Policy Lag in a Compute-Driven Economy

Why exponential compute growth is outpacing policy

Introduction

The 21st-century economy is increasingly defined not by raw materials or manual labor but by computational capacity. A compute-driven economy refers to an economic system where digital infrastructure, including artificial intelligence (AI), semiconductors, and cloud computing, forms the backbone of productivity and innovation. From healthcare to logistics, national competitiveness now hinges on access to powerful compute resources.

However, policy frameworks that shape innovation, trade, and governance have not kept pace with this acceleration. The term policy lag captures this widening gap between technological advancement and regulatory adaptation. In today’s global landscape, compute power grows exponentially while institutions remain bound by slower bureaucratic, legal, and legislative cycles. This mismatch introduces strategic, economic, and ethical risks that increasingly shape international relations and domestic economies alike [1][2].

The Acceleration of Compute Power

Over the past decade, the pace of computational growth has surpassed that of earlier technological revolutions. Straits Research reports the global average computing-power market was valued at USD 238.9 billion in 2024 and is projected to grow to USD 620.5 billion by 2033, a compound annual growth rate of about 11.5% between 2025 and 2033 [1]. This acceleration is not merely a by-product of consumer technology; it represents a structural transformation of economic foundations. McKinsey & Company’s Technology Trends Outlook 2025 notes that demand for computing capacity, memory, and networking for AI training is rising exponentially and that AI-ready data-center capacity is expected to grow at a rate of around 33 percent per year between 2023 and 2030 [3].

Meanwhile, cloud computing and semiconductor innovation continue to expand capacity. PwC’s 2024 report projects global semiconductor market revenue reaching approximately USD 642 billion in 2024, with growth to beyond USD 1 trillion by 2030 [4]. This expansion has turned compute into a form of “digital capital,” analogous to oil or steel in previous eras, a resource nations increasingly compete to control.

Understanding Policy Lag

Policy lag occurs when regulatory systems fail to evolve in tandem with technological progress. In the context of a compute-driven economy, this lag manifests in several domains. Governments often lack the technical expertise to legislate rapidly evolving systems such as AI models or cloud infrastructure. Legal frameworks designed for industrial or information-age economies are ill-suited for the compute age, where algorithms and data pipelines move across borders. The policymaking cycle, involving research, consultation, drafting, and implementation, unfolds over years, while AI models iterate in months. The OECD (2024) highlights that AI governance remains fragmented, with countries following divergent policy paths and coordination on frameworks, standards and infrastructure still underdeveloped [5]. This misalignment risks creating “regulatory vacuums” in which powerful private entities define de facto global norms before states intervene.The lag is not inherently a failure of governance but a structural feature of modern innovation cycles. When computational capacity evolves exponentially, even proactive policy struggles to keep pace with emergent applications such as generative AI or autonomous systems. Yet, the costs of lag are material, from energy inefficiency to geopolitical imbalance.

Economic and Geopolitical Implications

The policy lag in a compute-driven economy has significant economic and geopolitical consequences. First, it redistributes global power around access to high-performance computing. The Tony Blair Institute for Global Change (2024) frames access to compute as a strategic foundation of national power and warns that differences in infrastructure risk creating a hierarchy of ‘compute-rich’ and ‘compute-poor’ nations [2]. Compute concentration mirrors capital accumulation. The largest technology firms now dominate both hardware supply and AI capability. McKinsey (2025) observes that compute capacity is becoming increasingly concentrated among a small group of large technology firms that dominate AI infrastructure [3]. This concentration reduces competitive diversity and limits small-state participation in frontier research.

Semiconductor supply chains are now instruments of statecraft. The PwC (2024) report notes that export controls on advanced chips, particularly those involving U.S. and Chinese firms, have reshaped global manufacturing alliances [4]. Compute has thus become both an enabler and a weapon of economic influence. The European Commission (2025) reports that although energy-efficiency reporting for data centers has begun under new EU regulations, only about 36% of eligible operators participated in the first reporting period, and performance and coverage vary widely across Member States [6]. Without policy intervention, these disparities risk hard-coding inequality into the architecture of the digital economy.

Case Studies of Policy Lag

The pace of AI advancement has repeatedly outstripped policy adaptation. For example, generative AI systems such as GPT-4 and Gemini prompted rapid adoption across industries before comprehensive governance frameworks existed. The OECD (2024) notes that global AI governance remains fragmented, with divergent national approaches and limited mechanisms for coordination or accountability [5]. This reflects how governments legislate downstream, after innovation diffuses, rather than proactively guiding infrastructure and ethical standards.

