Andy Haldane, the Chief Economist of the Bank of England, has said that creating growth is like surfing – you have to wait for the big next innovation wave.
Clearly, digitalisation is the next big thing. We may think that we have already been digitalised. But so far, digitalisation has mostly been about providing new services for entertainment. Now, however, manufacturing, logistics, transportation, finances and education are all going to be digitalised. That is a challenge as well as an opportunity for Europe.
Let’s look back for a moment. In the 1990s, Europe was leading in the technology for mobile services. The conditions were right: we had invested heavily in research and development, we had the right education systems, we were the first to harmonise GSM standards and we had the EU to open up the markets. In the 1990s, Europe was able to provide the best ecosystem in the world for certain technologies.
Why did we lose out? Why are all of today’s key players based in the United States?
As long as hardware mattered most, the U.S. lagged behind. Americans did much better when the emphasis turned to software and digital content. They have a market of 330 million people in comparison to our small and fragmented markets in Europe.
We lost that phase of the game. There is no point in trying to catch up. But the next wave is coming: expanding digitalisation from entertainment to the real economy.
There are five important aspects to winning the next round:
- The right timing: here we are in a good position, as this is the perfect time for Europe to create growth.
- Revolutionary technology: Here we are onto something good, too. The gap between the technological potential and technological applications as they exist in the real world is growing.
- Risk taking capacity: On this, Europe doesn’t look so good. We need new models of cooperation new between the public and the private sector to improve access to funding. It is a real problem for new companies that you need a business plan in order to get money.
How can you draw up a business plan for innovation? Business plans get drawn up by consultants, not by entrepreneurs. Innovation cannot be the result of planning. We need to be willing to take risks in order to foster innovation.
- A new type of talent: We have an education system designed for industrial life. But we now need multidisciplinary talents.
- The right kind of ecosystem: for digitalising entertainment, very little regulatory effort was needed. But in a digitalised real economy, government have a key role. So we need good cooperation between the public and the private.
Introducing a digital single market in Europe would increase growth by 0.5 percent a year. That is close to the impact of the original single market. The EU council has been talking about the single digital market since 2010, but no decisions have been taken. Five years have been lost. We cannot afford to continue like that.
Am I optimistic?
I am honest. Europe is too slow in making changes happen. But we have good reason to believe that the United States and China have fundamental weaknesses as well. In the U.S., the role of government has always been very limited. When digitalisation moves to the real economy, this will cause problems. In China, the system would need to change a great deal to make it possible for real innovations to take place.
Still, success won’t drop into our laps. It is time to invest in science, innovation and technology. There is no alternative if we want to keep our prosperity and our idea of a social Europe. We must be able to catch that wave.
Esko Aho is a former Finnish Prime Minister and Senior Partner at Nokia. He gave this speech at United Europe’s Young Professionals Seminar in Helsinki on August 28, 2015.