China,Europe in the Age of AI: New digital divides?

By Rebecca Arcesati

Aside from US President Donald Trump's desire for attention, and Indian Prime Minister Narendra Modi's attempt to replicate Chinese President Xi Jinping's global performance of a year ago – which we could summarize as a protectionist-liberal feud dominating the global economy – another highlight of the 2018 World Economic Forum in Davos was the ubiquity of the 'fourth industrial revolution.' In particular, the role of artificial intelligence in shaping our corporate and social future was widely discussed.

This is hardly surprising. AI has the potential to revolutionize everything, from how doctors monitor their patients and diagnose diseases, to how e-commerce companies track consumers' preferences and banks personalize financial products, to name but a few applications. McKinsey Global Institute estimates that automation could raise global productivity growth by up to 1.4 percent annually. At the same time, an inevitable implication is that machines will increasingly replace humans in many tasks, ranging from manufacturing to administration and control. Were there one catchphrase to describe the decades to come, that would probably be "reskilling."

A boy prepares to participate in the Youth Artificial Intelligence Design Contest at the Youth Activity Center in Suzhou City, east China's Jiangsu Province, Aug. 13, 2017.[Photo: Xinhua]

When it comes to reconciling automation and employment, I think a valid suggestion comes from Jack Ma, whose company Alibaba plans to invest $15 billion US dollars over the next three years in researching technologies including quantum computing, fintech, Internet of Things, and AI. He is on-record saying we should teach humans what machines cannot have (on a side note: are we so sure?): empathy, creativity, and emotional intelligence.

Both Ma's visibility in Davos and his comments on AI offered me yet another occasion to reflect on China and Europe. For both actors, future growth will depend on their ability to grasp the opportunities generated by digital disruption – cloud computing and IoT, AI, virtual and augmented reality (VR and AR). Some even predict that machine learning will bring a new type of digital divide: only companies able to leverage its potential will remain competitive. Yet, this might be only partially true, given that these technologies will be increasingly accessible – and affordable. Here, I would rather mention two different "divides" which, I believe, encapsulate some of the key challenges – and opportunities – Beijing and Brussels will face: a divide within societies, and one between economies.

The social divide and the global innovation divide

China aims to become the world leader in AI by 2030, building a domestic sector worth almost $150 billion US dollars. The government is investing a massive amount of capital and resources to meet this goal. In Beijing, you can really see the signs of AI hype. From the digital triumvirate – the so-called BAT – engaged in a competition to write the future of deep learning, to universities and smaller robotics companies experimenting with a variety of potential applications, from education to elderly care, following the motto "mass entrepreneurship and innovation." In the government's view, breakthroughs in automation and informatization will not only make China a global point of reference in the digital revolution, they will also help solve multiple domestic challenges, from guiding healthcare reform and boosting agricultural productivity, to upgrading the manufacturing sector and alleviating rural poverty.

Like most disruptions, however, automation equally comes with opportunities and challenges. Take rural areas; On the one hand, the Internet has the potential to spur social innovation and improve people's lives: Right now around 700 million people in China have access to the Internet and most of them live in the cities, the rural-urban digital gap is narrowing, and innovations such as e-commerce are empowering emerging entrepreneurs in local villages. Yet, education is key for societies to adapt to new technologies. Persistent developmental differential between urban and rural areas means that the latter's dwellers will at first be disadvantaged in the information age due to lower socioeconomic and educational backgrounds. This may exacerbate the social divide. Ultimately, social reforms do not happen as a result of technological innovation but in tandem with it.

However, sharp social inequalities might be harder to eradicate as factory jobs are taken by machines. For an economy which is navigating a delicate rebalancing from an investment and export-driven model emphasizing labor, to one based on domestic consumption, manufacturing employment is still necessary to raising households' incomes. To solve the dilemma, displaced workers from traditional sectors will need proper training, and new jobs will have to compensate old ones at a reasonable speed. As such, it might be just too early for China to transition to the era of robots. Besides, as Jack Ma implicitly told us, education 4.0 should do much more than producing millions of engineering and ICT graduates.

Although it lags behind the U.S. and China in AI investment, Europe seems to be particularly sensitive to the debate on AI and unemployment, ranging from optimism to fears of "mass unemployment." What is certain is the answer here will again lie in solid, creative, and dynamic education. Equally, social divides should not be underestimated, as AI-enthusiasts such as the UK and France coexist with countries experiencing worrying unemployment and a brain drain, especially among young college graduates. A complex transition will inevitably occur, with "large-scale transitions for workers, affecting multiple sectors, the mix of occupations, the skills required, and the wages earned," according to Mckinsey. EU member-states will have to find ways to better coordinate with each other, facilitate labor mobility, invest in human capital and education, and reform their labor markets and welfare systems. And it will be crucial for democracies to really democratize information though web literacy.

To conclude, one more thought came to my mind after hearing Jack Ma's interview in Davos, and is related to a global "innovation divide." The digital revolution is redesigning global hierarchies. While ICT global businesses are all Chinese and American, Europe has yet to fully capture the potential of digital disruption. This is because, while China is investing to create an innovation ecosystem where tech entrepreneurs like Jack Ma emerge, with the ambition shared with the government of making China the next "technological superpower," the EU lacks a unified and risk-prone ecosystem where tech start-ups can access capital and scale up. Because of this, the European Commission's efforts to create a competitive "Digital Single Market" could not be more urgent. For in an informatized world, digitalization shapes new rules of economic competitiveness and political influence.

(Rebecca Arcesati is a Chinese Government Scholar at Yenching Academy of Peking University.)