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Looking at the Digital Economy’s Future through a Transatlantic Perspective

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DIPLOMAT MAGAZINE “For diplomats, by diplomats” Reaching out the world from the European Union First diplomatic publication based in The Netherlands Founded by members of the diplomatic corps on June 19th, 2013. Diplomat Magazine is inspiring diplomats, civil servants and academics to contribute to a free flow of ideas through an extremely rich diplomatic life, full of exclusive events and cultural exchanges, as well as by exposing profound ideas and political debates in our printed and online editions.

How the Transatlantic Digital Economy’s Priorities can effect the Overall Economic Growth

By: Mirsada Hallunaj.

 

Digital Economy and Its Importance

Considering the widespread impact and the growth of the digital economy on the overall economy, people and governments all over the word are aware of its importance and dynamics. Digital economy or “internet economy” refers to an economy which performs its activities based on digital or other information and communication technologies (ICT). A comprehensive definition on digital economy is given by Professor Stephen M. Mutula in his book “Digital Economies: SMEs and E-Readiness”.[1] The Figure 1 above shows that by comparing some of the priorities[2] or effects of ICT growth, Europe stays behind U.S. in the terms of total growth.[3]                

 

         Figure 1 

Figure 1[4]

Taken into consideration the dynamics of the digital economy nowadays, both EU and U.S. have expressed theirs commitment on this issue. A key topic between EU and U.S. during the negotiations of Transatlantic Trade and Investment Partnership (TTIP)[5] were to devote a chapter of to the digital economy, the same as for (SMEs). Because of impact the digital economy has on economic growth and high employment opportunities this working paper aims to provide a comprehensive panorama of the digital economy in both sides of the Atlantic and conclude with some important recommendations which can serve as bridging issues for a transatlantic cooperation.

 

Digital Economy’s Priorities in Europe and U.S.

Digital Agenda for Europe (DAE)[6]

The Digital Agenda for Europe (DAE) was published for the first time in May, 2010 and contains 101 actions, in 7 pillars (priority areas), the implementation of which is considered highly important because of their direct impact in jobs and economic growth in Europe. The main objective of DAE is to help in the growth of Europe’s economy and empower citizens and businesses improve their access and use of digital technologies. The digital economy is growing at seven times the rate of the rest of the economy.[7]

At the official webpage of the DAE it was considered that full implementation of the updated Digital Agenda will have a direct impact on European GDP, investment in ICT, innovation and jobs.[8]

The European Digital Priorities are determined by identifying 7 key areas which will help in economical and jobs growth across Europe. Published on 18th November, 2012[9] the main priorities are:

 1. Create a new and stable broadband regulatory environment.

2. New public digital service infrastructures through Connecting Europe Facility loans

3. Launch Grand Coalition on Digital Skills and Jobs

4. Propose EU cyber-security strategy and Directive

5. Update EU’s Copyright Framework

6. Accelerate cloud computing through public sector buying power

7. Launch new electronics industrial strategy – an “Airbus of Chips”

The DAE contains 13 specific goals[10] targeted with the use of technologies. The Annual Digital Agenda Scoreboard[11] measures the progress against the above mentioned targets by comparing the progress of each Member State. Other important aspects of the Digital Agenda are presented in their respective sections. These aspects include opportunities, policies and projects in different digital areas: Living Online;[12] Growth & Jobs;[13] About Science and Technology;[14] Telecoms & Internet;[15] Content & Media;[16] The Digital Agenda & You.[17]

Despite the commitments to fulfill DAE priorities, the digital economy in Europe is facing many challenges beginning from: a digital single market, cybercrime risks, lack of professional ICT skills, digital literacy and interoperability, investments in networks and R&D, the use of e-Government or other digital services addressing social issues.    

 

United States Digital Framework 

In the U.S. the Department of Commerce[18] is the most important government body with its Bureaus responsible for developing policies that facilitate the digital economy. On 28th January, 2014 the U.S. Commerce Secretary Penny Pritzker addressed the 10th annual State of the Net conference[19] underlying the commitment to promote policies that support America’s digital economy and good Internet policy that supports entrepreneurs, businesses, and their workers.

At the same time The National Telecommunications and Information Administration (NTIA)[20], located within the Department of Commerce, is the Executive Branch agency that is principally responsible by law for advising the President on telecommunications and information policy issues. NTIA’s programs and policymaking focus largely on expanding broadband Internet access and adoption in America, expanding the use of spectrum by all users, and ensuring that the Internet remains an engine for continued innovation and economic growth[21].

