EU’s landmark AI Act is Europe’s one chance to grasp the global reins on artificial intelligence. It must take it

The AI Act also introduces regulatory oversight for the developers of the “large language models”, like ChatGPT - to audit the data and energy used to train them, and to report any incidents.

There is, however, a very interesting provision to help EU’s fledgling AI industry through national-level 'regulatory sandboxes and real-world-testing’. That is, national governments will be able to provide infrastructure support for their local AI companies to build out their AI, with state support. The EU’s AI Act, which is part of the bloc’s ambition to build ‘Fortress Europe’, has caused a stir in Silicon Valley because of its potential to reshape the competitive landscape in the AI sector.

The AI Act comes at an important juncture before the network effects of AI companies take hold. This phenomenon occurs when the value of a product or service soars simply due to the number of users rising.

The “regulatory sandbox” provision can create a nurturing space for European and Irish companies to build globally competitive AI platforms before the wave of massively capitalised US-based companies, such as Sam Altman’s OpenAI, dominate the global AI market.

In Ireland, the IDA foresaw the growth of IT and pharmaceuticals and early investment helped seal foreign direct investment that turned us into a well-off country. Landing Intel and Microsoft in the 1980s created network effects that led to smaller players investing in Ireland. Getting Google and Facebook in the 2000s had similar network effects for Internet companies locating here. We could try and follow a similar strategy this time by attracting AI companies, like OpenAI, to Ireland + but we will not accrue the same employment benefits this time - the jobs won’t be there.

It’s time we took our seat at the table by building an Irish Google or Apple, using the AI Act, and its “regulatory sandbox”, as a shield to protect our companies along with massive investment to nurture them to become global giants. China did this in the early 2010s by legislating to protect their nascent cloud computing companies - Tencent, Alibaba, and ByteDance. Google, AWS, and Microsoft tried to enter China’s cloud computing market, but regulations and massive investment gave their local cloud computing companies time to grow from seeds into global cloud computing giants.

Today, Europe has no global cloud computing company. The most important digital infrastructure powering Europe is built, owned, and operated by US companies. Could you imagine what the world would have looked like if Britain built America’s railways in the 1800s, and then prevented American trains from riding on them, and Americans were only allowed to sell from the coffee car - with 30% commission?

The most important digital infrastructure powering Europe is built, owned, and operated by US companies

We are in the early stages in the AI revolution, and we can still build Irish winners. The “regulatory sandbox” is a national matter, so there will be competition between EU countries to build champions. France and Germany are already trying to mold their own AI champions. Mistral, a French company, raised €105 million in May and plans to raise an additional €300 million while the owners of Lidl supermarket chain are among those investing $500 million in German AI startup Aleph Alpha.

In October, Mistral released a large language model (like ChatGPT) that is free to use and is the best performing AI for its size (generally bigger is better in AI). The white heat surrounding Mistral and Aleph Alpha suggests a genuine desire to create a credible alternative to Silicon Valley sweethearts such as Microsoft-backed OpenAI and Google’s DeepMind.

.

AI is the next big technological revolution, and it is still early enough to change the network effects for the winners. What we need in Ireland is to think differently. Early stage AI companies in Ireland or Europe are not going to raise the billions of dollars of venture capital available in Silicon Valley. But we can provide them with resources to enable them to compete.

What we require right now are government initiatives giving Irish companies preferential access to the compute resources needed to enable them to compete globally, now encourage with the “real-world-testing” clause in the AI Act. In Europe, we uniquely have the competence to build several data centres in quick time. Large government contracts will also help offer local opportunities. The Internet was built by the American Department of Defence.

My own company Hopsworks, Europe’s only AI software infrastructure company, was founded in Sweden via initial funding from EU research funding. It would have been set up in Ireland but for a serendipitous meeting with my future wife in Stockholm. We have had many overtures from US venture capital firms to relocate to America, but I prefer to work and live in Europe because that’s where my family and friends are, but also that’s where the educated, hungry talent is.

Despite budgets being stretched across Europe, €733bn in state aid was approved by the EU between March 2022 and August this year, of which Germany accounted for close to 50%. This money was almost exclusively to help defend European companies from the last wave of disruption - digitalization and cloud computing.

However, you can't easily disrupt network effects after the networks have formed. Ireland, in contrast, has a budget surplus and not many legacy companies to support. If we invest now in AI, the EU AI act will give our companies the time they need to create network effects within Europe, and then be ready to take on the world.

Jim Dowling is CEO of the AI firm Hopsworks and associate professor at KTH Royal Institute of Technology in Stockholm