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Debates

The Digital Economy

Are new ICT sectors a platform for European growth?

Reinhilde Veugelers / Oct 2012

The European Commissioners for the ICT sector and Innovation, Neelie Kroes and Máire Geoghegan-Quinn. Photo: European Union, 2012

Compared to the United States, Europe has a less efficient ICT growth model: the EU’s economy specialises less in ICT sectors, ICT contributes less to growth in the EU, and the EU is lagging in terms of private expenditures for research and development into ICT goods and services.

The EU fails to focus on the new ICT sub-sectors and firms which have the greatest potential for ICT-based growth, most notably internet and software. In particular, Europe lacks young leading innovators in these areas that could compete with corporations like Google, Apple, Amazon and Qualcomm in the US.

Europe’s failure to redirect towards new ICT firms and new ICT sectors is likely to matter for Europe’s post-crisis recovery dynamics. In the new ICT eco-system (ie post-internet), the locus of most important interactions has shifted to those where platform, content and application providers are more pivotal. These ICT sub-sectors, being young and highly R&D intensive, were the sectors where most of the pre-crisis ICT growth opportunities were and who also experienced only a minor reduction in growth rates during the crisis. 

In these sectors, Europe is weakly present with (young) leading innovators. It lacks particularly leading platform providers, who are capturing most of the value in the new ICT eco-system. With European companies holding less of these platform positions, the question is whether they will be able to capture value on the new and follow-up generations of innovations or as providers of applications and equipment to the leading platform firms. This will depend inter alia on the contestability and the compatibility of the platforms.

Analysing in depth some specific new emerging ICT technologies and markets and examining in more detail the reasons for the (in)ability of European firms to grow into leading world innovators in these sectors, shows that the problem in Europe appear not to be so much in the generation of new ideas, but rather further down the commercialisation path, bringing ideas successfully to world market, as in the lack of a single digital market, fragmented IP, a lack of entrepreneurial culture, access to risk capital and strong ICT clusters with pooled labour markets, advanced early (public) users, and complementary industries.   

These insights suggest improving the EU policy framework currently in use, particularly the Innovation Union and Digital Agenda EU 2020 Flagships, to better leverage the growth power of new ICT markets for Europe.  For this, the emphasis in EU policy making should move beyond providing public funding for research to funding programs for pre-commercial projects and developing the framework conditions for new ICT market development. This implies first and foremost combating fragmentation in European digital markets, such as dealing with the fragmentation in IP rights and regulations and pushing the integration of public procurement markets. 

Having made progress on the EU-wide patent system, policymakers' attention should be directed towards an integrated EU approach to digital rights, copyright and data privacy policies. And without jeopardising quality standards, the European Patent Office’s examinations should be much more open towards new ICT technologies and soft protection mechanisms.

If and when governments intervene in standards and regulations, they should be internationally coordinated and designed with a technology-open perspective, which will allow new future innovators to continue to compete.

In line with the successes of US public procurement in ICT markets, the EU should make greater use of public procurement for nurturing early-stage innovations, at least in those sectors in which the public sector can act as a pivotal lead user, such as e-government, e-health and e-education, or public transport for RFID. Procurement policies should encourage entry and growth of new firms, nurture potential competition and the development of complementary actors. When done at an EU integrated or at least coordinated scale, risks and resources can be pooled across a larger public market. Removing the fragmentation in the European public procurement markets should therefore be high on the policy agenda.

To effectively address Europe’s thin risk capital market, new EU initiatives should complement existing EU instruments along the funding escalator, particularly to bridge the gap from the idea to the world market. A programme similar to the US Small Business Innovation Research programme for funding pre-commercial projects should be established.

At this stage of the analysis, with still too many unknowns about whether and which interventions are effective for new ICT markets, policymakers should engage in prospective analysis and close monitoring of emerging technologies and markets.

 

 



Reinhilde Veugelers

Reinhilde Veugelers

October 2012

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