The solution to Europe’s digital challenge should work for everyone, everywhere

We live in an increasingly digital Europe, where remote work is the norm for many. We must make sure that nobody is left out in the cold, writes World Bank Vice President for Europe and Central Asia Anna Bjerde.

The digital world is nothing new. For decades, we’ve slowly migrated from the analogue to the automated, from the tangible to the virtual. Our everyday habits and activities have adjusted to fit this new ecosystem.

Increasingly, many of us are shopping, banking, and socialising online. But for all the innovation that has enveloped our professional and personal lives, it has always been underpinned by the physical world.

If you didn’t have an internet connection, you could still go to your local bank, clothing store, or market to get what you needed, when you needed it. We were safe in the knowledge that these brick-and-mortar stabilisers were there if the digital realm cut out on us. This year has changed all of that.

In the most unusual and tragic of circumstances, it appears 2020 is the year the digital marketplace truly became the lynchpin of our global economy. Not out of choice, but instead out of necessity.  Home-based work, delivery of goods and services, mobile payment apps, e-learning. The list of essential activities that require a computer or smartphone goes on. National lockdowns, closed businesses and empty offices mean that we are now wholly dependent on digital technologies to connect with the outside world. Without this mélange of hard-and-software, economic activity would come to a standstill and true isolation would be felt by all.

Europe 4.0

Throughout this pandemic, tech companies, big and small, have been hailed as the winners in this new economy. But are European tech firms really industry leaders and how are the economic benefits of the digital transformation being shared across firms of different sizes and locations?

Our latest report, Europe 4.0, provides insight into how the region is performing in the digital arena at the local and global level. It’s clear that this new digital world is not benefiting everyone, everywhere. The report looks at how a broad swath of technologies are impacting social and economic trends – including automation, artificial intelligence (AI), business-to-consumer, and cloud computing.

First up is smart automation and AI. Robotics might improve competitiveness of Europe’s big manufacturing firms. But these technologies are expensive. Naturally, smaller businesses often don’t have the financial strength to buy the machines needed to compete in this area. As a result, labour productivity in large German auto manufacturers, for example, is more than double that of small firms. In part, this is because the intensity of automation in Germany is around 100 robots per 1,000 workers. Whereas in Greece, labour productivity in large and small firms is about the same, primarily because the use of robotics is limited. Automation may also further concentrate manufacturing in richer parts of Europe such as the North and West. As a result, traditional outsourcing is reduced and other, often poorer, regions benefit less, adding to the challenge of addressing inequality.

Europe’s lack of enterprise leaders

Second, business-to-consumer platforms that help match suppliers and customers, such as online payment platforms, stores and services, have the most potential for closing the income and inequality divide. Yet, Europe’s enterprise leaders in this field are few and far between. The lack of widespread adoption of transactional technologies by firms across Europe reflects an untapped potential. Well under half of small and medium-sized businesses in Europe are using digital platforms in day-to-day business. The good news is that addressing this challenge by encouraging greater digital platform adoption can create jobs. Almost two thirds of European firms that digitalised their businesses experienced an increase in employment growth over the past three years. Furthermore, in sectors such as hospitality and lodging, countries with more businesses using online sales are characterised by a smaller gap in labour productivity between large and small firms.

Finally, there are cloud-based, and data driven technologies like those we use every day to surf the internet or interact with friends online. These have helped make space and time less relevant. For businesses, they have a far greater benefit for smaller firms. With lower fixed costs and little to no hardware involved, they have shown to boost productivity in the workforce. Throughout the pandemic, we have seen how these technologies can eliminate operational costs as business leaders leave the traditional office behind and migrate more and more to home-based work models. Doing more to tackle this digital challenge can deliver great benefits for competitiveness and market inclusion for firms.

Cloud computing and data are also areas of the digital sector where Europe has opportunities to catch up with other regions of the world. Moreover, these technologies can have adverse impacts on convergence. Economic activity ends up concentrated in affluent areas due to the need for better broadband access and the availability of skilled labour.

Throughout this pandemic, tech companies, big and small, have been hailed as the winners in this new economy. Developing European leadership in the digital sector while ensuring firms and citizens benefit fully in this new environment is a balancing act. It requires the digital agenda to have societal values at its heart including job creation and opportunities for the most vulnerable. Covid-19 has seen this agenda advance further and faster than we could have imagined.

The challenge now is to ensure that an increasingly digital Europe, where remote work is the norm for many, does not leave others out in the cold.

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