It's game open on AI regulation: A fine balance is yet to be struck

Symbiotic interaction between US laissez-faire and EU caution over risks may provide a balance but that's far from assured

- RAGHURAM G. RAJAN

The problem with European regulators, a German businessman recently told me, is that they are too scared of downside risks. "In any innovative new business sector, they overregulate and stifle any upside potential." In contrast, he argued, Americans care more about the upside potential, and thus hold off on regulation until they know far more about the consequences. "Not surprisingly, the United States has much more of a presence in innovative industries."

Artificial intelligence (AI) is a case in point. The EU enacted the world's first comprehensive AI regulation in August 2024, establishing safeguards against risks such as discrimination, disinformation, privacy violations and AI systems that could endanger human life or threaten social stability. The European law also assigns AI systems different risk levels, with different treatments for each. While AI-driven social scoring systems are banned outright, higher-risk systems are heavily regulated and supervised, with a list of fines for non-compliance.

But Europe has little presence in the burgeoning AI industry, especially relative to the US or China. Those leading the charge in generative AI are US-based firms such as OpenAI, Anthropic and Google; no European firm meets the mark. Such a glaring gap seems to speak for itself. For now, the Donald Trump administration's AI Action Plan for the US, which seeks to limit red tape and regulation in AI, looks like the better approach.