The information society - Europe's highway to growth and prosperity

7 March 2006

Viviane Reding, the European Commissioner for Information Society and Media, addressed a European Policy Centre Breakfast Policy Briefing on “The Information society - Europe’s highway to growth and prosperity”. The meeting was chaired by the EPC’s Head of Communications Jacki Davis.

Viviane Reding began by emphasising how crucial Information Communication Technology (ICT) was for the economy, describing it as the motor driving European growth. She also stressed its importance for meeting the Lisbon Agenda goal of making Europe the world’s most competitive and knowledge-based society by 2010.

The ICT is one of Europe’s growth sectors, driving 25% of GDP growth and 50% of productivity growth. Despite this, over the last 20 years, European growth has declined - from 2.5%, in 1984 to just above 1% in 2006, while it has increased in the United States from 2% in 1984 to 3% today. One important difference is that in the US, both large companies and small and medium-sized enterprises (SMEs) are making full use of new technology, while European SMEs have been slow to exploit ICT fully.

The Commissioner called for immediate action to make ICT the locomotive of European innovation, saying “the revolution in ICT is not over” and the EU must invest in research to take advantage of it.

She proposed three main policy pushes to stimulate ICT growth: a reduction in the regulations stifling its development, greater innovation, and more investment in research and development.

Streaming regulations for growth

Some of the biggest brakes on European growth in the ICT field are structural rigidities: the fragmented service market, inflexible labour markets and heavy piecemeal regulations. These are all ripe for deregulation - and deregulation encourages competition, said Ms Reding.

She cited the need to simplify the multitude of different regulations covering the tele-communications network sector in Europe, and said she would be presenting a recommendation to do this progressively within a few months, adding that this would mean “fewer markets, not more”.

The emerging new sector in ICT networks is ‘broadband’, which by 2005 had reached 53 million European homes. The original rules governing ICT focused on regulating telephony, but these must be updated to encourage competition within the broadband sector. The Commissioner pointed out that broadband use is far higher in EU Member States such as Denmark, the Netherlands and Finland, which have opened their markets to competition, than in countries such as Greece and Slovakia, which have more closed markets.

She also rejected claims that competition holds back investment, insisting the evidence did not bear this out. Rather, she said, competition leads to increasingly dynamic markets which give consumer benefits in terms of lower prices and a greater choice of innovative services.

For this reason, the Commissioner said she did not favour ‘regulatory holidays’ because, as Adam Smith had put it so lucidly, “the price of monopoly is upon every occasion the highest which can be got”.

ICT research and development - more investment and innovation needed

“If we want to drive the evolution of ICT tomorrow, we have to invest in research and development today,” she insisted. The growth in ICT is driving the whole economy, and ICT innovations in areas such as automatic engine control in cars, security systems, avionics and, of course, computers, are improving European competitiveness and the everyday lives of Europe’s citizens. Our current challenge is to adapt our slow-moving economic structures to take advantage of the changes in the knowledge economy.

The EU population is ‘greying’ and, here again, ICT has an important role to play in alleviating the effects of an ageing society. In the health sector, for example, it can reduce the costs of ageing through improvements in e-health.

The Commissioner then turned to innovation in the field of Radio Frequency Identification Technology (RFID), saying this would boost productivity in retail and logistical sectors - those in which the EU is lagging behind the US. It will also lead to a step-change in the efficiency of industrial processes.

If Europe gets its research right, it will not be necessary to buy ICT innovation from other parts of the world. Europe must continue to innovate in ICT, since all the studies have shown that regions which produce ICT are best able to reap the benefits.

Ms Reding highlighted the “shocking comparison” between Europe’s spending on ICT research, which stands at €80 per capita, and the amount spent by the US, at €350 per capita.

To rectify this, the European Commission presented a proposal last April to raise the budget for ICT research from €1 billion up to €1.8 billion a year for collaborative (i.e. industrial) research, since “for tomorrow’s budget, we must invest in research today”. Commissioner Reding pointed out that all the technological advances that we are benefiting from today - the use of GSM and ADSL technologies - are the result of research carried out in the 1980s.

ICT is providing new technologies in, for example, health and transport that are crucial for saving lives. The EU needs to develop technology platforms, such as those in the fields of robotics, satellites, software systems and nanoelectronics. By joining forces and creating public-private partnerships, the best brains and the money could be brought together to produce the best results, said the Commissioner.

Cutting bureaucracy

To make research efficient and practical, Europe needs to make its bureaucracies more efficient, from the European to the city council level. It is important to cut red tape despite fears that this would increase risks, argued Ms Reding, insisting that it was better to take risks and boost research, as “you cannot have risk-free research”.

The Commissioner finished by emphasising again that if Europe failed to reduce the regulation that was strangling initiatives or to invest more in research, EU growth would falter and Europe would become weaker. “We don’t have a choice if we want to survive in a globalised world,” she insisted.