Internet Policy:[22] The main goals and priorities are the growth of the Internet, developing policies to preserve an open, interconnected global Internet that supports continued innovation and economic growth, investment, and the trust of its users, the importance of the multistakeholder model of Internet policymaking.  The Department’s Internet Policy Task Force[23] identifies leading public policy and operational challenges in the Internet environment.  The Task Force is committed to maintaining the global free flow of information online[24] and offers the expertise in important issues like online privacy, copyright protection and cubersecurity.

Broadband:[25] The main priority is to increase broadband Internet access and adoption in America, which supports economic growth, job creation, and improved education, health care, and public safety. NTIA administers the Broadband Technology Opportunities Program (BTOP),[26] the main goal of which is to expand broadband services access across the United States, within three project categories: Comprehensive Community Infrastructure; Public Computer Centers and Sustainable Broadband Adoption. Other priorities and Initiatives of NTIA are: Domain Name System,[27] Public Safety,[28] Grant Programs,[29] Institute for Telecommunication Sciences[30] and Digital Literacy.[31]   

Meanwhile considering the fact that the main goal and impact of digital economy is the economic growth, the State Department of  Economic Growth, Energy, and the Environment[32] has an important role as well in developing and supporting policies related with digital economy, specifically the Bureau of Economic and Business Affairs (divided into seven areas).[33]

On 23rd May, 2012, President Obama issued a directive entitled “Building a 21st Century Digital Government”.[34] To deliver better digital services to American people it was launched a comprehensive Digital Government Strategy.[35]

 

A Comparative Approach between EU and U.S.

1. Fragmented Digital Market: First, one of the biggest challenges in Europe remains the Digital Single Market. Many barriers still are present and the free flow of online services across national boarders is problematic. Second is related with EU telecoms market strongly fragmented and insufficient scale due to 200 national operators in Europe compared to 4-5 nation-wide operators in the U.S. and China. American and Asian markets are able to generate and save hundreds of million revenues because of their consolidated markets. The lack of scales-ups in Europe harms industry and investments. U.S. benefits from lower spectrum costs in Europe.[36]

                    

Figure 2

Figure 2[37]

2. Research and Innovation/Investments: Currently, EU investment in ICT research is still much lower than U.S. levels.[38] Europe must invest more to develop further the research and innovation. Support for R&D in ICT is considered well below the annual growth needed to achieve a targeted doubling by 2020.[39] Europe still lacks Investments for high-speed networks evaluated to 270 bn. EUR. Long term investment in Europe of 130 EUR per capita is well below 170-180 EUR investment in the U.S. and Asia Pacific.

 

  Figure 3

Figure 3[40]

3. Competitiveness: Europe is facing problems and losing ground in almost every segment of the ICT industry. American and Asian companies are dominating global markets. A little more than 10 percent ofglobal ICT revenues aregenerated by Europeancompanies.[41] Many European companies have been bought by American companies (Microsoft-Nokia), have been bankrupted (Siemens Mobile) or have been exited (Ericsson). Global players are entering into Europe’s Digital Economy. Many European industries areincreasingly reliant on non-European ICT players.[42]

 

   Figure 4

Figure 4[43]

4. Regulation Regime: Europe is far-reaching the market regulation as result of hard and traditional regulations, which not meet the investment challenge. One of the main differences between EU and U.S. is that American and Asian companies favorite infrastructure or services competition. At the same time the institutional framework in Europe is much complex and the access is more restrictive. Regulatory regime in Europe favors non-investment unbundles.[44]     

5. Decline of Telecom Revenues:  Even the IP traffic grows the revenues goes down and despite huge growth in demand for their services telecoms companies in Europe face decreasing revenues. The contrast is in U.S. and Asia Pacific where revenues are rising.

    Figure 5             

Figure 5[45]

At the same time a low decline can be identified in wireless service revenues for European companies meanwhile the American companies generate higher revenues for mobile wireless services,[46] which allows U.S. carriers to deploy LTE  much faster than the EU.  Digital economy in Europe has problems with declining EBITDA (Figure 7).

   

Figure 6

 Figure 6[47]                                                      

   

Figure 7

Figure 7[48]

6. The Cubersecurity Challenge: The EU and U.S. are facing nowadays many Cybersecurity threats beginning from cybercrime, data privacy in the cloud, cyber-corporate espionage, terrorism, criminal, hacktivism, government-driven, child abuse or theft and cyber-attacks which threaten the public safety and economic welfare of the biggest businesses. In Europe an integrated cybersecurity data protection and privacy strategy is missing. Security threats are growing in all areas, several million cyberattacks per day.[49] Regarding the data protection and privacy exist a different legislation not only within Europe but compared to the U.S as well. As result of regulations, competition, recession and an overcrowded market, European telcos is losing its identity and consolidation because of mergers or acquisitions even to American or Asian rivals[50] resulting in a dependence to non-EU ICT companies.

