How Europe could leapfrog the US in productivity

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Despite Europe leading the United States in the application of digital technologies, it is still far behind in overall economic productivity, argues Robert Atkinson, the president of the Information Technology and Innovation Foundation, in the summer edition of Europe’s World.

Atkinson believes Europe can boost its productivity through more widespread use of ICT. To achieve this, ICT will have to be put “at the centre of its economic policies for trade, technology, competition, the labour market and regulation,” he says. 

As well as being essential for economic growth, boosting productivity would help Europe to create more wealth to meet the costs of its ageing population and create the investment needed to tackle climate change. 

Atkinson outlines the areas where Europe is actually ahead of the United States in the application of ICT, including the broadband, banking, smart card and healthcare sectors. Yet he laments the fact that Europe has still not reaped the “same level of benefits” from ICT as the US has. 

He gives two reasons for this: European companies generally invest less in ICT than their US counterparts and also “appear to make less ‘re-engineering’ changes”. 

Atkinson believes European policymakers need to push business, governments and NGOs to take “full advantage of the ICT revolution to increase productivity growth”. This is because it is by using digital technology rather than via a “marginal increase in employment in a few high-tech firms” that Europe will achieve higher productivity growth, he observes. 

The author criticises the EU’s decision to remove a number of high-tech products from the WTO’s Information Technology Agreement (ITA), allowing it to impose high tariffs on a number of imported technological goods. He says “for every 1% drop in the price of IT products, there is a 1.5% increase in demand,” claiming that tariffs are actually leading to lower and not higher productivity. He thus calls for limits on regulation in this sector. 

The EU needs to “accept and even embrace” the need for restructuring and transformation to reap the “full benefits of the digital revolution,” he says. 

European product markets are still not fully integrated, he argues, making it harder for EU companies to apply IT and get the economies of scale seen in the US. 

“Europe has lagged behind the United States in its transition towards a fully digital economy and society,” he concludes. But with its better social security systems, he believes, it should be able to embrace the effects of restructuring. 

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