The FINANCIAL — Digital technologies are transforming economic opportunities, a trend being accelerated as businesses and workers respond to the COVID-19 pandemic. The potential to raise productivity and to expand opportunities for firms that are small or in less developed locations is real. But it is not being fully realized according to Europe 4.0: Addressing the Digital Dilemma, launched today. The evidence shows a tension in the region’s presence in the digital space and in building a vibrant digital economy that benefits more people. Those technologies where European firms are most competitive are those where the benefits are most concentrated in larger firms and existing production hubs; those technologies with the greatest potential for inclusion are those where European firms are less competitive.
“Europe is a global leader in a number of operational technology fields such as smart robotics and 3D printing. But it lags in the spheres of transactional technology, such as online retail and ride-sharing, and informational technology, such as cloud computing and social media. The Europe 4.0 report suggests Europe can pursue opportunities to use technology to do more as countries seek greater market inclusion, competitiveness, and convergence,” Gallina A. Vincelette, Director for the European Union Countries at the World Bank.
Despite its advantages in operational technology, however, Europe also faces challenges in this area, including the fact these technologies tend to foster geographic concentration. It can also make it more difficult for smaller firms to compete without access to high cost advanced technologies.
“Encouraging the use of digital platforms can foster job creation,” said Vincelette. “The report shows that nearly two-thirds of firms in Europe that implemented digital platforms in their businesses experienced an increase in employment growth over the past three years. These benefits have been reinforced during the COVID-19 pandemic, with more reliance on technology and home-based work reducing operational costs and increasing competitiveness and market inclusion. In the context of the pandemic, digital connectivity has become an essential public good and prerequisite for business and operational continuity.”
While the report notes that transactional technologies have the biggest potential to boost market inclusion and geographic convergence in the region, only one in three small and medium enterprises in Europe use these platforms; and even fewer are globally competitive.
Informational technologies can also boost market inclusion by closing the labor productivity gap between large and small firms – with these technologies disproportionately benefiting small firms due to the low fixed cost of installation relative to hardware and the elimination of upfront capital expenditure. However, traditional informational technologies have not enabled greater geographic convergence in Europe.
According to the report, Europe can make progress on its digital agenda by embracing new technologies in ways that can boost simultaneously economic competitiveness, market inclusion, and geographic convergence. Reforms and investments focusing on scaling markets, shaping the commercial use of data, and smoothing the adoption of technology will help Europe achieve its triple digital objectives without compromising its social values. Completing the digital single market and closing gaps in infrastructure, skills, and logistics can help scale markets, while addressing challenges posed by AI in ways that are aligned with data privacy priorities can help inform the commercial use of data.
Finally, investments in frontier innovation, support to research and development, and capacity-building initiatives can help smaller firms and firms in lagging regions adopt technology more quickly.