 

Recommendations for Transatlantic Cooperation

As it was mentioned above Europe is dealing with many ambitious projects for its Digital Agenda and still many issues are a challenge for itself as well. On the other side the U.S. is paying a huge attention at crucial ICT developments and innovations, considering the huge impact that this sector has in America’s whole economy. Many issues of the digital economy are international by nature and that’s why the transatlantic cooperation is not only highly recommended but at the same time it’s very profitable for both continents. It is very fundamental that EU and U.S. must not see each other as a threat, despite of theirs differences, but learn from each other experiences and cooperate closely in some currently issues listed below which require a special attention and partnership.     

 

Global Internet Governance

Internet Governance is an important issue for both EU and U.S. not only as the world’s largest economies, but because the proper use or functioning of the internet is related with the globally data flow having a direct impact in the economic growth and international trade in particular,[51] for services exports that can be increasingly delivered online.

  1. Because the Internet is governed by various actors and organizations in multi-stakeholder arrangements, the EU and U.S. must promote proposals that enhance transparency and meet the concerns of all stakeholders involved.
  2. The United States and EU must work closely together to set global standards and preserve the openness and freedom of the Internet.
  3. During the process of transatlantic consultation must be included different actors from civil society, interest groups, professionals or scientists.
  4. Creating global recommendations and comprehensive solutions which would be stable and efficient in the long term, including the responsible bodies, departments or actors from both sides.
  5. The current system can be modernized by ensuring it is inclusive and credible enough with efficient accountability. EU and U.S. should globalize key functions of the Internet, by ensuring diverse interests are properly taken into account, preserving the legitimacy of the system.

 

Securing Networks and Information Systems (CYBERSPACE)

This is a very important issue which requires essential policies and cooperation on both sides of the Atlantic, because it ensures prosperity and keep the online economy running. It is very important for both EU and U.S. to work together and create initiatives by building a mutual and international consensual regarding an open, interoperable, secure and reliable cyberspace, because an open, transparent, secure, and stable cyberspace is critical to the success of the global economy. The European Union is planning to do that through an EU Directive, to boost security and resilience.[52] The U.S. is preparing legislation as well. In this direction the EU and U.S. must:

  1. Develop international norms of behavior in cyberspace;
  2. Promote compatible policies across the Atlantic;
  3. Promote collaboration in cybercrime investigations;
  4. Create International cybersecurity capacity building;
  5. Secure infrastructure and devices; [53]
  6. Secure online safe, trustworthy transactions not hacked or impersonated;
  7. Create and open up a transatlantic market of online services for hundreds of millions and enable the data protection and the prevention of online frauds. [54]

 

Data protection & privacy

Even if the privacy systems in U.S. (many statutory authorities-more sector-specific) and EU (single statutory framework) are structured differently, this is also an area where U.S. and EU can do better in their transatlantic relations, because in the digital age, the collection and storage of personal information are essential. Considering the fact that nowadays data is used by all businesses such as insurance companies, banks, social media sites and search engines it can be considered a key economic asset.  In a globalised world, the transfer of data to third countries has become an important factor in daily life. Vast amounts of personal information are transferred and exchanged every day, around the globe in fractions of seconds. It would be recommended to:

  1. Develop efforts in the regulation and law enforcement area. The updating of privacy law in both U.S and EU is very crucial considering the development of new technologies and the use of online data.

  2. Facilitate these exchanges of data in the way to encourage innovation and stimulate growth.

  3. Ensure more interoperability between the EU, U.S. and third countries.

  1. Protect the rights of personal data transferred to third countries.

  2. U.S. and EU must create together policies and strategies that are interoperable in the way that data move freely through the transatlantic market place. Data must be provided consistent, high standards of protection.

 

Towards a Transatlantic Digital Single Market

A transatlantic digital single market could be considered a historic opportunity for both EU and U.S. It can be achieved or advanced through the commitment of EU and U.S. to cooperate in the following issues:

  1. Market access: create a free flow of online services across EU and U.S.;
  2. Promote trade liberalization by cooperating globally;
  3. Establish a single are for online payments;
  4. Mutual recognition of e-Identification (a common e-ID);[55]
  5. Common legal basis or policies/Regulatory Approximation;
  6. Approximation and advance more in five initiatives for cooperation and alignment: e-labelling, e-accessibility, e-health, internet of objects, and common principles for Technology standards, parts of TTIP negotiations;
  7. Exchange experiences in the professional aspect: a highly educated workforce, top academic institutions and advanced research centers, dynamic research etc.;
  8. Work to create a harmonized compatible transatlantic market by reducing the excessive regulatory costs;
  9. Coordinate and avoid different policy approaches;
  10. Create a joint trade agenda to encourage trade and investments;
  11. Harmonisate theirs standards systems for services and products.


