Boosting European Prosperity Through the Widespread Use of ICT

Robert D. Atkinson November 7, 2007
November 7, 2007
After a long period over which Europe was catching up to the United States in productivity, this trend has reversed. Lower levels of investment in information and communications technology (ICT) and less effective use of existing ICT explain a significant share of the lower rates of productivity growth in the European Union over the last decade when compared to the United States. The report argues that regaining robust productivity growth will be critical for EU nations over the next several decades as they struggle with a myriad of challenges, including an aging population.

After a long period over which Europe was catching up to the United States in productivity, Europe has fallen back since 1995. For Europe to prosper in the future, especially in the face of its rapidly aging population, raising productivity growth rates to or above pre-1994 levels will be crucial. The evidence strongly suggests that the key factor in engineering such a productivity turnaround will be the ubiquitous use of information and communication technologies (ICT) throughout the European economy and society. This brief discusses why higher productivity is critical for the future of Europe; examines the relationship between ICT and productivity in the United States and Europe; describes the impact of ICT on European economies; and lays out five key policy principles for attaining digital prosperity.

To achieve the ubiquitous use of ICT, policymakers at the European Union (EU), national and subnational government levels will need to put digital transformation at the front and center of their policies. This means they will have to (1) focus on raising productivity across the board, particularly through greater use of ICT; (2) use tax incentives and tariff reductions to spur ICT investment; (3) actively encourage digital innovation and transformation of economic sectors; (4) encourage universal digital literacy and digital technology adoption; and (5) do no harm to the digital engine of growth.