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Memo to Europe: innovate or stagnate in the digital economy

, October 24, 2013, 0 Comments

When EU leaders meet in Brussels next week, they will face with a stark choice: embrace proposals to modernise the digital economy or fall further behind China and the US.

Ann Mettler, Executive Director and Co-Founder, The Lisbon Council. (Photo: Courtesy of @lisboncouncil)

When Europe took its first, tentative steps towards creating a common market in 1951, it was all about coal and steel. A continent facing the challenge of rebuilding after World War Two felt the need to pool its resources to feed its machines and build up its industry.

But what if today’s challenge to build digital infrastructure were just as important? What if technological innovation were just as important to Europe’s future today as traditional industries had been in the 1950s?

The historical analogy wasn’t lost on the President of the European Council, Herman Van Rompuy, who recently told a gathering of Europe’s high-tech industry leaders and innovation policy wonks that a failure to understand the impact of the digital economy could cost the EU dearly.

“We Europeans are lagging behind, and the reason is that we have invested too little in infrastructure,” Van Rompuy says. “And that is a disgrace. This is something we used to be so good at – from Marconi onwards in the history of telecommunications technologies.”

But it’s not all self-flagellation from the most powerful man in Europe.

Van Rompuy promises to accentuate the positives when he places Europe’s digital agenda on the table at next Thursday’s European Council meeting in Brussels.

“We know exactly what we would need to do to get back in the game,” Van Rompuy says. “From intellectual property to copyright, to market fragmentation, to consumer protection, to investment in infrastructure, to support for startups, to digital skills – we know what’s holding us back.”

It’s a welcome acknowledgement to many in the industry that Europe is facing a crisis as a result of poor policy settings, artificial technological borders set up by member states, and a failure to invest in digital infrastructure.

“A dynamic, innovative, digital single market should be the next big European integration project,” says Ann Mettler, the co-author of a new report on European Innovation. “It’s a no-brainer economically: it drives growth, employment and jobs. [But] a dynamic, innovative single market would also really be a way to build a bridge to the next generation of digital natives.”

The digital natives are restless

The message Europe’s leaders will hear is simple: innovation will drive economic recovery.

Research suggests above two-thirds of Europe’s economic growth is linked to technological innovation. What’s more, online connectivity is giving European small to medium enterprises the shot in the arm they so badly need.

But according to many e-entrepreneurs, Europe’s ongoing struggle with creating a common market in the area of patents, telecommunications and regulation is the largest road-block to innovation-led growth.

Nico Perez, the co-founder of internet radio startup Mixcloud, says the red tape which new business have to cut through when crossing European borders is maddening.

“Having to deal with licensing negotiations in 28 different countries, with at least two [royalty] collecting societies in each country, is a nigh-on impossible task,” Perez says.

Regulatory reform to create a streamlined European environment for startups is the one area on which most people in European institutions can agree. But when it comes to European states putting more funding into developing digital infrastructure, opinions vary.

John Bell, the chief of staff of Europe’s Research and Innovation Commissioner, Maire Geoghegan-Quinn, says he gets concerned when the discussion about investment targets are used as a distraction from the “deep-seated” market reforms Europe needs.

“If this were to happen, it would be music to the ears of people who don’t want reform and don’t want to invest,” Bell told participants at a 2013 Innovation Summit, which was organised by the Lisbon Council, a Brussels-based think-tank. “If you’re not investing in your research base, you sure as hell are not going to go out and make some of the changes you need to do.”

Let data bloom

Creating a business-friendly environment both for startups and digital giants isn’t only about single markets and research.

Google’s vice president for Southern and Eastern Europe, Carlo d’Asaro Biondo, believes Europe’s privacy laws are also wreaking havoc.

“Yes, privacy matters, it is fundamental, it’s important,” d’Asaro Biondo says. “But if we refuse to embrace the value that data can bring to understand each other and provide services, we create a new problem in the new economy.”

“Blocking the usage of data on principle is like saying ‘I’m a leopard, I’ve got fantastic legs, but I really want to be a fish.’ It doesn’t make any sense. We must be careful to really talk about it seriously, and when we speak about privacy, define what we mean. Protect people seriously, while enabling the use of new technologies.”

Nico Perez says governments must also consider releasing their data to business.

“We are moving to this world of big data, and we have all these public institutions with vast amounts of data that’s not accessible yet to the public,” Perez says. “And essentially it’s data that has been funded by your taxes. And so we should really be able to access that and even to build new businesses off the top of that.”