a zero-sum game that only one country can “win.” Innovation drives growth and prosperity and lifts all boats as its benefits spread throughout the world. When European innovators prosper, people all over the world prosper along with them.

Is there any chance the European Commission softens its stance toward emerging technologies and looks to adopt a more flexible governance approach that instead treats AI innovators as innocent until proven guilty? I think it is extremely unlikely that will happen because, as Malenica noted, European technology policy is too rooted in fear of disruption and extreme risk-aversion. EU officials are forgetting that the most important lesson from the history of technological innovation is there can be no progress without some risk-taking and corresponding disruption. My favorite quote about the relationship between risk-taking and human progress comes from Wilbur Wright who, along with his brother, helped pioneer human flight. “If you are looking for perfect safety,” Wright said, “you would do well to sit on a fence and watch the birds.” European policymakers are essentially forcing their best and brightest innovators to sit on the fence and watch the rest of the world fly right past them on the digital technology and AI front. The ramifications for the continent will be disastrous. Regardless, as I noted in concluding my recent Hill column, Europe’s approach to AI “shouldn’t be the model the U.S. follows if it hopes to maintain its early lead in AI and robotics. America should instead welcome European companies, workers and investors looking for a more hospitable place to launch bold new AI innovations.”

Alas, European officials appear ready to ignore the deleterious impact of their policies on innovation and competition and instead make regulation their leading export to the world. In fact, the European Commission will soon open a San Francisco office to work more closely with Silicon Valley companies affected by EU tech regulation. European leaders have basically surrendered on the idea of home-grown innovation and are now plowing all their energies into regulating the rest of the world’s largest digital technology companies, most of which are headquartered in the United States. It’s no wonder, then, that The Economist magazine concludes that, “Europe is the free-rider continent” that “has piggybacked on innovation from elsewhere, keeping up with rivals, not forging ahead.” Instead, “the cuddly form of capitalism embraced in Europe has markedly failed to create world-beating companies,” the magazine argues.

European officials want us to believe that they are somehow doing the world a favor by being its global tech regulator, when instead the are simply solidifying the power of the largest digital tech companies, who are the only ones with enough resources–mainly in the form of massive legal compliance teams–to live under the EU’s innovation-crushing regulations. Sadly, many US policymakers hate our own home-grown tech companies so much now, that they are willing to let this happen. In a better world, those American lawmakers would stand up to European officials looking to bully tech innovators and we would reject the innovation-killing recipe that the EU is cooking up for AI markets and expects the rest of the world to eat.


Additional Reading on AI & Robotics:

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Neelie Kroes & Privacy By Design vs. Privacy by Default https://techliberation.com/2011/06/21/neelie-kroes-privacy-by-design-vs-privacy-by-default/ https://techliberation.com/2011/06/21/neelie-kroes-privacy-by-design-vs-privacy-by-default/#comments Tue, 21 Jun 2011 21:18:54 +0000 http://techliberation.com/?p=37406

The European Commission has a new report out today on “Implementation of the Safer Social Networking Principles for the EU.” It’s a status report on the implementation of “Safer Social Networking Principles for the EU“, a “self-regulatory” agreement the EC brokered with 17 social networking sites and other online operators back in 2009. (Co-regulatory would be more accurate here, since the EC is steering, and industry is simply rowing.) The goal was to make the profiles of minors more private and provide other safeguards.

Generally speaking, the EC’s evaluation suggests that great progress has been made, although there’s always room for improvement. For example, the report found that “13 out of the 14 sites tested provide safety information, guidance and/or educational materials specifically targeted at minors;” “Safety information for minors is quite clear and age-appropriate on all sites that provide it, good progress since the first assessment last year; “Reporting mechanisms are more effective now than in 2010;” and most sites have improved Terms of Use that are easy for minors to understand and/or a child-friendly version of the Terms of Use or Code of Conduct; and many “provide safety information for children and parents which is both easy to find and to understand.” Again, there’s always room for improvement, but the general direction is encouraging, especially considering how new many of these sites are.

Unfortunately, Neelie Kroes, Vice President of the European Commission for the Digital Agenda, spun the report in the opposite direction. She issued a statement saying:

I am disappointed that most social networking sites are failing to ensure that minors’ profiles are accessible only to their approved contacts by default. I will be urging them to make a clear commitment to remedy this in a revised version of the self-regulatory framework we are currently discussing. This is not only to protect minors from unwanted contacts but also to protect their online reputation. Youngsters do not fully understand the consequences of disclosing too much of their personal lives online. Education and parental guidance are necessary, but we need to back these up with protection until youngsters can make decisions based on full awareness of the consequences.

