Europe 4.0: Addressing Europe’s Digital Dilemma by Mary Hallward-Driemeier, Gaurav Nayyar, Wolfgang Fengler, Anwar Aridi and Indermit Gill published by World Bank Group (2020)
“Europe faces a digital dilemma. New digital technologies can help Europe1 become more competitive. However, while some of these new technologies create or expand access to markets for smaller firms and in lagging regions, others can create challenges for the European convergence machine if they concentrate economic activity in large firms and leading regions. As it happens, digital technologies, such as matching platforms, have the greatest potential for market inclusion and convergence, but this is where Europe remains less competitive. In contrast, European firms are particularly strong in technologies that combine data with production, such as smart robotics and 3D printing. While this helps Europe’s competitiveness, it also widens the divide between large and small firms, and leading and lagging regions.
Europe 4.0 is attainable. Europe 4.0 is about embracing new digital technologies associated with Industry 4.0 in ways that contribute to Europe’s triple imperative of economic competitiveness, market inclusion, and geographic convergence, while also being aligned with its social values. A coherent set of policies that strengthens competitiveness in technologies where the potential for inclusion and convergence is strongest, while broadening access to opportunities in technologies that otherwise concentrate benefits, is needed to address this digital dilemma for Europe 4.0. Reforms and investments can help new digital technologies achieve Europe’s triple objectives without compromising its social values by making use of the following:
• Scaling markets — completing the digital single market and closing gaps in ‘analog complements’ such as infrastructure, skills and logistics to achieve greater competitiveness, inclusion and convergence;
• Shaping the commercial use of data — addressing challenges posed by artificial intelligence and new types of market dominance to balance competitiveness and inclusion aligned with values of data privacy; and
• Smoothing technology adoption — complementing investments in frontier innovation with digital catch-up through supporting applied R&D and strengthening management capabilities so more smaller firms and firms in lagging regions can absorb new technologies.
The COVID-19 pandemic has highlighted the importance of the data economy — and raised the risks in meeting Europe’s economic objectives if the digital dilemma is not addressed. Companies that have embraced digital technologies are better able to cope with the disruptions posed by the pandemic. This is done, for example, through enabling more remote working, smart factories that have been able to keep operating uninterrupted, 3D printing of product parts stuck in the value chain, and the use of artificial intelligence to re-assess and plan activities. Digital platforms, particularly larger incumbents, have an important advantage in Europe given new social distancing requirements. In April 2020, e-commerce in Poland experienced a 200 percent increase compared to the same period in the previous year. In Belgium, e-commerce had also increased over a 100 percent (ccinsight.org). At the same time, locations where the uptake of digital technologies is lower have not had the same opportunities to extend opportunities for work, exacerbating geographic divides. Going forward, countries and companies that embrace Industry 4.0 will be better placed to face the challenges, but also capitalize on the opportunities, of an increasingly globalized world…”