Export-control policy illustrates another form of lag. The U.S. introduced restrictions on advanced GPU exports to China in 2022, yet chip architectures rapidly evolved to circumvent thresholds. PwC (2024) notes that export-control restrictions and local content requirements are disrupting traditional global supply chains and prompting semiconductor firms to adapt through localized, component-level strategies rather than broad ecosystem coordination [4]. Consequently, regulatory measures often become obsolete within months. Data-center sustainability represents a third dimension of policy lag. Energy efficiency has improved, yet environmental regulation has struggled to match the scale of growth. Buyya, Ilager & Arroba (2023) project that by 2025 global data-centers could consume about 20% of global electricity, and they call for integrated resource-and-workload-management frameworks to improve sustainability [7]. Murino (2023) argues that sustainable data-center operations depend on metrics such as energy efficiency, water usage and waste-heat recovery (among others), and emphasises the need to integrate these measures into design and operations to enhance sustainability [8]. Similarly, the European Commission (2025) reports that only a fraction of eligible EU data centers have submitted full KPI data, revealing persistent gaps in transparency and energy-efficiency reporting [6]. As a result, nations pursuing digital expansion risk breaching climate targets unless governance frameworks integrate compute-specific sustainability standards.

Aligning Policy with Compute Growth

Bridging the policy lag requires structural rethinking across governance, infrastructure, and education. Governments must treat compute capacity as critical infrastructure. The Tony Blair Institute recommends that governments treat compute as a strategic infrastructure and build governance frameworks to support equitable access and cooperation [2]. This approach would shift policy from reactive control to strategic coordination. Policymakers need tools to measure and forecast compute demand. Straits Research projects the global computing-power market will grow at a CAGR of 11.5% between 2025 and 2033, expanding from about USD 254.7 billion in 2025 to USD 620.5 billion by 2033 [1], yet few national budgets reflect this in infrastructure spending. Integrating compute metrics into GDP accounting or industrial policy could help states anticipate bottlenecks rather than respond to crises.

The OECD (2024) emphasises the need for international cooperation and strategic foresight to align global standards and promote the safe and trustworthy deployment of AI systems [5]. Without such coordination, fragmented regulation may reinforce existing power asymmetries between compute-rich and compute-poor economies. Finally, energy policy must evolve alongside compute expansion. Murino (2023) proposes a holistic framework for data centers that encompasses waste-heat recovery, energy- and water-use metrics, and sustainable infrastructure design [8]. Buyya, Ilager & Arroba (2023) call for integrated resource-and-workload-management frameworks in data centers that deliver high-quality services while improving energy-efficiency and sustainability [7]. The European Commission (2025) notes that harmonised performance and reporting standards for data centers are crucial for reducing energy and environmental risks across the EU [6]. Such coordination would require aligning environmental and digital ministries, ensuring that compute policy becomes a pillar of climate strategy.

Conclusion

As compute power becomes the new foundation of productivity and geopolitical leverage, the lag between innovation and regulation carries real risks. Nations that fail to integrate compute policy into economic planning may face technological dependence, strategic vulnerability, and widening inequality. The evidence across AI governance, semiconductor trade, and energy policy reveals a common structural flaw: institutions built for industrial-age innovation are ill-equipped for exponential technological growth. Bridging this gap requires modernized regulation, coordinated international standards, and recognition that compute power, like electricity or infrastructure before it, demands proactive governance. In the compute-driven economy, power no longer resides merely in data or algorithms but in the ability to translate technical acceleration into equitable, sustainable, and secure systems. The speed of innovation will not slow; only policy can learn to move faster.

References

1. Computing Power Market Size & Outlook, 2025–2033 | Straits Research (2025)
   https://straitsresearch.com/report/computing-power-market

2. State of Compute Access 2024: How to Navigate the New Power Paradox | Tony Blair Institute for Global Change (2024)
   https://institute.global/insights/tech-and-digitalisation/state-of-compute-access-2024-how-to-navigate-the-new-power-paradox

3. Technology Trends Outlook 2025 | McKinsey & Company (2025)
   https://www.mckinsey.com/~/media/mckinsey/business%20functions/mckinsey%20digital/our%20insights/the%20top%20trends%20in%20tech%202025/mckinsey-technology-trends-outlook-2025.pdf

4. State of the Semiconductor Industry Report | PwC (2024)
   https://www.pwc.com/gx/en/industries/technology/state-of-the-semiconductor-industry-report.pdf

5. Futures of Global AI Governance: Background Note | Organisation for Economic Co-operation and Development (OECD) (2024)
   https://www.oecd.org/content/dam/oecd/en/about/programmes/strategic-foresight/GSG%20Background%20Note_GSG%282024%291en.pdf

6. Assessment of the Energy Performance and Sustainability of Data Centres in EU | European Commission (2025)
   https://op.europa.eu/o/opportal-service/download-handler?format=PDF&identifier=83be4c3e-5c79-11f0-a9d0-01aa75ed71a1&language=en&productionSystem=cellar

7. Energy-Efficiency and Sustainability in New Generation Cloud Computing: A Vision and Directions for Integrated Management of Data Centre Resources and Workloads | Buyya, R., Ilager, S., & Arroba, P. (2023)
   https://arxiv.org/abs/2303.10572

8. Sustainable Energy Data Centres: A Holistic Conceptual Framework | Murino, T. (2023), Energies, 16(15), 5764
   https://www.mdpi.com/1996-1073/16/15/5764