Europe is facing a colossal challenge: a tech deficit that could cost it trillions of euros in economic value if left unaddressed. Accenture’s recent study estimates that Europe is leaving over €1.5 trillion on the table annually due to this tech gap. McKinsey’s research warns that by 2040, the continent’s failure to catch up in transversal technologies could put €2-4 trillion of corporate value at risk. In this article, we delve into the heart of Europe’s tech dilemma, exploring its implications and potential solutions.
The tech deficit
Europe’s impressive achievements in areas like decarbonization, human development, and work-life balance are laudable but do not ensure long-term economic competitiveness. To secure its future prosperity, Europe must address its tech deficit, defined as the “disparity in adoption, implementation, or effective use of technology to create business value.”
The importance of transversal technologies
Transversal technologies are cross-cutting tools that can revolutionize multiple industries. These innovations, such as electricity, telegraph, and the steam engine in the past, hold the key to addressing complex global challenges like climate change, public health, and an aging population. However, Europe, despite its historical success with such technologies, now lags behind.
The startup scene
Europe witnessed a surge in tech startups in 2021, with a record $106 billion in venture capital funding, surpassing China but still trailing the United States. However, the ecosystem’s momentum faltered in 2022-2023, with global venture funding decreasing across regions. This slowdown raises concerns as Europe plays catch-up in the tech race.
Corporate underperformance
Europe’s struggle is most evident in the performance of its major corporations. In 2000, European firms were on par with their US counterparts in terms of valuation. By 2021, the US led by a ratio of 2-to-1 ($46 trillion versus $21 trillion). European companies are adopting AI and quantum computing at a slower pace, investing less in R&D, and experiencing slower growth and profitability compared to their US counterparts. This corporate underperformance threatens Europe’s climate leadership and economic competitiveness.
The absence of European tech giants
European tech giants are scarce compared to their US counterparts like Amazon, Microsoft, and Apple, which dominate the continent’s tech landscape. While startups are essential, the absence of large European players with global scale limits Europe’s impact on the tech world. In the age of AI, the importance of data and global reach cannot be overstated.
Booking.com
Booking.com, a European digital champion, has invested significantly in AI development, collaborating with local colleges and launching AI research initiatives. Such collaborations are crucial for Europe to remain competitive in transversal tech. The vast data collected by companies like Booking.com can fuel AI advancements in diverse fields, from healthcare to green energy.
Addressing the tech deficit
McKinsey Institute identifies four key challenges distinctive to Europe: fragmentation and lack of scale, underdeveloped technology ecosystems, insufficient risk capital funding, and regulatory barriers. Europe must acknowledge that having tech giants can boost competitiveness, and startups alone cannot compensate for their absence. Joseph Schumpeter’s perspective on big firms driving innovation by investing in R&D should be considered.
Balancing regulation and innovation
While European regulatory ambitions are commendable in terms of consumer protection and online safety, they must avoid stifling innovation. Imposing excessive regulations may hinder European consumers’ access to global innovations and deter local firms from achieving global scale. Europe’s historical prowess in the 1st Industrial Revolution should inspire its journey to master the 4th.
Europe’s tech deficit is a multi-trillion-euro challenge that cannot be ignored. The continent’s future economic prospects, climate leadership, and geopolitical influence depend on its ability to close the gap in transversal technologies. Fostering global tech leadership, promoting digital innovation, and finding the right balance in regulation are essential steps toward securing Europe’s place in the tech-driven world of tomorrow. The time to act is now, as the cost of inaction is too high to contemplate.
