Supporting ICT Adoption Can Restore Productivity Growth in Europe, New Report Shows

October 24, 2018

WASHINGTON—European productivity growth has slowed since the financial crisis and continues to lag U.S. growth. To restore robust productivity growth, a new report released today by the Information Technology and Innovation Foundation (ITIF), the world’s top-ranked science and technology policy think tank, calls on Europe to fully embrace information and communication technologies (ICT) throughout its economy. Presented by ITIF President Rob Atkinson at a high-level roundtable hosted by the Lisbon Council, the report offers eight key policy principles for increasing productivity growth and attaining digital prosperity in Europe.

“Raising productivity growth rates will be crucial for Europe to prosper, but it will require all organizations throughout Europe to fully embrace the use of information and communication technologies,” said Atkinson. “Improving productivity needs to be the centerpiece of economic policy in order for Europe to spur the growth necessary to cope with its demographic challenges, particularly a rapidly aging population, and compete in global markets.”

According to the report, the primary cause for Europe’s limited productivity gains simply has been lower levels of investment in and adoption of ICT, including software, cloud computing and artificial intelligence. The report identifies a number of primary reasons for Europe’s failure to invest in and gain from ICT:

  • Regulation within product, labor, and land markets limits possible business models, raises the cost of ICT investment, and slows down market forces that can push firms to adopt more productive practices.
  • Europe has too many small firms, which have fewer capabilities for investing effectively in ICT.
  • European businesses have a harder time reaching larger markets that provide greater economies of scale.
  • EU firms have struggled to employ management techniques that can facilitate the organizational redesigns that enable the full potential from ICT investments.

The report then outlines eight key policy principles for attaining digital prosperity in Europe:

  • Focus on raising productivity;
  • Focus on across-the-board productivity growth, particularly through greater use of ICT;
  • Actively encourage digital innovation and transformation of all economic sectors;
  • Use tax policy to spur ICT investment;
  • Create larger markets for EU firms, especially in the services sector;
  • Reduce regulatory and tax preferences for small businesses;
  • Embrace a light-touch regulatory framework, including with regards to data; and
  • Help workers make transitions.

Read the report.