By the 1950s, the world faced an oversupply of steel. Manufacturers began substituting steel with alternatives like plastics and aluminum. Nevertheless, countries such as Japan, India, the US, and the EU continued to maintain domestic steel production due to its importance in construction and military applications.

Despite the declining demand for steel, global investments in the industry persist. In 2023, the OECD forecasted worsening overcapacity, leading to challenging market conditions and contributing to climate change.

Interestingly, while steel and AI are vastly different, many economists consider AI a general-purpose technology that can drive economic growth and innovation. Therefore, it is crucial for policymakers to ensure adequate domestic capacity.

However, government officials increasingly view AI as a critical technology vital for national security and economic advancement. A 2023 OECD review revealed that over 60 countries are utilizing taxpayer funds to develop, disseminate, or research AI, indicating significant investment in this area.

Countries like the U.S., Saudi Arabia, Japan, Germany, the U.K., and the EU have recently announced substantial public investments in AI. These efforts complement significant private sector funding, with the EU allocating $1 billion annually for AI capacity-building since 2018. In March 2024, Saudi Arabia revealed plans to invest approximately $40 billion from its $900 billion sovereign wealth fund into AI initiatives.

While these national investments are justifiable, they raise concerns about potential overcapacity, where the supply of AI may surpass demand.

Such overcapacity introduces additional risks beyond the well-known issues of AI, such as bias and inaccuracies. As nations strive to maintain domestic AI competitiveness, some may resort to offloading excess capacity, potentially enabling criminal elements or rogue agents to access advanced technologies. This scenario could lead to political instability.

Moreover, AI developers require substantial capital to create and implement these systems. To attract and retain such investments, some firms or governments might overlook necessary safeguards—strategies intended to mitigate adverse effects. Consequently, overcapacity may correlate with the development of unreliable or irresponsible AI.

Furthermore, in their competition with other nations, policymakers may choose to hoard data or restrict access to technologies, hindering collaborative efforts to leverage AI for knowledge advancement or to tackle pressing global issues like climate change. In this context, overcapacity could be linked to a lack of cooperation in AI utilization.

Lastly, excessive investment in AI could result in opportunity costs, diverting resources from other technologies and methodologies for analyzing large datasets.

Overcapacity is a common challenge in both national and international economies, where supply sometimes exceeds demand. However, when governments intervene to create and sustain capacity—as seen with steel and potentially with AI—the global spillover effects become increasingly difficult to manage. Policymakers should proactively address these risks at significant international forums such as the G-7, G-20, and the UN.

Further Reading

Must-read commentary published by Fortune:

• Women can’t fix the ‘broken rung’ unless they acknowledge the role they play in workplace bullying and discrimination
• Tech billionaires’ Trump-Vance dance is missing the point: You can’t always get what you want
• Gen Z’s enthusiasm for all things touchable is resurrecting the analog economy—and costing parents
• Nokia CEO: Europe shouldn’t be afraid to back its innovation champions

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.