3 steps to strengthen Europe’s competitiveness in the digital age

vestager_

Ms. Margrethe Vestager, Vice President of the European Commission. Co-operators:
Photographer: Elyxandro Cegarra
European Union, 2020
Source: EC – Audiovisual Service

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Peter Lochbihler, Global Director, Public Affairs, Booking.com


  • Europe’s economic advantages include cultural diversity, an educated workforce and public services to support a stable and prosperous business environment.
  • The Digital Single Market (DSM) can help traditional industry sectors take advantage of the digital revolution.
  • There are three steps for policymakers to take to strengthen Europe’s competitiveness, starting with regulatory harmonization.

This year, Singapore was crowned the world’s most competitive economy, while the United States slid into second place. But Europe took six of the top 10 spots and dominated the upper quartile – accounting for 20 of the top 35 leading positions.

When it comes to economic dynamism, it’s not easy to strike a balance between healthy confidence and ruinous complacency – and we should never take competitiveness for granted.

 

Europe has many unique advantages, and these are the foundations on which we can further strengthen our economy and develop our digital landscape.

2019 Global Competitiveness Index - Top 10
Europe ranks high in the World Economic Forum’s Global Competitiveness Index 2019.
Image: World Economic Forum

First, cultural diversity. For many European companies, this is a core pillar of strength. Unlike most US-centric tech brands, Booking.com was founded and has thrived in Amsterdam – a home to many cultures and languages. We didn’t need to adapt our technology to accommodate new markets, as our architecture and approach to doing business was built for multiple languages and cultures from the start. As such, we’re now the only globally relevant digital platform operating out of Europe, but there are many European success stories across various industries that could trace their roots – and credit some of their success – to the distinctive cultural diversity of the continent.

Europe is also privileged in terms of access to an educated workforce, but competition for top talent, especially in tech, is swiftly becoming global. Europe could and should do more to nurture existing talent pools, such as encouraging more women to work in tech, and making big investments in world-class universities and research centers focused on building skills for the future. When it comes to gender parity specifically, a recent McKinsey report suggests by advancing women’s equality, we could add over $12 trillion to global GDP by 2025 – a staggering figure.

Europe is often derided by market analysts for high taxes, but there’s no denying taxes are how our unmatched public services are funded. And that, in turn, supports a stable and prosperous environment in which to do business. We are convinced contributing our fair share should be a key priority of any company doing business in Europe.

Taxes specifically on digital services, however, need to be managed very carefully. If a digital services tax is to be effective, policymakers must ensure it’s a carefully considered global solution overseen under an OECD umbrella. Individual national or regional taxation schemes would create complex webs of rules and regulations, causing unnecessary complications for businesses that operate globally, and ultimately, impacting economic growth.

The Netherlands ranks fourth in the World Economic Forum’s 2019 Global Competitiveness Report.
Image: World Economic Forum

Finally, the Digital Single Market (DSM) has catapulted to the top of the political agenda, a testament to the growing importance of the digital economy. The world is changing faster than ever before, with technology transforming every industry and way of life. Embracing this change will open the doors for Europe to successfully steer traditional industry sectors through the digitalization revolution.

However, without a unified approach to the digital economy and the policies surrounding it, policymakers risk actively damaging the growth not only of the companies leading in digitalization, but of businesses of all sizes, too. The success of the digital economy should be felt by everyone at all levels of society – and policymakers must ensure they do not hinder future innovation and prevent the benefits from filtering down.

The next steps

There is no silver bullet when it comes to economic development, but there are a few specific policy areas where European authorities could strengthen competitive dynamics, galvanize innovation and unleash the entrepreneurial spirit which our continent has in abundance.

1. Further harmonization. We need more consistency in policy and enforcement across Europe, and increased alignment with regulations on a global scale. If DSM remains an ambition rather than a reality on the ground, we will continue to see European start-ups failing to expand beyond national boundaries or deciding to move to the United States at an early stage. Unhindered access to a market of over half a billion could become a unique advantage, and a lack of such access could stifle Europe’s competitiveness in the digital age.

2. We need a more balanced debate around competition rules in the digital economy. The existing framework has served Europe well and is flexible enough to be applicable today. However, what’s not helpful is using one-size-fits-all definitions or making general assumptions that holding market power implies a company will exploit that position to restrict competition. The focus should be on tackling behavior that harms meritocratic competition and/or consumers. Europe will benefit from a more nuanced understanding of the competition environment, rather than succumbing to the “big is bad” mantra.

3. Liability issues for platforms, which will likely come up as part of the e-commerce revision or the Digital Services Act. The e-commerce directive has been central in enabling the boom of the internet economy. Clearer duty of care obligations in exchange for the liability exemption are key to ensuring Europe tackles the problem of platforms that abuse the exemption to facilitate illegal activity and give the Internet economy a bad name. Care must be taken to tailor the obligations to the wide variations of illegal activities that exist. But key principles should be preserved, particularly the liability exemptions for online intermediaries and the country of origin principle. A wholesale revision of core principles will jeopardize the very cornerstone of the internet economy.

What is the World Economic Forum doing about digital trade?

What is the World Economic Forum doing about digital trade?

The Fourth Industrial Revolution – driven by rapid technological change and digitalization – has already had a profound impact on global trade, economic growth and social progress. Cross-border e-commerce has generated trillions of dollars in economic activity continues to accelerate and the ability of data to move across borders underpins new business models, boosting global GDP by 10% in the last decade alone.

The application of emerging technologies in trade looks to increase efficiency and inclusivity in global trade by enabling more small and medium enterprises (SMEs) to repeat its benefits and by closing the economic gap between developed and developing countries.

However, digital trade barriers including outdated regulations and fragmented governance of emerging technologies could potentially hamper these gains. We are leading the charge to apply 4IR technologies to make international trade more inclusive and efficient, ranging from enabling e-commerce and digital payments to designing norms and trade policies around emerging technologies (‘TradeTech’).

Europe not only can, but must, build its economic competitiveness from strength. While we often fail to recognize it, EU institutions and national governments across the continent have demonstrated foresight, inventiveness and, most importantly, leadership when it comes to market regulation in the digital age, balancing the interests of businesses, consumers and the wide range of stakeholders. It’s crucial we continue to prioritize sustainability of policies in the long term to strengthen competitiveness in Europe.

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