Europe and the digital race

Europe out of the Digital Olympics

Victor Ângelo

 

The progress of the digital age, which has accelerated over the last decade, will be even faster, deeper and more pervasive in the coming years. Major transformations in information processing and use are coming, with amazing advances in artificial intelligence, 5G networks, new generations of microprocessors, 3D printing techniques, and in protecting cyber systems from hostile attacks. These transformations will have an enormous impact on the exercise of political power, on the economy and functioning of societies, on individual attitudes, as well as on international relations. 

Digital mega-investments are taking place today in the United States, China, Taiwan, South Korea, and Japan. The latter three produce 60% of the semiconductors and are moving at a rapid pace towards faster, more efficient processors, and much less gluttonous in terms of energy consumption. 

Where will Europe stand in this new technological framework? Ursula von der Leyen last week defined the digital domain as a priority. The EU currently produces about 10 percent of the world's semiconductors. It has lost a lot of ground in the last 30 years. In 1990, it accounted for 44 percent of global transistor production.  The ambition defined by the President of the European Commission is to reach 20% in 2030. For this, it will be necessary to mobilize public and private investments in the region of 160 billion US dollars. It won't be easy. It is a lot of money, but insufficient when compared with the plans of others. South Korea, for example, is ready to invest 450 billion dollars. Taiwan Semiconductor Manufacturing Co. (TSMC), the world's number one chipmaker, will invest $100 billion over the next three years to expand its capacity. Interestingly, part of this investment will take place in China, across the strait, and part in the United States. Thus, strategic interdependencies are created.

Europe is lagging not only in the field of processors. We are out of the league of champions when it comes to technology platforms. When you look at the top 10, you notice that six are American and four are Chinese. The platforms we know, in this part of the world where we are, such as Facebook, Twitter, Netflix, Google or even Uber, Airbnb or Booking, all have one or more Chinese competitors (Tencent, Weibo, WeChat, Baidu, iQuiyi and more).

Our picture is also not the best when it comes to the so-called unicorns. Many of the new applications and technologies are developed by newly established companies that the capital market values above $1 billion and calls unicorns. These companies are very important creative agents in the areas of artificial intelligence, financial software, e-commerce, and e-logistics. Digital giants follow them closely and eventually acquire the most innovative ones. Today, the inventory of unicorns totals 827 companies. Of these, only 57 are based in the EU area, with France and Germany at an absolute advantage in the tiny European share.

Given this, what does digital sovereignty mean in the EU? The question is even more pertinent if one takes into account the correlation between defence and artificial intelligence (AI). A recent report by the National Security Commission on Artificial Intelligence, a US commission, shows that the major defence competition with China is primarily about AI. Whoever wins that race will have a critical advantage over the other side. The EU is out of this championship.

Many other questions remain, concerning the protection of people's rights, the fight against information manipulation, or even the meaning of democracy in robotic times.  All of them are important. But for us Europeans, the fundamental challenge is to clearly define a plan that allows the EU to leap from the periphery to the centre of the digital issue.

(Automatic translation of the opinion piece I published in the Diário de Notícias, the old and prestigious Lisbon newspaper. Edition dated 24 September 2021)

Our strategic fragility: a key example

Taiwan so close

Victor Ângelo 

Taiwan is part of our everyday life. This is because the company that produces almost all of the chips used in electronics, mobile phones, robots and cars is Taiwan Semiconductor Manufacturing Company (TSMC). An omnipresent but discreet colossus, worth twice the GDP of Portugal on the stock exchange. And it is pertinent to write about it this week, when there is so much talk about China.

Since TSMC produces over 90% of the latest generation of microprocessors and is located in Taiwan, it is at the centre of the Sino-American rivalry. This is a major critical point. If there were a conflict over Taiwan tomorrow, the worldwide availability of chips would plummet. This would mean the immediate paralysis of motor vehicle factories, computers, mobile phones, highly sophisticated financial operations, and everything related to the use of micro and nano transistors. In other words, it would be economic and social chaos.

Analysts looking at these things say that TSMC is the invisible shield protecting Taiwan. It may be, to some extent. And TSMC is betting on it: it plans to invest, over the next three years, $100 billion in expanding its scientific and technological capacity. More chips, infinitely tiny and of an extraordinarily more powerful artificial intelligence. The figures give an idea of what is at stake. They also show that national defence policy involves the development of an ultra-modern economy that creates strategic dependencies in other parts of the world. 

It is therefore neither in the interest of Beijing nor of others to destabilise Taiwan. At least not for the next seven to ten years. But this absolute dependence on a single company is also the greatest exponent of the fragility of the major global balances. It is the result of decades of ultraliberalism and the relocation of production, all of which is out of step with what should be geostrategic concerns. The prevailing philosophy led us to believe that commercial interdependence would erase the rivalries between the great blocs of nations. We now know that this is an illusion. The biggest wars of the last 100 years were started by self-centred madmen who did not take into account the economic - nor the human - impact of their decisions. I do not think Xi Jinping falls into that category, despite the words and tone he used yesterday about Taiwan at the Chinese Communist Party's centenary celebration. But it is also true that it would only take a highly sophisticated hacker attack against one section of TSMC to bring thousands of production chains that are dependent on the availability of chips to a halt.

Joe Biden understands that the United States cannot, in this vital area, remain totally dependent on Taiwan and on one company alone. The industrial plan he has just proposed envisages an investment of $50 billion to stimulate domestic chip production. To that will be added many billions from the private sector. The truth is that much of the scientific design work in this field is done by world-renowned American companies - for example, Intel Corp, Nvidia Corp, Qualcomm or Cisco Systems Inc. But separating design from production has led to extreme vulnerability. It is a bit like designing highly effective weapons and asking others to manufacture them and then supply us.

The European Union must follow a similar path. One of the starting points should be to build on what ASML Holding NV already represents. This Dutch company is dominant in the production of the machinery needed to manufacture semiconductors. The ambition is to produce in Europe as early as 2030, in addition to the machines, at least 20% of the new generation of semiconductors. This is a modest target, but it will still require huge investments in Europe's digital industries. The amount currently foreseen - around €150 billion - is insufficient when compared to what TSMC and South Korea's Samsung - the second largest chip producer - have in the pipeline. However, European sovereignty, including its defence, requires a decisive presence in the industries linked to digitalisation. 

(Automatic translation of the opinion piece I published yesterday in the Diário de Notícias, the old and prestigious Lisbon newspaper)