Daily Update: December 5, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

A Patchwork of AI Governance Attempts To Address Ethical Concerns

On Nov. 17, OpenAI CEO Sam Altman joined an impromptu Google Meet call with members of OpenAI’s board and was promptly fired. The board members had lost confidence in their CEO, suggesting that what they perceived to be an aggressive and less-than-forthcoming way of doing business was antithetical to OpenAI’s mission, which is to ensure that artificial general intelligence benefits all of humanity. Approximately four days after the Google Meet call ended, Altman was reappointed CEO and most of the board was replaced. The real story of Altman’s ouster has been lost in press coverage that focuses on OpenAI’s idiosyncratic corporate structure and its — to be generous — peculiar manner of firing and rehiring its CEO. The real story is about the ethical governance of a technology that will have a profound impact on humans. The real story is about who decides what benefits all of humanity.

Bruno Bastit, a global corporate governance specialist at S&P Global Ratings, reviewed the risks associated with AI and the need for robust governance frameworks in “The AI Governance Challenge.” Governance is the process of overseeing the control and direction of something. In the case of OpenAI, governance is provided by the board of directors. The oversight function of a board is central to most for-profit and nonprofit governance. 

Technologies such as AI are not guided by any one board. Because the use of the technology is distributed across many companies and countries with competing interests, governance is a product of industry agreements, frequently established to forestall the threat of regulatory action. AI governance is not new. Several AI governance frameworks have been published aimed at providing high-level guidance for safe and trustworthy AI development, with multilateral groups such as the Organisation for Economic Co-operation and Development and UNESCO leading the way. Some AI governance has been attempted at the national level. China, the EU and the US have all shared proposed frameworks for AI governance.

The development of disruptive technologies frequently triggers the creation of international governance frameworks. The Treaty on the Non-Proliferation of Nuclear Weapons is one example of a governance framework for technology. Disruptive technologies are neither good nor bad, but they shake up societies. AI in the context of large language models is unquestionably disruptive. The central concerns for AI governance in the context of AI are transparency, fairness, privacy, adaptability and accountability. AI makes it easier to spread misinformation, damage reputations, destabilize countries, violate copyrights and tarnish our belief in truth. It also makes it easier to spread knowledge, protect reputations, stabilize societies, protect copyrights and expand our knowledge of the truth. Eliminating the negative and accentuating the positive is the work of governance. 

Among the governance frameworks that have emerged so far, Bastit identified some common themes: human centrism and oversight; ethical and responsible use; transparency and explainability; accountability including liability management, privacy and data protection; and safety, security and reliability. Frameworks that integrate these principles are more likely to mitigate AI-related risks and respond well to future regulatory pressure. 

There is always a tension between control and innovation. It is likely that this tension was at the heart of the conflict between Altman and OpenAI’s former board. Governance to manage this tension should start with a company’s board. But international agreements around AI governance will help companies balance their economic and social obligations.

Today is Tuesday, December 5, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

US Government Bonds Rally On Rate Cut Expectations; Yields Could Shift Quick

After months of declines, the US government bond market is in the midst of a sharp rally fueled by the expected end of the Federal Reserve's current interest rate hiking cycle. All US Treasury yields, which move opposite prices, have fallen since peaking in mid-October, while the S&P US Treasury Bond Index — a measure of the Treasury market's performance — has increased more than 3.6% since Oct. 19 after falling about 7.5% from early April.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Listen: Master of Risk | Episode 7 : John Kevill

Join Yashi Yadav as she speaks with John Kevill, managing partner of Solitude Cove Capital, a boutique commercial real estate advisory and investment firm as they take a deep dive into the commercial real estate industry and how it has been impacted by today's economy. John shares his 25 years of insights into why businesses are letting go of their leases and moving to a fully remote model and what is happening with these empty buildings.

—Listen and subscribe to Masters of Risk, a podcast from S&P Global Market Intelligence

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Global Trade

US Factories Report Job Losses As Demand Continues To Deteriorate, But Price Pressures Weaken

US manufacturing business conditions worsened in November, according to S&P Global's PMI data. Output was largely stagnant as new order inflows deteriorated, meaning backlogs of orders become increasingly depleted. While there are some encouraging signs of the inventory cycle acting as a lesser drag on the goods-producing sector, the overall worsening demand situation prompted manufacturers to cut payroll numbers for a second month in a row — the first such back-to-back drop in employment seen since 2009 if the early pandemic months are excluded.

—Read the article from S&P Global Market Intelligence

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Sustainability

Insight Conversation: Tom Campey, Hysata

Australia-based electrolyzer company Hysata has an ambitious target of ramping up its manufacturing plant in New South Wales, betting on the growing number of renewable hydrogen projects globally that are aiming to be ready for business before the turn of the decade. Hysata Chief Commercial Officer Tom Campey shared his views with S&P Global Commodity Insights Editor Ruchira Singh on the company's new technology and the cost economics it is designed to change, the pace of development of the new fuels industry and the support it needs to move ahead.

—Read the interview from S&P Global Market Intelligence

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Energy & Commodities

Asian Refiners Shrug Off OPEC+ Cut As Middle East Suppliers Respect Far East Contracts

Asian refiners were broadly unfazed by OPEC and its alliance making fresh commitment to limit the group's crude production and exports throughout early 2024 as major Middle Eastern suppliers are expected to continue prioritizing their customers in the Far East and provide stable term contractual volumes. Saudi Arabia said Nov. 30 that it will extend its 1 million b/d voluntary crude production cuts through the first quarter of 2024, while Russia agreed to a 500,000 b/d supply cut for the same duration. Several other OPEC+ members will also commit to voluntary supply cuts, bringing the total reduction by the alliance to 2.2 million b/d for the first three months next year.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Fuel For Thought: The Vehicle Affordability Crunch

Rising new vehicle prices in the US and Europe are leaving cash-strapped consumers with limited options for cheap cars — and the affordability gap is getting worse as premium-priced electric vehicles enter the market. But as legacy automakers depart the entry-segment, white space opportunity emerges for new, lower-cost manufacturers to enter the fray.

—Read the article and listen to the podcast from S&P Global Mobility

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