Europe's Future Growth Rests on Information and Communications Technology

To Revive Productivity and Avert Long-term Stagnation, the E.U. Must Make Good Its Digital Deficit

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May 22, 2014, 04:00 ET

NEW YORK, May 22, 2014 /PRNewswire/ -- Information and Communications Technology (ICT) should hold the key to rescuing Europe from a bleak economic fate, reports Productivity and Digitalization in Europe: Paving the Road to Faster Growth, a special joint publication of The Conference Board and The Lisbon Council. The policy brief was authored by Bart van Ark, Chief Economist at The Conference Board, who will be presenting his findings today at the Europe 2020 Summit in Brussels. The event features keynote addresses by Jose Manuel Barroso, European Commission President, and Neelie Kroes, European Commissioner Vice-President and Commissioner for Digital Agenda.

The report argues that a better use of ICT could provide a significant upside to an otherwise anemic projection of just 1.4 percent annual GDP growth for the EU-28 between 2014 and 2019, which is down from the pre-2008 average of 2.6 percent. "The most powerful way to improve structural growth conditions in Europe is to strengthen productivity growth," said van Ark. "Maximizing the contribution of digitalization to these gains could accelerate the EU's growth rate to 2 percent."

According to the policy brief, the root cause of Europe's weak growth outlook is not just the aftermath of the global financial and economic crisis. In fact, 2014–19 growth in the United States is expected to average a comparatively healthy 2.4 percent. The E.U.-U.S .discrepancy can be traced to a combination of slower demographic developments, weaker investment, and less productivity growth. The slowing productivity trend in Europe, which has been on the decline in the E.U. for nearly 30 years can be traced directly to the weaker role of technology: Since the 1990s, ICT has accounted for a much smaller percentage of total investment, and the productivity which Europe obtained from ICT was much lower than in the U.S.

"Like steam power and electricity before it, ICT is a true general-purpose technology," said van Ark. "Its initial impacts on productivity are concentrated in a narrow range of applications and industries. But as digitalization spreads, the uses compound and proliferate through scale and network effects, ultimately delivering disproportionately large benefits to societies positioned to take advantage. This underlines the urgency of developing smart policy now, at the E.U.-level."

Among the policy brief's key findings:

For the European Union, achieving a true single market for digital services is critical for obtain the scale effects from ICT.
An improvement of Europe's 2014–19 growth outlook from the baseline of 1.4 percent to 2.0 percent might be achievable through smarter policies given room to productivity-enhancing applications.
Intangible investments in areas like training, organizational capital, and market research support materially support the impact of technology and innovation on economic growth.
There is no unique "European" problem making growth more difficult than anywhere else in the advanced world. In fact one group of EU member states, including Germany and the countries of Central and Eastern Europe are best positioned to achieve sustainable ICT-driven productivity growth, through a strongly integrated value chain. At the other end the Mediterranean countries and the U.K. — for different reasons—face the largest difficulties to be benefit more strongly from ICT.
Three key policy principles can help governments to pave a road to faster growth through productivity and digitalization:
- Secure high-quality and affordable ICT infrastructure for all sectors
- Make government and business work together to foster the skills and willingness to make better use of ICT and support overall ICT readiness;
- Facilitate a regulatory environment in which businesses in the ICT and non-ICT sector can thrive.

For complete details:
http://www.lisboncouncil.net

Report:  Productivity and Digitalization in Europe: Paving the Road to Faster Growth
             (Policy Brief)
             By Bart van Ark
             http://www.lisboncouncil.net//index.php?option=com_downloads&id=1026

About The Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

About The Lisbon Council
The Lisbon Council for Economic Competitiveness and Social Renewal asbl is a Brussels-based think tank and policy network. Established in 2003 in Belgium as a non-profit, non-partisan association, the group is dedicated to making a positive contribution through cutting-edge research and by engaging politicians and the public at large in a constructive exchange about Europe's economic and social future. Its website is www.lisboncouncil.net.

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