This position is misguided, as explained below. But here’s the crucial point: What this Kroes statement once again proves is that, ultimately, every major public policy debate about online privacy and child safety comes down to a question of where to set the defaults and who should set them. Rarely, however, do policymakers or regulatory advocates acknowledge the downsides associated with mandating highly restrictive defaults from the top down.

Back in 2008, I penned a paper on “The Perils of Mandatory Parental Controls and Restrictive Defaults” in which I argued that, “Government regulation mandating restrictive parental control defaults for media devices would likely have unintended consequences and would not achieve the goal of better protecting children from objectionable content, whereas increased consumer education efforts would be more effective in helping parents control their child’s media consumption.” The general point was that if government defaulted all sites and/or devices to be in a “locked-down” state right out of the gates, it would mean products and services would, in essence, be shipped to market in a crippled state.  This would have a variety of unintended consequences, including consumer confusion and such restrictions would discourage the maximum amount of utility / experimentation associated with those products and services.

The same is true of highly restrictive privacy defaults. How are you even to network with others and make new friends if everything is private by default? Worst of all is the fact that the EC seems to want websites to make it practically impossible for minors to even search for each other. That’s increasingly how users of all ages connect with their real world acquaintances, for whom they may have no other contact information. Isn’t the point of social networking to be social and share more? If a child or a parent doesn’t like that openness, why isn’t it sufficient that they be empowered to change that setting on their own?  Why must the law mandate it by default and tell them what is supposedly best for them?

Nicklas Lundblad & Betsy Masiello made a similar point in their important recent essay on “Opt-In Dystopias.” They noted that more formal opt-in consent models may involve many trade-offs and downsides that need to be considered relative to opt-out models, which are currently more prevalent online. “The decisions a user makes under an opt-in model are less informed” they argue, because “the initial decision to opt-in to a service is made without any knowledge of what value that service provides,” and, therefore, “under an opt-in regime a decision can probably never be wholly informed.” They continue: “If instead of thinking about privacy decisions as requiring ex-ante consent, we thought about systems that structured an ongoing contractual negotiation between the user and service provider, we might mitigate some of these harmful effects.”

The crucial point here is that choice should lie with the consumer and not be set from above. Companies should empower the consumer — including kids — with more and better tools and then let them decide what their privacy settings should be. Government need not “nudge” consumers or companies in paternalistic ways based upon the values of unelected bureaucrats. Most importantly, policymakers should not not conflate “privacy by design” with privacy by default. Let experimentation continue and let consumers make these determinations for themselves.

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The Conflict Between a “Right to Be Forgotten” & Speech / Press Freedoms https://techliberation.com/2010/11/05/the-conflict-between-a-right-to-be-forgotten-speech-press-freedoms/ https://techliberation.com/2010/11/05/the-conflict-between-a-right-to-be-forgotten-speech-press-freedoms/#comments Fri, 05 Nov 2010 17:46:30 +0000 http://techliberation.com/?p=32862

A report in the U.K. Telegraph notes that the European Union is seeking to create a so-called “right to be forgotten” online, and has “drafted potential legislation that would include new, unprecedented privacy rights for citizens sharing personal data.” Details are sparse at this point, but according to this new 20-page European Commission document, “A Comprehensive Approach on Personal Data Protection in the European Union,” the EU will be:

clarifying the so-called ‘right to be forgotten’, i.e. the right of individuals to have their data no longer processed and deleted when they are no longer needed for legitimate purposes. This is the case, for example, when processing is based on the person’s consent and when he or she withdraws consent or when the storage period has expired. (p.8)

Two brief comments on this.  First, it should be apparent that any “right to be forgotten” conflicts mightily with free speech rights and press freedom. As I discussed at greater length in this review of Solove’s Understanding Privacy as well as my essay on “Two Paradoxes of Privacy Regulation,” the problem with enshrining expansive privacy “rights” into law is that it means there will need to be stricter limits placed on speech and press freedoms.  As Eugene Volokh noted in his 2000 law review article entitled, “Freedom of Speech, Information Privacy, and the Troubling Implications of a Right to Stop People from Speaking About You“:

The difficulty is that the right to information privacy — the right to control other people’s communication of personally identifiable information about you — is a right to have the government stop people from speaking about you. And the First Amendment (which is already our basic code of “fair information practices”) generally bars the government from “control[ling the communication] of information,” either by direct regulation or through the authorization of private lawsuits.

