The European Union dreams of being a leading hub for tech innovation. But it is increasingly clear this is wishful thinking. Heavy-handed regulation is making the bloc inhospitable to innovation, and investors are looking elsewhere. The EU’s recent pushback against ChatGPT is just the latest sign that this is not going to change.
On March 31, Italy’s privacy regulator banned the new AI-powered chatbot over privacy concerns. This happened amid growing calls across the continent to clamp down on the ground-breaking technology. In response, the EU’s privacy regulator launched a ChatGPT task force, signaling further legal hurdles for the service.
This regulatory pushback is symptomatic of Brussels’ tendency to regulate at all costs, which often clashes with its desire to be a technology trailblazer.
The timing could hardly be worse. EU politicians and policymakers appear to realise Europe is lagging behind in the global technology race, and the bloc is about to pour billions of euros into quantum computing, microchips and cloud infrastructure to challenge the US and China’s global technological leadership.
Unfortunately, this may all come to nothing if the EU doesn’t also create an accommodating regulatory environment that enables business to thrive, rather than preventing European firms from leveraging revolutionary technologies.
Innovation and regulation
Last month, Italy’s privacy regulator blocked OpenAI’s ChatGPT service over multiple privacy concerns. Protecting user privacy may be a laudable goal, but it comes at a cost. As a result of the ban, Italian firms will be slower to take up the emerging technology of “large language models” (LLMs), and Italian consumers will face delays in enjoying their many benefits, such as writing assistance, productivity enhancement and using the technology to understand complicated topics. These delays could be irrevocable in digital markets, where innovation moves at a blistering pace.
A symptom, not a solution
The ban is symptomatic of a broader trend at the EU level: Brussels’ proclivity to regulate, which may be getting slightly out of hand.
The EU recently passed new legislation (the Digital Markets Act and the Digital Services Act) which impose far-reaching transparency and compliance burdens on online services. This is particularly true for digital platforms that exceed certain user and revenue thresholds, like Amazon, Apple, Google, Microsoft and Meta.
In addition, the upcoming Data Act will require companies to share their data with rivals. The draft AI Act, meanwhile, would force ‘high risk’ AIs to go through a market-authorisation regime similar to that currently applied to medical devices. Both pieces of legislation will delay the deployment of new AI tools
All of this comes on top of existing legislation, such as the General Data Protection Regulation (GDPR), which research shows has discouraged venture-capital investments in the Old Continent.
Even if these regulations may be sound in isolation – a big ‘if’ – they cumulatively place a massive regulatory burden on firms operating in Europe that may discourage investment.
Europe is lagging behind
Those chickens are now coming home to roost.
Europe’s share of global venture-capital investments dropped from around 27% in the 2010s to 15% and 17% in 2020 and 2021 respectively; early data from 2022 suggests that it followed the same trend. This decline is not simply the result of more rapid growth in Asian economies, as the US share of VC investment has remained stable.
At a more granular level, 2023 has seen the emergence not only of LLMs, but also AI-driven image generators and text-to-video technology. None of the leading players in this field are European. OpenAI (ChatGPT and Dall-E), MidJourney, and Google are all based in the United States, while Stability AI and D-ID are from the UK and Israel respectively. In short, the EU seems to have missed the boat on yet another general-purpose technology.
Europe is also trailing on pivotal technologies like virtual reality and quantum computing. The picture is particularly bleak with regard to quantum computing:, which attracts a lot of the EU’s attention, and is widely seen as a pivotal technology. A recent report by Boston Consulting Group (BCG) warned that, absent deep reforms, ‘quantum computing could sound the death knell for the EU’s competitiveness and technological independence’.
In short, the EU must decide whether to regulate or innovate. This will be a difficult choice for a union that takes pride in the so-called ‘Brussels Effect’: the notion that, by being the first and strictest regulator, the EU can impose its vision of regulation globally. Unfortunately, as evidenced by the GDPR, heavy-handed legislation also drags Europe further away from the technological frontier. It is not too late for Europe to change course, but time is running out.
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