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Japan Times
22-07-2025
- Business
- Japan Times
The AI arms race with China demands scale. The West must think bigger.
Size matters. Economists have long known that; economies of scale are among the building blocks of their science. In the digital era, it quickly became apparent that value was directly proportional to the size of the network (the number of users linked by a particular technology or system). The race to create scale is critical amid the sizzling geopolitical competition over leadership in new technologies. It has assumed even greater urgency in Western capitals in the wake of China's success in that race. They've had to reconceptualize scale to overcome the advantages China has a result of the size of its economy and its population. It's a work in progress and the results are mixed, at best. For those who've forgotten their introductory economics, economies of scale are cost advantages created by expanding operations. As companies build more products, they become more efficient, reducing cost per unit. This allows them to produce even more of that product, reinforcing their competitive advantage and keep the virtuous circle turning. Importantly, size is not the same as scale. Size helps achieve scale, but scale requires efficiencies. Scale is size made meaningful. Some 40 years ago, another economist concluded that the (financial) value or influence of a network — communication devices that could talk to each other — was proportional to the square number of connected users of the system. It's a positive feedback loop: the more users there are, the merrier, and the more money comes in, since consumers pay more for more connections. The two phenomena — economies of scale and network effects — are often confused, but there is a fundamental difference between them: economies of scale are a function of production, while network effects reflect demand. The demand for scale has become an imperative in the age of artificial intelligence. Working AI demands massive amounts of compute — millions of servers running algorithms nonstop to process data — and McKinsey, a global management consulting firm, estimates that it will cost $6.7 trillion worldwide to meet that demand by 2030. Bigger isn't better: it's required, not only to produce good outcomes but to pay for them. Small companies are inherently disadvantaged in this competition since they don't have the deep pockets. The competition to develop that capacity is often likened to an arms race. Spending mirrors that dynamic, as do the consequences of coming up short. (The shock of the DeepSeek AI breakthrough was triggered as much by its cost — a fraction of what the principal AI companies were spending — as its computing success.) Pick your perspective. In the U.S.-China race, the World Economic Forum estimates that the U.S. is winning as a result of $300 billion in AI infrastructure spending in 2024, six times Chinese investment. As a result, the U.S. has 10 times as many data centers as does China and spends nearly four times more on AI servers. In the U.S.-Europe competition, the WEF reckons Europe in 2023 invested $1.7 billion in GenAI, a tiny fraction of the $23 billion spent in the U.S. The EU developed a plan to support development of the European cloud infrastructure and ponied up €1.2 billion. Hold the applause: Amazon Web Services invests more than $30 billion annually. And Japan? Stanford research put its private sector AI investment in 2024 at just under $1 billion, trailing not only the main players but regional countries such as Israel, South Korea and the United Arab Emirates. The race for scale matters. Big companies have more to invest in the R&D that keeps them at the frontiers of the tech competition. The McKinsey Global Institute found that large European firms with more than $1 billion in revenue collectively invest $400 billion a year less than their U.S. counterparts and spend only half as much on R&D. As a result, they grow one-third the speed and generate 4 percentage points lower returns on capital. It should come as no surprise that in one list of 10 critical technologies of the future, Europe leads in just two. MGI estimated that €500 billion to €1 trillion of value added could be at stake annually by 2030. That aligns with the thinking of Microsoft President Brad Smith, who warned that 'AI and cloud data centers represent the next stage of industrialization.' Mary Meeker, one of the first analysts of the digital era, and her colleagues explained that the world's biggest tech companies are spending heavily on AI, 'not just to gather data, but to learn from it, reason with it and monetize it in real time. It's still about data, but now the advantage goes to those who can train on it fastest, personalize it deepest and deploy it widest.' But remember that scale is about making innovation effective. Lab rats aren't enough; their work must be deployed and integrated into the wider economy. Here, China's industrial model matters. Pushan Dutt, professor of economics at INSEAD, the preeminent European business school, explained that 'China's AI ecosystem — marked by a lower