To fight these weaknesses, the institutional framework will be key. Forty-three percent of municipalities regard technical capacity for planning and project generation as a major obstacle. Difficulties in structuring public-private partnerships mean that incentives for private sector operators are unclear. Firms are three times more likely to innovate and nine times more likely to introduce a patent in regions that have a good institutional framework. Firms also consider business and labour market regulations to be significant impediments to investment.
The cost of inaction is high
Our EIB Investment Survey on digitalisation and skills, covering 1,700 firms in the EU and the US, represents the first direct comparison of digitalisation achievement in the EU and the US. The survey suggests that firms that adopt digital technologies tend to be more productive and innovative, and invest more. They also say that the adoption of digital technologies helps sales: 50% more firms in manufacturing and over 60% more in services say sales would have been lower if they had not adopted digital technologies.
More worryingly, digitalisation appears to be creating a winner-takes-all economic environment. On the one hand, digitalisation is associated with higher prices, suggesting a lack of competition. On the other, the most productive digitalised firms stand out in expecting that digitalisation will lead to a decrease in the competition they face. This suggests that late adoption of digital technologies could have long-lasting effects on competitiveness.
As disruptive technologies become more important, there is a cost of inaction. So far, in the manufacturing sector, European firms have kept pace with their US counterparts in terms of digital adoption, but in the service sector, EU firms are lagging. Moreover, when one looks at the most advanced forms of digitalisation (internet of things, big data, and software development), the gap between Europe and the US is wider.
A response at all levels
Europe’s economy still lacks the ‘tools’ to meet the urgent challenges of the future: remaining globally competitive in the face of rapid innovation and digitalisation, achieving sustainability, and creating an inclusive society. This requires a response at all levels, and not least at the European level. European cooperation is needed to allocate funds where they can be the most productive, overcoming investors’ preference to invest mainly in their home countries. This means improving financial integration through the Capital Markets Union and the Banking Union. It also means making full use of EU institutions and instruments, such as the EIB and the EU budget.
Retooling Europe must be socially and environmentally sustainable, taking into account the impacts of automation on jobs and demand for skills, issues of cybersecurity and data governance, and, not least, the need for a step-change in investment in climate change mitigation.