How to close Europe’s digital divide?
By Mary Hallward-Driemeier, Natasha Kapil, Anna Turskaya, Lukasz Marek Marc, Todor Milchevski, Daniel Querejazu
The EU is placing plenty of emphasis on bridging the innovation divide between Western and Japanese Europe. Traditionally, the West has pushed innovation by way of analysis and growth (R&D) and the creation of recent applied sciences. For brand new EU member states to catch up, extra investments are wanted to improve their infrastructure and help the adoption of present applied sciences. The COVID-19 pandemic accelerated digitalization as companies throughout Europe considerably elevated the uptake of digital applied sciences, together with in areas nonetheless catching up. The query, nevertheless, is whether or not the hole is closing, and if not, what must be executed.
Digitalization is a double-edged sword: It may both exacerbate or stem the innovation divide, relying on the kind of applied sciences deployed. The framework within the World Financial institution’s 2020 flagship “Europe 4.0: Addressing the Digital Dilemma” report classifies digital applied sciences into three sorts: transactional, informational, and operational. Of those three, solely transactional, equivalent to e-commerce or different platforms, have the potential to advance all three European objectives of competitiveness, market inclusion of small and younger companies, and geographic cohesion. Against this, operational industries, equivalent to robotics, have excessive entry limitations for small companies and focus actions round preexisting European technological hubs. Informational applied sciences—for instance, huge knowledge analytics—haven’t contributed to territorial cohesion both. As “catching-up” EU areas, equivalent to Bulgaria, Croatia, Poland, and Romania, proceed to advertise their digital economies, they need to pay attention to the applied sciences they help. Taking a nuanced strategy might be vital.
The World Financial institution studied current public investments in these 4 international locations. The outcomes current alternatives for policymakers to realign their digital portfolios towards their very own convergence aims whereas selling general European competitiveness. Two dimensions are highlighted right here: the composition of spending throughout innovation actions and the allocation throughout the several types of applied sciences.
What sort of digitalization have the international locations invested in thus far?
For Central Europe, catching up comes first. Over the past seven years, 1.5 billion euros from EU funds had been devoted to digitalization. Between 79 % and 99 % of digitalization funds had been allotted towards expertise adoption and infrastructure investments, equivalent to offering broadband entry and rolling out e-services. The remaining investments went towards expertise creation (see Determine 1). Bulgaria has targeted on infrastructure with comparatively much less funding on adoption, whereas Romania has invested comparatively little in infrastructure however emphasised adoption. However throughout all 4 international locations the main focus has certainly mirrored an emphasis on catch-up.
Determine 1. Funding allocation for a digitalization portfolio of innovation actions in Bulgaria, Croatia, Poland, and Romania in 2014-2020
Supply: Authors’ evaluation of the international locations’ allocations in 2014-2020 EU monetary views.
For catching-up international locations, the allocation throughout digital applied sciences should guarantee outcomes are inclusive and contributing to convergence. The contributions of the several types of digital applied sciences to the objectives of competitiveness, inclusion, and convergence are indicated by the grey “+” and “-” (Determine 2) and are backed by empirical proof. The allocation of sources throughout them will thus contribute differentially to those objectives. Transactional applied sciences carry the best promise in delivering on all three objectives. Romania, specifically, has focused these applied sciences. If informational or operational applied sciences are supported, further efforts should make sure that smaller companies and companies exterior fundamental manufacturing services may also profit.
Western Europe prioritizes operational and data applied sciences to advance their competitiveness vis-a-vis the U.S., Japan, and China; extra funding within the transactional applied sciences might additionally deliver extra inclusive outcomes.
Plain vanilla digitalization is a missed alternative to help territorial cohesion and the inclusion of small younger companies within the financial system. To this point, the 4 international locations have unfold help throughout all digital applied sciences. Such allocation is probably going suboptimal. Moreover, on transactional applied sciences, all international locations confirmed missed alternatives for their very own catching-up objectives (Determine 2).
Determine 2. Funding allocation for digitalization portfolio by EU aims for Bulgaria, Croatia, Poland, and Romania in 2014-2020
Supply: Authors’ evaluation and World Financial institution, “Europe 4.0: Addressing the Digital Dilemma.”
Suggestions
Three suggestions might assist catching-up areas leverage digitalization higher, by:
- Concentrating on the adoption of transactional applied sciences for regional convergence and inclusion of small companies. Romania, for instance, observes critical disparities between Bucharest and the remainder of the nation. Regardless of a big share of its funds—over 650 million euros—devoted to transactional applied sciences, the nation has directed solely 30 % towards market inclusion or cohesion targets. The evaluation discovered that solely a negligible share went to the non-public sector.
- Begin participating extra in tech creation to drive long-term competitiveness. Adopting present applied sciences has been important for industrial renewal and productiveness development within the post-transition interval. It’ll stay completely important for COVID-19 restoration. Nevertheless, the brand new EU member states might want to stability tech adoption with insurance policies to create new digital applied sciences to achieve a seat on the pan-European and world innovation desk. Poland, for instance, has directed only one % of its portfolio towards digital expertise creation, leaving room for extra focused help for R&D, industry-academia collaborations, and strong expertise switch.
- Diversifying the instrument set to raised help non-public sector digitalization. Grants had been the dominant coverage devices of selection throughout all international locations, particularly for tech adoption. Bulgarian and Croatian companies had been eligible primarily for grants and a few incubator providers. Thus, deploying a wider however related set of economic devices for companies for R&D and tech creation, adoption, and managerial abilities coaching might be important to bolster agency productiveness going ahead.
Throughout the pandemic, companies within the new EU member states embraced digitalization, however thus far principally for primary features of gross sales, advertising, and funds. The restoration presents a novel alternative to drive deeper digitalization for productiveness and convergence. Wanting forward, to bridge the innovation divide with the superior member states, Bulgaria, Croatia, Poland, and Romania may even want to start out rising their R&D spending, whereas protecting a transparent eye on expertise adoption throughout the combination of applied sciences to fulfill its wider objectives.
