Fourth Industrial Revolution

What's an 'intelligent economy' and why are some economies more intelligent than others?

An engineer walks around the steam engine that takes spectators to see thecross country events in Soldier Hollow during the Salt Lake 2002 OlympicWinter Games, early February 15, 2002. The Games run through February 24.  REUTERS/Kevin LamarqueRR

A technology that had its day; whether via steam engines or semiconductors, economies have long sought to become 'intelligent.' Image: REUTERS/Kevin Lamarque

John Letzing
Digital Editor, World Economic Forum
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Horizon Scan: Nita Farahany

  • Countries are pumping resources into mastering AI and other cutting-edge technology.
  • Building an ‘intelligent economy’ with these tools could mean gaining economic heft and a stronger hand in shaping the future. It’s a global push with historical parallels.
  • The theme of ‘intelligent’ economies has been threaded throughout the #SpecialMeeting24.

What makes an economy “intelligent?”

It seems to boil down to mastering the latest technology in the most effectively self-serving way. Countries have been taking turns at some version of this for a long time.

In the 18th century, the Netherlands was so content with its status as Europe’s wealthiest nation that it largely missed out on a little something now known as the Industrial Revolution – a progression made possible by technology like the steam power being most effectively put to use by Britain.

Wealth per capita in Britain nearly doubled between 1780 and 1870, alongside sharp gains in literacy and life expectancy. Not bad.

Then a former colony got into the act. In a foreshadowing of global intellectual-property conflict to come, the US began a successful government-sponsored pilfering of British trade secrets like the steam-powered loom.

The details of what makes for an 'intelligent economy' have changed over time.
The details of what makes for an 'intelligent economy' have changed over time. Image: World Economic Forum

With the US eventually in the lead, the industrialized world found itself on the winning end of a “great divergence” of global prosperity – which really wasn't so great for other places (by the World War II era, wealth inequality had spiked).

Now, a new chapter’s being written. Countries are gearing up to make their economies as intelligent as possible with a blend of silicon, artificial intelligence, sensors, data, and more data.

“The readiness is all,” Estonia’s minister of economic affairs and information technology said during a session at the Forum’s Special Meeting in Riyadh (he was borrowing a quote from Hamlet). The question now, Bahrain’s minister of finance and national economy added, is how to turn an era of dizzying technological change into “an advantage.”

Ultimately, the aim is to wield new tools like they’re a 19th century steam engine. To shape economic growth so others can follow the contours you define. Places endowed with sufficient wealth, strategy, energy, and luck may even manage to do it in a way that takes them from middle power to superpower.

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The hype surrounding AI in particular has reached absurd levels. But governments have discerned enough real substance to plunge in. “If you do not master AI within the next five to seven years, you will become irrelevant,” Saudi Arabia's minister of communications and information technology said during another session at the Riyadh meeting. He called it a “turning point in humanity.”

Sitting this one out might not be a viable option.

For a while now, the global economy has been increasingly fueled as much by silicon as anything else. Several years ago, total trade in the semiconductors vital for instantly sending information from point to point caught up with crude oil.

Recent advances in AI have only ramped up related ambition.

Last year, Saudi Arabia established a firm to invest $100 billion in advanced chips and seemingly every type of “smart” technology imaginable. An additional $40 billion fund specifically for AI may follow. On one occasion, the country reportedly ordered up $120 million in chips to power the kind of supercomputer capable of pushing the boundaries of scientific knowledge.

The vision spelled out by the CEO of that firm investing $100 billion: things that people around the world regularly buy and rely on for their digital existence will one day be “assembled by intelligent robots – in an automated factory, in a smart city, in Saudi Arabia.”

Have you read?

A region that’s shaped the intelligence of economies before

Saudi Arabia’s neighbour, the United Arab Emirates, has also splashed out on efforts to build an increasingly intelligent economy. Earlier this month, a company it backs that has its own Arabic “large-language model” (the backbone of things like ChatGPT) drew a $1.5 billion investment from Microsoft.

The UAE may also commit to a multi-trillion-dollar investment in production capacity for the next-generation chips needed for AI to flourish.

The region has played a primary role in shaping global knowledge and innovation before, particularly from about the 8th to the 13th centuries. It originated fundamental ways we've used numbers, navigated seas, and explored human anatomy.

One complication with the newest wave of innovation: in combination, things like AI, IoT, and 6G don’t just load us down with more acronyms, they potentially make some of us a little less useful.

That prompted another comparison to the Industrial Revolution, this one from a German state secretary speaking at the Special Meeting in Riyadh: “Ever since the steam engine, every big breakthrough technology has been accused of destroying jobs,” he said. “AI has the same challenges.”

Chips have become just about as crucial as oil for building a modern economy.
Chips have become just about as crucial as oil for building a modern economy. Image: World Economic Forum

Among other things, the Industrial Revolution gave rise to the concept of intellectual property as a defensive weapon. Build a legal moat around the ideas providing economic strength, which can then be applied to geopolitical goals.

But it’s an approach that can seem counterproductive, whether in terms of British power looms or American iPhones.

A more broadly constructive way to go about things might be to seed innovation in many places, and enable each to play a role in advancing collective progress. The Netherlands is a good example.

The country may have missed out as the Industrial Revolution took off, but it’s managed to carve out a niche in the revolution’s fourth iteration – as home to a company that produces the machines necessary to make advanced chips now that they’ve shrunk to stunningly small dimensions.

It may not be a singularly intelligent economy, but it’s a critical link in an increasingly intelligent global network. Fracturing a network like that by pushing economies to localize their progress, or to pick one geopolitical side over the other, might not be very intelligent at all.

More reading on cutting-edge technology and global competition

For more context, here are links to further reading from the World Economic Forum's Strategic Intelligence platform:

  • Semiconductors may now be a strategic commodity recognized around the world, this piece notes, but the process of moving advanced chipmaking outside of Asia in any meaningful way could take years. (The Conversation)
  • “The United States has started a fight that it seems destined to lose.” This analysis notes that rising powers tend to not sit idly by when dominant powers disrupt their science and technology development. (Harvard Kennedy School)
  • India accounts for nearly a fifth of the world’s semiconductor design engineers, according to this analysis, which suggests ways the country could pair up with Australia to bolster their collective market presence. (Australian Strategic Policy Institute)
  • But India’s intently focused on building its own, complete semiconductor “ecosystem,” thank you – according to this piece. (The Diplomat)
  • There are big hopes for one potentially far-reaching benefit of AI: helping increasingly overworked doctors avoid burnout. Yet, research suggests that the technology’s so far fallen short. (STAT)
  • “From a rentier petrostate into a major geopolitical force with a diversified economy.” This piece explores the economic and political transformation underway in Saudi Arabia. (Project Syndicate)
  • How exactly does a “hegemon” exert its power within its economic network? This column lays out a detailed framework to answer that question. (CEPR)

On the Strategic Intelligence platform, you can find feeds of expert analysis related to Artificial Intelligence, Semiconductors, Geopolitics and hundreds of additional topics. You’ll need to register to view.

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