cost structure and the availability of open-weight models — lowers barriers and enables rapid scaling and diffusion across consumer and industrial sectors.' China's pragmatic approach — one that focuses on application — facilitates the spread of technology. Its AI policies prioritize solving problems from manufacturing to services. The success of that policy is evident from its domination of new technologies like electric vehicles and solar panels. The explosive growth of China's manufacturing generally is another reflection of its scale. It has a 32% share of global manufacturing, more than five times its share at the turn of the century. In five years, the United Nations estimates that China's share will be four times that of the U.S. — 40% vs. 11%. Sure, there are complaints about overcapacity and China exporting its inefficiencies, but that is just another expression of scale. This poses singular geopolitical challenges. Rush Doshi, a China hand who served in the Biden White House, studied the global U.S. role since World War II and warns that 'China represents the first competitor with true size and scale advantages against the United States.' Writing in Foreign Affairs, Doshi and Kurt Campbell, one of the original Democratic Party Indo-Pacific strategists, promote 'allied scale' as an alternative grand strategy for the U.S. Their logic is simple: 'Strategic advantage will once again accrue to those who can operate at scale. China possesses scale and the United States does not — at least not by itself.' Working with allies and partners, the U.S. can outpace China. Collectively, the U.S. and its allies have approximately three times China's nominal gross domestic product, twice China's purchasing power adjusted for GDP and more than twice China's defense spending. They would have 1.5 to 2 times China's share of manufacturing and would dominate in patents and top-cited publications. And while China currently is the number one trading partner to as many as 140 countries, a collective of the U.S. and its allies would supplant Beijing in those rankings, with the exception of North Korea. Scale is a bipartisan solution. Kori Schake, director of foreign and defense policy at the American Enterprise Institute and a former Republican National Security Council staffer, is on board. She writes that 'without allied assistance, the United States cannot adequately surveil and protect its networks or physical infrastructure, orchestrate an elective economic penalties campaign, project power across the vast Pacific Ocean, launch high-intensity combat operations, resupply its forces or produce necessary munitions.' For some of us, this logic is obvious and unassailable. Making it work, however, requires a new approach to partnership and cooperation. At this moment, it's hard to see a recognition of the need for scale driving decision-making in the West. Barriers to cooperation are proliferating, not decreasing. During the Cold War, the West didn't scale. It didn't need to. The U.S. had allies and partners, but America did the heavy lifting on security — the new reality is reflected in today's demand for bigger contributions — and for much of that time the United States was the unquestioned economic power. Allies and partners contributed manpower, territory (for forward bases) and legitimized U.S. leadership. That wasn't scale as we think about it now. This new world demands a new perspective. Scale is an essential element of that framework: We ignore it at our peril. Brad Glosserman is a senior adviser at Pacific Forum and the author of "Peak Japan." His upcoming book on the geopolitics of high-tech is expected to be released by Hurst Publishers this fall.
Forbes
17-07-2025
- Business
- Forbes
Affluent Americans Are Ditching Concierge Perks In Favor Of No-Fee Cards, Cashback And Rewards Programs
Consumers now prefer credit cards that deliver tangible financial value. The credit card selling points that matter most are shifting fast. According to new data from the Forbes Research 2025 Mass Affluent Survey, well-off consumers are rethinking what makes a card worth carrying. The survey, fielded from May to June among 1,012 U.S.-based individuals with $200,000 to $2 million in investable assets, revealed the following: The Popularity Of Concierge Services Is Declining Concierge access – personalized assistance for travel, dining and more – is now one of the least-valued features among affluent cardholders. Just 9% of respondents cited it as the feature they value most, down sharply from 40% in 2024. No-Fee Cards And Rewards Are The New Must-Haves As concierge services fall out of favor, practical perks are gaining ground. Across age groups, cardholders are now gravitating toward options that deliver tangible financial value, most notably, no-fee cards and rewards programs. The share of respondents who prioritize no annual fees jumped from 35% in 2024 to 66% in 2025. Rewards programs saw a similar surge, rising from 45% to 70% over the same period. The data points suggest that utility now trumps exclusivity, providing a blueprint for credit card providers looking to meet the changing demands of this sought-after demographic.
