AI may shift IT wealth toward heavy industry

Artificial intelligence may bring a new wave of wealth based on power plants, chip factories, satellites and huge data centres rather than laptops and internet connections, ERR’s R2 Portal said in a commentary by Kristjan Port.

Information technology showed that prosperity could be increased with ever-smaller amounts of physical infrastructure. Factories with smoking chimneys were replaced by offices with an industrial-retro feel, while national borders became less important and information processing for local consumption could be carried out from the other side of the world.

Several small countries benefited from this shift. They were small both in size and because they lacked enough space for a substantial traditional industry. By contrast, a powerful information industry could be built in a small country. Small states also avoided the political burden of large industrial infrastructure, including the shock caused by major company closures. Estonia was among these examples.

The digital revolution can be seen as having dematerialised economic value chains. Artificial intelligence may unexpectedly rematerialise them by reviving heavy industry in a new form.

The cost of running Estonia is about 21 billion euros. The country cannot cover all of it with its own income, leaving a shortfall of about 2 billion euros to be covered through borrowing. Under the logic of borrowing, the country and its lenders must believe that it will become more capable in the future and repay both the loans and the interest. That means it should already know what its expected growth potential will be based on. The question is whether the next billions will come from an unexpected agricultural revolution or from increasing the productivity of the IT sector.

Developments around the world suggest that the potential of data processing based on programming, a laptop and a quiet workplace may be reaching its limits. Building industrial infrastructure has again become more popular. Computing power is emerging as a new factor of production, as an economy based on artificial intelligence requires enormous data centres.

However, the new facilities are also attracting strong protests. Unlike the optimism that once accompanied the construction of factories and the economic growth it promised, people now see job losses, higher electricity and water prices, and environmental pollution in the excavators levelling the ground. Even when such claims are not always accurate, people in the IT era often trust social media more than reality, especially when it gives an outlet to the discontent building up in unsettled lives. After 30 years of believing that digital prosperity required almost no physical infrastructure, artificial intelligence is forcing a change in outlook.

Estonian businesses are trying to take advantage of opposition to large projects in bigger countries by building several substantial data centres in Estonia. They also hope that the presence of valuable processes there could provide some strategic security benefits if anyone wanted to attack the country.