We live in uncertain and dynamic times. The last 50 years have been marked by unprecedented technological and cultural changes that paved the way for the creation of new societal and economic mechanisms. Without any prejudice, this is the best-known way for innovation to happen, at least till the time being: through challenges and changing evenness. Different technologies have played distinct roles over the years since the abruption of the digital era and the pace of innovation has never been so fast. In these changing setups, what has always proved to be a cornerstone is the fact that technology is one of the key drivers for economic growth. The application to its related sectors allows the creation of new values coming from, among others, improved efficiency, and quality. Usually, when a new technology breaks, it immediately creates echoing effects that requires attention and governance. New and fresh knowledge needs to be distributed among all the key players involved to be successfully adopted in the intended processes and start generating new benefits.
And here is where the concept of “open innovation” comes in help. Against the closed mentality that led traditional research and development labs where new findings must be kept under total secrecy, “open innovation” foster the exact opposite approach. It promises to deliver much higher value by spreading knowledge to as many involved parties as possible and promoting a culture of cooperation where every party gain access to much bigger opportunities. This concept plays an important role in supporting the application of emerging technologies and is even more evident with information and communication technologies like AI, Blockchain, 5G and IoT which are totally reshaping the stairway to growth with incredible potential to lift the new value generation trajectory. But what is the current status of technology innovation in Europe and what are its drivers and challenges?
The global outlook
When we look at how Europe can play its role at the game of growth, we find there is still a long way ahead. At the time of this article, and wishing this will change soon, generally, Europe is not at the forefront of innovation. There are too many underperforming companies and too few innovation- driven emerging companies. If North America leads with more than 500 unicorns (young companies with a market evaluation of more than 1bn USD) and Asia follows with more than 400, Europe stays well behind the scenes with just around 100 companies. As per Statista research, a similar trend is also happening in terms of investments in IT and ICT research and development with US owning more than 60% of the total investment shares.
Innovation poses new challenges
Innovation and emerging technologies, as we mean them in this article, play a key role for growth, but they don’t come without drawbacks. Understanding their benefits and threats allows us to drive their adoption towards the highest benefit. In developed countries, ageing population, and the difficulty for education to keep the race with technology innovation act like the main hurdles limiting the diffusion of innovation itself. In developing countries, emerging technologies might even be less accessible and when adopted they might pose an even worse threat to the present economic productive environment. Without integrated new pathways to growth made by aligning production with emerging technologies it is very difficult for the growth to be propelled by production. The risk is to be unable to exploit the full potential of new technologies in developed countries and create bigger social gaps between those with access to them and those without in developing economies.
Emerging technologies have a three-fold impact on main growth indicators: productivity, capital, and labor. Looking at the European setup, in the past, such events have boosted productivity by creating new businesses, forging new services and industries, transforming the workforce, and, therefore, contributing to the GDP growth.
Today, the IT/ICT sector remains one the largest employers with a steady growth at a compound annual growth rate (CAGR) of 9% with Meta alone creating over 182,000 jobs in 2011. This is clearly an evident impact on productivity and labor with the latter gaining its greatest momentum even today.
On the other end, looking at the flipside, many times we experienced a kind of “winner-takes-the-most” syndrome where innovation has proved to be the driver of less dynamism and competition, leaving far behind those sectors that could not benefit from it. And if, from one side, we found similar positive effects on labor with the creation of differentiated opportunities, more workplaces, and the generation of higher education, on the opposite, this led to rising inequalities, increased social tensions and job losses for low- skilled workers. In several situations, innovation has been the driver for inequalities and the generator of huge economical gaps among workers. New technologies have also been the cause of shifting investments from labor to capital with subsequent effects of reducing the total investments in non-technology ventures.
What to do?
To surf the wave of innovation and gain benefits out of it, something must change and adapt to the new rules. We will need to be able to deal effectively with disruptions and changes. There will not be any stability in innovation, especially with IT and ICT technologies that have proved to evolve quickly. We will also need to invest in education with a different perspective. It is not just about to acquire new skills; it must be a new mindset that make people continuously invest in their education and in activities that become part of our daily job.
We need to change labor market policies privileging continuous skill acquisition over job protection and re-aligning contracts to this new changing nature of work and education. Policies should shift from seeking to protect existing jobs to improve worker’s ability to acquire new skills. We need to foster the culture of problem solving. Problems’ resolution must become our everyday job and we need to address them equipped with the new skills gained through our continuous learning process. Investments in education should be oriented to the path for acquisition of the skills for the job of the future.
Similarly, from institutions we will need them to revise the tax system with introduction of more lightweight policies and reduced bureaucracy. The antiquated tax systems present in many European countries is driving capital investments out of Europe and into the hands of competitors. In many countries, policymakers are facing challenges in simultaneously addressing the problems of low productivity growth and rising inequalities in a context of increasing fiscal pressure as a result of ageing population and climate change. Reforms to adapt to globalization and new flexible working models are definitely required.
References
- https://www.businesswire.com/news/ home/20210909006056/en/Information- Technology-
Global-Market-Report- 2021-IT-Services-Computer-Hardware- Telecom-Software-Products— Forecast-to-2025-2030—ResearchAndMarkets.com - https://www.weforum.org/agen- da/2013/04/five-ways-technology-can- help-the-economy/
- https://www.oecd.org/g20/Tax-policies- for-inclusive-growth-in-a-changing-world- OECD.pdf
- https://www.brookings.edu/blog/ up-front/2020/02/25/technology-and-the- future-of-growth-
challenges-of-change/
Massimiliano Pesce
Managing Director,
EU Tech Chamber
