Opinion: Don’t Follow Europe by Over-Regulating AI
It’s not news to anyone that European governments love to over-regulate. However, last year, concerned about emerging AI technology, European lawmakers escalated their regulatory habits. In an act of economic self-sabotage, they implemented a “regulate first, innovate later” approach to AI.
Pre-emptive Regulation
Instead of waiting for technological innovations to surface and then responding with appropriate regulation, the European Commission decided to become the first major regulatory body to impose rules on AI without seeing the innovations first. If it weren’t so misguided, this self-parody would be laughable. In any case, it’s an approach that Canada must avoid.
The idea behind the new EU rules was to impose obligations on AI companies based on their products’ presumed risk factors. Yet, assessing risk factors related to rights in advance is challenging, and estimating costs before any discernible damage has occurred is complex, often beyond the capacity of many companies.
Impact on Companies
At this early stage of the AI revolution, predicting the uses of AI tools—and the potential damage, if any—is difficult. However, the EU law stipulates that firms deemed “high-risk” under the proposed rules can face fines of €15 million or up to three percent of their global revenues, whichever is higher.
While much AI regulation is motivated by animus against supposedly marauding tech giants, the actual effect, like most regulation, is to benefit these large firms. Companies like OpenAI, Google, and Meta can absorb the burdens and costs of regulation much more easily than startups. This is true across most sectors as well.
Consumers at a Disadvantage
Who bears the brunt of this? Consumers. The true effect of excessive regulation is that consumers benefit most from increased competition, which leads to better products and lower prices. However, by imposing costly compliance obligations, regulators ensure that only a few large entities can survive.
Comparative Analysis with GDPR
Europe’s AI regulation resembles its General Data Protection Regulation (GDPR), which aimed to protect personal data collection. Research shows GDPR favored large platforms that could absorb compliance costs, resulting in reduced overall competition. Consequently, large digital companies strengthened their market share, leading to a slowdown in innovation in Europe compared to the United States.
Investment Disparities
Private investment in AI has surged in the United States while stagnating in Europe. In 2024, more than US$29 billion was invested in the U.S., nearly 20 times the US$1.5 billion invested in Europe. Additionally, 1,143 AI companies were created in the U.S., nearly three times the 447 established in Europe. The number of AI applications available in the EU has decreased by a third, with new application entries falling by 47.2 percent.
It would not be surprising if history repeated itself under a similarly tightly regulated Canadian AI regime.
The Economic Potential of AI
AI has the potential to enhance productivity across the economy significantly. Some researchers estimate that AI could elevate the productivity of unskilled workers by as much as 14 percent. Higher productivity correlates closely with improved standards of living. The more productive workers are, the greater the profit they generate and the higher their potential wages.
Canadian productivity has stagnated for over a decade. If Canada follows Europe’s lead and over-regulates AI, it risks pre-emptively restricting substantial economic gains for its citizens. Europe’s hesitation towards innovation has likely diminished its global competitiveness, based on no evidence that the proposed protections are effective.
Despite any newfound affinity for Europe, Canada should avoid making the same mistake as the EU.
