New ITIF Report Commissioned by Incoming EU Council Presidency Offers Policy Formula to Advance Europe’s Digital Economy

WASHINGTON—As Finland prepares to assume the presidency of the European Council, its Ministry of Economic Affairs and Employment has commissioned the Information Technology and Innovation Foundation (ITIF), the world’s leading think tank for science and technology policy, to provide an analysis of how Europe can best achieve success in the digital economy. In a new report to the Finnish government, ITIF offers an analysis of the state of the digital economy in Europe and provides a series of policy recommendations for the European Union to fully capitalize on the next wave of information and communications technologies, which ITIF says will be characterized by connectivity, automation, and smart systems.

“The EU will not gain the full benefits from the next wave of digital innovation without the right policies in place,” said ITIF President Robert D. Atkinson and ITIF Vice President Stephen Ezell, co-authors of the report. “The EU has an opportunity to make major strides in the next wave of digital transformation, but it will need to adopt proactive, forward-looking policies that focus on the benefits the next-generation of digital technologies can bring.”

In an analysis of the EU’s strengths, weaknesses, opportunities, and threats as compared to China, Japan, and the United States, the report argues that the EU is better positioned to succeed in the coming ICT wave than it was in the last one. However, success will require policies to leverage Europe’s strengths in areas such as its strong research universities, highly skilled workforce, large market, world-leading firms, and collaborative public-private partnerships.

The report lays out a series of policy recommendations organized into five main areas: regulation; trade; resources for firms; technology, sector, and firm policies; and cultural and institutional issues. The recommendations include:

Regulation

• The EU should focus more on equivalent protection, not equivalent regulation.
• The Commission should actively support national efforts to reform and improve regulation.
• The Commission should be given political-level support to preempt digital economy regulations individual member states adopt.
• The Commission should create within the Regulatory Scrutiny Board an Office of Innovation Review whose mission would be to serve as an “innovation advocate” in the regulatory process.
• The Commission and member states should continue developing frameworks that enable firms to work with regulators to test their innovative products, services, and business models with real consumers in a controlled environment on a trial basis.

Trade

• The Commission should be given the authority to review and approve or reject acquisitions of EU firms from nations practicing state capitalism.
• The EU should—within the text of its trade agreements, not outside of them—develop provisions to protect the role data flows play in digital trade.
• The EU’s digital trade agreement provisions should emphasize that firms will be held accountable for ensuring a country’s data protection rules flow with the data.
• To better establish an EU single market for services, the EU should develop a more robust process to identify barriers to entry and operation in service markets, as well as reporting and transparency mechanisms to publicize relevant rules and regulations alongside a parallel effort to ensure regulatory agencies have the capability to enforce relevant rules and laws.
• The EU should take a lead role in reviving negotiations over an ambitious Trade in Services Agreement within the World Trade Organization.

Resources for Firms

• EU member states should appoint chief digital officers to champion data innovation domestically and serve on an EU-wide advisory panel.
• The Commission should adopt an ICT R&D funding system that gives EU industry more say in determining the technology areas the EU funds. For academic researchers and academic research centers, the Commission should identify areas of importance for ICT research and devote funds to projects in these areas.
• The Commission should reduce its role as a direct funder of large numbers of individual research projects and instead fund more industry-funded university R&D centers on multiyear contracts.
• The Commission should establish a program to make awards of €1 million per year for 5 years to the top 100 or so individual academic researchers doing work in advanced ICT areas that industry values.
• The current proposal for the Directorate General for Research and Innovation for funding for R&D in robotics and artificial intelligence should be supported.
• The Commission should provide matching grants to member states to establish teacher-certification programs in computer science.
• The EU should build on public-private partnerships for computer science education and digital skills development.
• The EU should consider the U.S. experience in creating a continent-wide telecom service market, including in spectrum, and assess its applicability in the EU.
• Wherever there are at least two competing broadband providers in a market, the Commission should allow national governments to remove price regulations and wholesale network unbundling requirements.
• The EU should lower costs of deployment for 5G infrastructure by encouraging local authorities to streamline their infrastructure-siting requirements.
• EU policymakers should continue to evaluate the benefits of differentiated network services and whether existing net neutrality regulations impede innovative new broadband network applications.

Technology/Sector/Firm Policies

• The Commission should chart out steps articulating how it can help member states drive Connectivity, Automation, and Smart Systems (CAS) applications through public-private partnerships.
• The EU should focus on using existing programs and policies that affect particular industries to drive CAS transformation.
• Each major Directorate General should establish a position of chief technology officer to ensure Directorates’ policies are aligned with CAS sector transformation.
• The EU should fund the establishment of an EU-wide version of America’s Digital Manufacturing and Design Innovation Institute.
• The EU should fund a network of “manufacturing universities” focused on skills and R&D relevant to manufacturers in the EU.
• The EU should develop an “EU Smart City App Store”—a common repository of approved commercial applications and open-source code—other EU cities can adapt and reuse.
• The Commission should establish competitive programs to support member states that establish innovative CAS-related projects and initiatives.

Culture and Institutions

• The Commission should lead a dialogue that explores adopting the innovation principle, rather than the precautionary principle, when it comes to CAS.
• The EU should expand support for EU universities and colleges to create entrepreneurship education programs.
• The EU should provide challenge grants to universities to reform university engineering curricula toward more project-based learning and entrepreneurship.
• The EU should support innovative new organizational models in areas such as health care, transportation, and education.
• The EU should establish an EU-wide productivity agency to identify specific policies to spur faster technology-based productivity, and to act as a champion of stronger productivity policies.

Read the report.