A third pole in the global economy would help members and non-member developing economies alike maximize the economic and societal benefits they draw from the digital transformation, while enabling them to control the risks more effectively. AI should also increase the viability of such an arrangement.
The digital transformation of the global economy will play a critical role in the future development of economic and financial governance, and vice versa.
Digital technology is rapidly transforming the way an economy works. It is too soon to say whether the impact of AI will be similar to other technological revolutions (such as the introduction of electricity) in the sense that it will cause considerable disruption to firms, labour and markets but will ultimately leave the economic model functioning broadly as it does now. Or whether the impact, for example in raising overall productivity growth or reducing the total demand for labour, could be so great as to require fundamental changes in the way society is organized, including through innovations such as universal basic income programmes. How the introduction of AI will interact with rapid demographic change in some countries is also poorly understood.
However, it is already clear that digital technology such as AI can bring enormous benefits for societies that manage such technology’s use and diffusion well, while generating considerable financial, economic and social risks for those that do not. Aside from the much-discussed risk of humans losing control of their lives to machines, there are more conventional risks ranging from the financing of the enormous AI investment boom, to the widening use of AI in investment portfolio management, to the impact on net zero ambitions of the vast energy demand coming from data centres.
Governments need to make economic and financial governance choices now on regulation, and on the role of public versus private technology infrastructure; these choices may have long-lasting consequences for growth and prosperity.
These choices are made more complicated by the position of digital technology at the centre of strategic economic competition between the US and China, and between these countries and the rest of the world. The US and China are currently far ahead of all other economies (developed and developing alike) in their dominance of most aspects of digital technology development; this is being achieved largely through the activities of their firms. This does not mean that other countries are without agency. But exercising this agency requires countries to focus on areas where they can currently compete with the US and China. They also need to maintain control over their own digital environments so that they are free to maximize the benefits and minimize the risks from deploying AI products developed by the US and China. This includes countries ensuring they maintain the freedom to switch from one technology offer to another, and identifying measures that can mitigate national security, societal and strategic economic risks. The dominant role of the private sector in AI development, and its influence on AI governance decisions (up to this point), may also require governments to depart from traditional approaches to regulation and public investment. Non-US advanced economies and EMDEs (excluding China) should recognize that they face a common challenge, and work together in developing their response.
The creation of a third pole will provide a large economic space in which countries can develop best practice on the adoption and diffusion of digital technology.
The creation of a third economic pole can make a major contribution to managing this challenge. It will provide a large economic space in which countries can develop best practice on the adoption and diffusion of digital technology – and particularly on the embedding in society of AI – free from any distorting influence from the US and Chinese governments. An example of an approach that could spread quickly within the grouping is the recent Australian decision to ban the use of social media by children under the age of 16. Another practical step could be using state procurement and R&D funding to ensure technology ‘hyperscalers’ provide cloud services under terms that enable users to switch relatively easily from one service provider to another.
Establishment of a third pole in the global economy will enable members to coordinate their responses to US or Chinese economic coercion on issues such as online safety, the removal of false information, data privacy, digital taxation and competition enforcement. Members may also use their voting weight within the MDBs to ensure that MDBs provide adequate financial and technical support for countries wishing to preserve control over their digital environments.
Alignment of standards within the grouping could also create demand for socially beneficial technology products such as AI models, specifically designed for use in schools, which preserve cognitive development. This will be important for members of the third pole but will also help developing economies without the same market power. The third pole should also be able to use its market power to achieve other broad public benefits, such as improved access to technology, benefiting both its members and non-member developing countries.
The causality may work the other way as well – that is, the economic and social transformation brought about by digital technology could increase the viability of a third pole. This may arise first from the impact of digital technology on the global economy, including by facilitating services trade between distant countries or making it easier to introduce complex trade mechanisms, such as CBAMs, that require large amounts of data and rapid analysis or decision-making to work efficiently.
The digital technology transformation could also strengthen the third pole by providing its leading members with new economic diplomacy tools. These tools could make negotiations and decision-making more agile and better coordinated, compensating for the relatively high number and diversity of the new grouping’s members. For example, AI may make it easier to respond to a shock by quickly identifying collective policies which reflect the diverse preferences of different members.
