European tech spending
20 years behind US

8 Mar 2005

Europe lags the US by 20 years on technology spending and if this trend continues, the region’s long-term competitive position will be put at risk. That’s the conclusion of research presented to the European Commission recently.

Indepen Consulting and Ovum, the firms that jointly conducted the research, have warned that the Lisbon Strategy for Europe to become the world’s most competitive and dynamic knowledge-based economy by 2010 will not be achieved unless Europe’s productivity performance improves. The report recommends ICT be placed at the centre of the debate about how to achieve the aims of the Lisbon Strategy.

Aiming to establish the links between ICT and productivity, the research found that European productivity growth has declined relative to the US over the past 10 years. By 1995, Europe’s productivity was 94pc of the US level and one fifth of the catch-up has been lost since then. The study argues that the effective use of communications and computing technologies to manage information and data underpins future economic growth. So far, ICT investment has only affected one quarter of the private sector and its application in the public sector is even more limited, the research found.

Moreover, ICT investment in the EU has a lower payoff compared to the US due to the lower profitability and effectiveness of technology spending in Europe. On a per capita basis, EU ICT investment is currently at levels seen in the US 20 years ago. However, increasing investment alone is not the answer: the report says that changes are required to the ways that organisations are structured and how they function; changes in human capital are also needed. Such changes can take more than five years to achieve, the report says.

According to the findings, the main benefits of an ICT-centric approach would be twofold: consumers would gain access to new services, improved existing services and lower prices. Increased use of ICT in the public sector would also improve citizens’ well-being.

The report further claims that the EU’s future prosperity and economic growth is at risk unless there are major policy changes to encourage the required investment. These should include reframing the regulatory framework that would allow more risk-based telecoms investment to be fully exploited, the firms advised. The study also calls for increased flexibility within the labour and product markets to enable profitable use of IT.

Even greater reforms are needed in the public sector, the report found. This is due to several factors such as the political nature of public sector bodies, rigid budgets and difficulties in providing employees in this sector with incentives to make the correct choices in ICT investment. The report’s authors acknowledge that many of the significant changes required to boost ICT use in the public sector must be made at a national level.

Indepen and Ovum undertook this work for the Brussels Round Table, a forum for leading European telecoms operators and equipment manufacturers. The conclusions, which comprise 12 recommendations for policy change, were presented to the European Commission in February.

By Gordon Smith