Of course, there’s no First Amendment in the E.U.  But while there’s not as strong of a tradition of freedom of speech / press in Europe as in the U.S., it would still be shocking to see the E.U. go down this path.  Consider what it means for the press, in particular.  When I was in journalism school back in the late 1980s, one of my favorite professors once told my class that a good journalist was really nothing more than a nosy person who knew how to write.  But being “nosy” — digging for stories, gathering facts, reporting on the world around us — is fundamentally at odds with “privacy,” strictly defined.  For example, could someone claim “a right to be forgotten” when a journalist pens an article about them beating their wife or committing corporate fraud?  Believe it or not, Germany already has a law like this for convicted criminals who have served their time.  They can have old facts about their crimes repressed after they’ve served their sentences.  [Note: If someone could forward me additional details about that German law, I would appreciate it. Specifically, I would like a better understanding of how enforcement works.]

Second, there are economic trade-offs that must always be considered here.  Enshrining “a right to be forgotten” into law would necessitate a fairly significant expansion in the rules and regulations governing information sectors and actors.  Enforcement would certainly be challenging. As always, there is no free lunch; something has to give.  If online sites and service providers are faced with onerous new regs that limit their ability to collect data or serve up online advertising, those sites and services will need to find new methods of financing ongoing operations.  The impact on innovation could be substantial.  Indeed, one could argue that one of the reasons America’s high-tech sector and digital companies are the global leaders in so many of their fields is precisely because they have not been strapped with top-down privacy regimes and data directives that would have constrained their ability to innovate using information collection.

Information — yes, including personal information — is the fuel of the Digital Economy.  Restricting the flow of that information, or its use for advertising and marketing purposes, will have an undeniably negative impact on online content and culture.  Ask yourself this: Would you be willing to pay $19.95/month to use a social networking site, or to be charged a fee for each query you enter into a search engine?  Those subscription-based or pay-per-use business models certainly shouldn’t be prohibited, but it would seem most Netizens are comfortable with the current arrangement: Free access/use in exchange for information collection and ads.

Of course, this “right to be forgotten” regulatory regime is currently only being considered in Europe.  Some here in the U.S., therefore, might be tempted to cheer on their expansive reading of privacy “rights” in light of the hobbling effect it has on their information and high-tech sectors!   But those rules will hurt U.S. players, too, since many of them offer services across Europe.  Moreover, this regulatory paradigm could become a model for privacy advocates in the U.S. and set the stage for a major push for new legislation / regulation here.  Let’s hope that’s not the case.

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Thank God the Euro-crats are Saving Us from a Browser “Monopoly” https://techliberation.com/2009/07/05/thank-god-the-euro-crats-are-saving-us-from-a-browser-monopoly/ https://techliberation.com/2009/07/05/thank-god-the-euro-crats-are-saving-us-from-a-browser-monopoly/#comments Mon, 06 Jul 2009 01:54:38 +0000 http://techliberation.com/?p=19171

Really, what would we do without European antitrust regulators protecting us from the evils of browser innovation? If Microsoft was allowed to actually bundle its Internet Explorer browser alongside its operating system we might actually do something really crazy… like perhaps try it! After all, the latest browser stats make it pretty clear most of us have a choice and that fewer and fewer of us rely on IE. As Erick Schonfeld noted on Tech Crunch today:

The new browser wars on on. More than a decade after Microsoft killed off Netscape with Internet Explorer, competition in the browser market has never been stronger. Just last week, Mozilla released Firefox 3.5, which has now been downloaded nearly 14 million times. Earlier in June, Apple released Safari 4. In March, Microsoft introduced Internet Explorer 8, and Google came out with a speedier beta of its Chrome browser. Some early data is coming in showing relative market share and how fast people are upgrading. If you look at the chart above from Statcounter, it indicates that since March Internet Explorer has lost 11.4 percent market share to other browsers. [..] Where did that go? It went to Firefox, Safari, and Chrome. Nearly 5 percent of that, or about half, went to Firefox 3.0, which currently has 27.6 percent market share. That doesn’t count last week’s upgrade.

08-09 browser stats

Alas, as I pointed out in my essay a few weeks ago (“European Regulators Think Consumers Too Stupid to Know How to Download a Different Browser“), some Euro-crats still seem to believe that changing browsers requires great detective skills to unearth alternatives.  It’s just pure poppycock and yet another sad example of how antitrust law is usually hopelessly behind the times and has absolutely nothing to do with protecting consumers or fostering innovation.

Now, please excuse me while I get back to surfing the Net via Firefox and Chrome (and Opera on my mobile phone). My God, how did I ever find these browser alternatives!

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