EAVA By / January 27, 2022

Digital transformation – Cost of Non-Europe

Europe is in the midst of a digital revolution that is transforming our approach to work and communication, and building significant potential to improve living standards and economic output.

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Written by Niombo Lomba, Lenka Jančová and Meenakshi Fernandes.

Europe is in the midst of a digital revolution that is transforming our approach to work and communication and building significant potential to improve living standards and economic output. With a potential to drastically change the economy and society, digital transformation can bring both promising developments and challenges. Digital transformation touches on all aspects of our lives, from public health, societal and democracy issues, and the environment, to the economy. The internet of things (IoT), cloud computing, artificial intelligence, advanced robotics and block-chain technologies are examples of technologies driving the revolution. Their influence on society is driven by the increasing affordability and computer power of consumer devices.

The European Union (EU) has implemented a set of digital principles and long-term digital targets with the European Commission communication on the digital decade. Nevertheless, there is a wide variation in advances in digital transformation both within the EU and between Member States. To this end, the EU and Member States are developing and adopting policies targeted at boosting digital transformation. This paper draws from the annexed study of the cost of non-Europe in digital transformation prepared by Ecorys, focusing on the competences of Parliament’s Committee on Industry, Research and Energy (ITRE). 

Key gaps and barriers affecting aspects related to digital transformation
Figure 1 – Key gaps and barriers affecting aspects related to digital transformation

This Cost of Non-Europe study analyses the status quo of digital transformation in the EU in order to identify key gaps and barriers (see Figure 1) that negatively impact or hamper innovation; the EU’s digital leadership; its ability to achieve an effective twin transition entailing a green sustainable transformation; as well as social and fundamental rights aspects, such as gender equality and social inclusion. These gaps and barriers could be driven to some extent by the fragmentation of the internal market. Their impact is estimated in both economic and non-economic terms.

While not explicitly assessed, environmental pressures are also considered in this paper. These pressures are relevant in light of the EU ambition to achieve the digital as well as the green transition. 

If no additional EU-level action is taken to support the digital transformation, the cost is estimated at €315 billion in 2021, and would be expected to grow over time to reach €1.3 trillion by 2033. This cost stems from the identified gaps and barriers. The estimate is based on an assumed baseline scenario from mid-2020, reflecting the expected economic developments in the absence of further EU action. The manufacturing, construction and transportation sectors would see the greatest gains (14 %, 6 % and 4 % respectively). It should be noted that not all aspects of the cost of non-Europe (namely geopolitical and social impacts and impacts on fundamental rights), could be assessed in quantitative terms. Thus, the estimated figures could be understood as representing the lower bounds of the true cost of non-Europe in the area of the digital transformation.

Policy options explored in the study
Figure 2 – Policy options explored in the study

The research and analysis conducted throughout this study led to the development of the three main policy options (see Figure 2). The development of these policy options takes account of the initiatives announced up to May 2021. The selected policy options therefore go beyond those announced initiatives and point to potential initiatives that could further eliminate the existing gaps and further accelerate the ongoing digital transformation.

The policy options put forward and explored are unique and differ from each other in their impacts and benefits. Each policy option could be implemented independently of the others. However, they are complementary and one policy option could be strengthened by adding an individual element(s) from another policy option(s). As shown in Table 1, the assessments of policy options 1 and 3 are similar although policy option 1 scores lower in terms of the gaps and barriers addressed. The assessment for policy option 2 was weaker on some criteria in particular economic impacts and feasibility. Policy option 3 would generate the greatest economic benefits in terms of gross domestic profit (GDP) and employment. Moreover, it would address all the identified gaps and barriers for small and medium-sized enterprises (SMEs) – a group that faces greater challenges in the digital transformation. When assessing the policy options in a quantitative manner, this paper makes assumptions as to what extent the proposed policy options could address the selected gaps and barriers. The estimated figures can be understood as representing the lower bounds of the potential benefits.

Table 1 – Summary of policy options assessments

Policy Option 1 – Enhance cybersecurity and trustPolicy Option 2 – Strengthen R&DPolicy Option 3 – Digital policy for SMEs
Extent to which gaps and barriers addressed++++++
Economic impacts+++++++
Other impacts+++
(on innovation, geopolitics, competitiveness, acceptance of technology)
(on innovation, competitiveness, changing mind-sets, spill-over innovation to other technologies)
(on innovation, geopolitics, competitiveness, benefits across the value chain, digital skills)
Feasibility of implementing a policy option+++++++
Proportionality and subsidiarity+++++++++
Notes: feasibility, proportionality and subsidiarity are ranked from low (+), medium (++), to high (+++).
Source: Annex to this study – Ecorys.

Read the complete study on ‘Digital transformation – Cost of Non-Europe‘ in the Think Tank pages of the European Parliament.

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