[1] Stephen M. Mutula, “Digital Economies: SMEs and E-Readiness”, Chapter 3-Digital Economy Components, (2010), page 29.

[2] OECD Internet Economy Outlook 2012 Highlights, Overall ICT policy priority areas.

[3] Other priorities of the Digital Economy and ICT in a comparative approach between EU and U.S. are elaborated in the following.

[4] Byrne D. M., Oliner S.D., and Sichel D. E. (2013), “Is the Information Technology Revolution Over?”, International Productivity Monitor, No. 25, Spring.

Mas, M. (2012), “Productivity in the Advanced Countries: from Expansion to Crisis,” in: Matilde Mas and Robert Stehrer, eds., Industrial Productivity in Europe. Growth and Crisis, Edward Elgar, Cheltenham.

Van Ark B. (2013a), ” Recent Changes in Europe’s Competitive Landscape and Medium Term Perspectives: How the Sources of Demand and Supply Are Shaping Up”, The Conference Board Economics Program Working Paper EPWP 13-05, The Conference Board, New York.

Van Ark B. (2013b), “Europe’s Productivity Performance in Comparative Perspective: Trends, Causes and Recent Developments”, in D.S. Prasada Rao and Bart van Ark, eds., World Economic Performance. Past, Present and Future. Edwar Elgar Publishing, pp.290-316. 

[8] See the above reference link

[11] The Digital Agenda Scoreboard 2014: https://www.youtube.com/watch?v=fyjEtzW5VZs

[14]http://ec.europa.eu/digital-agenda/about-science-technology

For further reading: Fact Sheet: “ICT in Horizon 2020”:

[21] See the reference below link

[24] Digital Economy and Cross-Border Trade: The Value of Digitally-Deliverable Services, U.S. Department of Commerce: Economics and Statistics Administration, Jessica R. Nicholson and Ryan Noonan, ESA Issue Brief # 01-14, January 27, 2014, page 1.

[36] Analysis of 800 MHz auctions in the EU (2011 2013) vs.700 MHz auctions in the USA (2008)

[37] Source: European Commission

[38] The 2014 State New Economy Index (Benchmarking Economic Transformation in the States); Robert D. Atkinson and Adams B. Nager; Information Technology and Innovation Foundation, June 2014, page 41, 42.

[39] Digital Agenda Targets Progress Report (Digital Agenda Scoreboard) 2014, pages 3, 9.

[40] Source: OECD

[41] The Future of Europe’s High-Tech Industry, A.T. Kearney, 2013, page 1.

[42] The Future of Europe’s High-Tech Industry, A.T. Kearney, 2013, page 2

[43] Source: A.T. Kearney, IDATE, Alexa, Financial Times

[44] Digital Europe: How? Michael Tsamaz OTE Group Chairman and CEO, February, 2014, page 6.

[45] Source: European Commission (Sep. 2013)

[46] Mobile Wireless Performance in the EU & the US, Erik Bohlin, Kevin W. Caves and Jerey A. Eisenach, May 2013, Figure 5 page 10 and Figure 6 page 11.

[47] Source: BCG; Informa.

[48] Digital Economy: Telecommunications services and equipment, Content services & applications, TV services, Software and IT services, Computer hardware, Consumer electronics

Source: DT Group Development, based on data from Factset (comparison of 387 listed companies).

[51] Joshua P. Meltzer, “The Importance of the Internet and Transatlantic Data Flows for U.S. and EU Trade and Investment”, Global Economy and Developments at Brookings, 2014.

[52] Policy on Critical Information Infrastructure Protection (CIIP) adopted on March 30 2009, by the European Commission, focusing on the protection of Europe from cyber disruptions by enhancing security and resilience.

[54] The majority of U.S. digitally-deliverable services exports went to Europe and to the Asia and Pacific region.

[55] The Progressive Policy Institute and the Lisbon Council, Event: “Growing the Transatlantic Digital Economy”, Vice-President of the European Commission Neelie Kroes, 19th September, 2014. Video of the event:

 http://www.youtube.com/watch?v=ux8wSMqQUzY or: http://europa.eu/rapid/press-release_SPEECH-14-610_en.htm

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