One big unintended consequence of protecting cyber privacy

Magellan Asset Management

In late May, people in Europe were blocked from US news sites such as the Los Angeles Times. Others couldn’t turn on connected lights with mobiles unless they agreed to new terms of service. While that might sound standard, Tumblr users faced 322 questions to answer on how the blogging network could use their data. Other companies mistakenly divulged thousands of personal emails while contacting users on new conditions. So many mishaps and frustrations occurred a ‘GDPR Hall of Shame’ was set up to host ‘GDPR horror’ stories.

That four-letter acronym stands for the General Data Protection Regulation, the name for the EU laws to protect data privacy that took force on May 25 amid such confusion. Under the laws, businesses must release data on request from the ‘data subject,’ while people can sell their data to rival businesses and ask to have it erased. The laws are of note because, as the world’s strongest privacy protections, they set a global benchmark for privacy. As such, they have global political implications.

A key one is they pressure the US to protect privacy far more than otherwise in an era when data-dependent artificial intelligence (or AI) is an essential technology. The US could thus be handicapped in two ways in its quest to hold AI (and overall tech) supremacy over China, where the competition on AI will be decided on a mixture of computer grunt, savvy algorithms and access to mass data.

  • The first is that US algorithms might lack the volume of unfiltered data needed to ‘self learn’, the most advanced form of AI.
  • The other is that excessive privacy could hinder the business models of the US companies that fund much AI research in the US – companies such as Alphabet and Facebook that use personal cyber information to optimise ad-serving algorithms. (Business funds about 72% of science R&D in the US.)

Privacy could put much at stake because the country that wins the AI and broader technological battle could lurch ahead in the zero-sum game for global supremacy.

It’s debatable how crucial privacy will be in deciding tech supremacy – or, to put that another way, how decisive quantity might prove to be in determining the usefulness of data.

The tech fight between China and the US will include quantum computing, fifth-generation wireless systems, the internet of things and space dominance where privacy laws have less influence, and perhaps the US is too far ahead on technology to catch anyway.

The tech fight between China and the US will have broader economic implications because it is likely to hamper global trade and capital flows as each country attempts to stymie the other by localising tech supply chains.

Such protectionist outcomes only highlight the role AI could play in determining which country holds global supremacy. China, with its ‘Made in China 2025,’ a plan launched in 2015 to transform the country into an advanced manufacturer within 10 years, is already shaping up as a rival to the US on technology and AI. China is already the world’s biggest spender on scientific research after the US. Chinese scientists produce more research papers than those in the US. China is close to turning out as many science and engineering graduates as the US. In 2017 China overtook the US in being home to most of the world’s 500 most powerful computers.

China’s growing AI prowess is just as noticeable. With a mentality that AI will brighten the future (rather than herald a dystopian jobless world as many in the west fear), China is achieving AI milestones in voice recognition, autonomous driving and manufacturing robotics. The country is amassing databases that no other country can for algorithm-based analysis, while ‘localising’ and directing them to where they might be most beneficial.

But the privacy issues surrounding digital data highlight that the contest is essentially a brawl between two political systems. A liberal-democratic system holds enduring advantages in such a tussle. That means the US is likely to prevail, even if China’s autocratic system does away with the privacy impediment on AI.

By Michael Collins, Investment Specialist

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Magellan Asset Management

Magellan was formed in 2006 by Hamish Douglass and Chris Mackay, two of Australia’s leading investment professionals. The company specialises in global equity and listed infrastructure assets.

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