HOW INNOVATION AND EMERGING TECHNOLOGIES CAN BOOST ECONOMIC GROWTH?

Massimiliano Pesce

Managing Director, Urbana Smart Solutions & Advocate

EU Tech Chamber

Massimiliano Pesce

Managing Director, Urbana Smart Solutions & Advocate

Author Biography

Managing Director, Urbana Smart Solutions Advocate of the EU Tech Chamber

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 em ergi ng 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

  1. (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)
  2. https://www.weforum.org/agen- da/2013/04/five-ways-technology-can- help-the-economy/
  3. https://www.oecd.org/g20/Tax-policies- for-inclusive-growth-in-a-changing-world- OECD.pdf
  4. https://www.brookings.edu/blog/ up-front/2020/02/25/technology-and-the- future-of-growth-
    challenges-of-change/
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