In the aftermath of World War II, the United States emerged as a dominant economic and military force, promoting a rule-based world order through international organizations like the UN. However, as noted by Canadian Prime Minister Mark Carney, many understood this framework was flawed, as powerful nations often made exceptions for themselves.
The landscape began to shift with U.S. President Donald Trump’s assertion that this established world order was largely a deception. Conversations with senior political leaders reveal a collective realization that they have ceded significant control over national sovereignty. Decisions around digital infrastructure, financial assets, and military defense increasingly lie outside their grasp. As a result, Carney’s vision for a coalition of mid-sized nations capable of competing against the U.S. and China is gaining traction among global leaders.
A notable example of this shifting dynamics is the free trade agreement between the EU and India. After 17 years of stagnation, this deal finally gained momentum in January, opening a market for nearly 2 billion people and accounting for almost one-quarter of the world’s GDP. Interestingly, it is reported that India invested millions in promoting their innovative public digital infrastructure, known as Citizens Stack, at this year’s World Economic Forum in Davos. Modeled after the successful India Stack, Citizens Stack offers a suite of government-supported digital tools for identity verification, financial transactions, document storage, and service access via smartphones, and has already attracted interest from over a dozen other countries.
Embracing “Local” AI
Many smaller nations are hopeful that AI will provide solutions to navigate political transitions and foster economic prosperity. Instead of relying on large, generalized models from American tech giants, they are seeking more specialized “sovereign” AI agents tailored to their needs in areas like trade, banking, governance, and citizen services.
For example, India’s Citizens Stack is designed to be adaptable, allowing each participating nation to customize its offerings, thus creating an interoperable digital trade area for AI agents. Similarly, China is significantly increasing its investments in the Belt and Road Initiative, which aims to enhance global infrastructure and economic development across Asia, Europe, and Africa—also establishing platforms for interoperable AI trade.
Numerous companies across finance, healthcare, and trade sectors are adopting this localized approach as well. Instead of creating uniform services, they are implementing systems specifically designed for local conditions, while still supporting international trade.
AI’s Potential to Foster Small Businesses
As nations and firms explore practical applications of AI, they envision a thriving economic landscape shaped by technology. The primary strength of AI lies in its ability to manage vast amounts of information and facilitate complex transactions, empowering systems to become more sophisticated and efficient.
As outlined in the recent book Flash Teams, authored by Stanford colleagues Melissa Valentine and Michael Bernstein, and in my own work Shared Wisdom, AI tools are already enabling small teams to effectively manage large, complex organizations. This shift suggests that CEOs and senior managers are likely to maintain smaller internal teams while also expanding with localized project work globally, reminiscent of the operational models employed by major Indian software firms today.
This evolution could lead us toward a world characterized by decentralized companies and startups that specialize in offering localized services. Imagine a scenario akin to present-day San Francisco, where government statistics reveal a working-age population of 600,000, around 15,000 venture-backed startups, and 90,000 small and medium-sized enterprises (SMEs)—including everything from restaurants to retail services. The majority of residents are engaged in small, specialized, and localized ventures.
Addressing Income Inequality in the AI Age
While a landscape of small, flexible organizations may enhance innovation, it could also jeopardize existing social safety nets currently reliant on traditional employment. The notion of universal basic income (UBI) has emerged as a potential solution to support workers in a rapidly evolving economy driven by AI. However, the challenge of raising taxes to fund such initiatives remains daunting.
An intriguing alternative is the concept of Universal Investment, which proposes that every newly established company contributes 10% of its founding shares to a sovereign wealth fund—similar to Alaska’s model for distributing oil wealth among residents. Given that new companies typically hold minimal value at inception, relinquishing 10% of these valueless shares appears more manageable than seeking tax exemptions. Had such a model been in place over the past three decades, the 10% from all newly-formed companies in the U.S. would have amassed over $9 trillion, generating sufficient income to provide each citizen with an annual payment of $3,000—comparable to the Alaskan fund’s peak performance. If AI achieves its potential to boost productivity, these annual payments could rise to provide a substantial living wage for all citizens.
In summary, nations are rapidly adapting to changes in their economies caused by both AI and shifting geopolitical dynamics. What we are witnessing is the emergence of not merely new trade agreements but a novel framework for sovereignty characterized by collaborative digital infrastructure, interoperable standards, and AI systems tailored to local markets. The nations that will thrive in this new paradigm will be those that proactively establish the foundational frameworks rather than waiting for superpowers to dictate the rules.
Alex (Sandy) Pentland is a Center Fellow at the Stanford Institute for Human-Centered AI, focusing on the Digital Economy Lab, and is a professor of information technology at MIT.
