Jim Kohlenberger:
How Europe Can Harness Innovation as a Springboard to Recovery and Prosperity

This op-ed was originally published in Newsweek.

At a time when Europe’s economy unceremoniously achieved zero growth in the final quarter of 2023, how Europe chooses to respond in this moment could be one of the biggest, most consequential decisions shaping its long-term future. To lift its stagnating economy and expand prosperity, Europe needs to harness a proven and powerful growth engine — technology-enabled economic growth.

While Europe’s competitiveness has long lagged behind its global counterparts because of lackluster technology adoption, its past challenges are now coming to a head. As technology transforms almost every sector of the global economy, Europe’s slow technology adoption rates combined with a tsunami of sometimes contradictory new technology regulations have converged to stall foreign investment and pose what is perhaps the biggest fundamental threat to the region’s future prosperity in decades.

While its global counterparts have worked to foster technology innovation, investment and adoption, last year the European tech sector saw $400 billion wiped off its overall market capitalization as foreign venture capital investment plunged by half. It means Europe is losing out on the latest technological developments that enable future growth. In sounding the alarm on Europe’s expanding technology gap, McKinsey found large European companies are now 20% less profitable than their American counterparts with 90% of the gap attributable to technology-creating industries. They warn that unless Europe closes its technology gap, European firms across broad sectors will likely be put at a competitive disadvantage, jeopardizing Europe’s long-term prosperity.

McKinsey isn’t alone. As its economy sputters, a European Central Bank (ECB) board member is warning of the urgent need to close Europe’s technology gaps to address its competitive crisis and points to slow technological adoption and strict product market regulations as among the root causes for the region’s current lack of competitiveness.

The good news is that if Europe can foster a more innovation-friendly environment and close its growing technology gap, Accenture research, for example, estimates that Europe could generate a staggering €3.2 trillion in additional economic gains — impacting and helping lift nearly every sector of the European economy. It’s the kind of economic shot in the arm Europe urgently needs.

However, one of the biggest barriers to closing this technology gap is a lack of trust in technology. Consumers and businesses simply won’t adopt new technologies if they fear they could put their privacy, safety or security at risk. In fact, according to Eurobarometer, three-quarters of Europeans point to the need for stronger cybersecurity and better protection of data in order to increase their use of digital technologies. By contrast, when companies lead on these issues and foster digital trust, McKinsey found they can increase annual growth by 10% or more.

For years, in order to boost trust in technology, Europe’s premier cybersecurity agency has argued that “[s]ecurity by design and privacy by design need to be fundamental principles adopted by manufacturers and digital service providers.” Major technology platforms embraced this approach by integrating core privacy, safety, and security safeguards into the foundations of their technology by design. We need every technology developer to step up and follow suit.

But it’s now surprising to see that the EU‘s new Digital Markets Act (DMA) is headed in the opposite direction by requiring companies to remove the very safeguards that they integrated into the heart of their technologies to protect privacy, safety and security by design. While its goal is to foster new competition, the DMA’s rules contain inherent flaws that can now expose users to vast new risks by requiring companies to remove existing app-store safeguards created to protect users. As Benedikt Franke, CEO of the Munich Security Conference, explains, the DMA “hardly makes the EU and its citizens safer” but it instead “comes with serious side effects, putting millions at risk by overriding central safeguards on the pretense of consumer choice.”

He’s right. And these changes don’t just create new challenges for business users working to avoid being hacked, but parents trying to protect their kids, seniors trying to avoid being scammed, intellectual property owners concerned about their work being pirated, and voters worried about apps that spread disinformation. While technical experts and the U.S. government have warned EU policymakers about the DMA’s potential risks, so far the EU has done little to warn its businesses and consumers.

In this case, legislators produced conflicting technical mandates that are in direct tension with each other, and they have adopted ambiguous provisions that create new legal uncertainty — all of which leave critical questions that policymakers ultimately still need to grapple with. Before copying the EU’s digital regulatory system, other countries would be wise to consider their full implications carefully.

The economic dimensions of this approach are huge. Although the DMA is largely targeted at regulating US companies, the Center for Strategic and International Studies estimates that the DMA and its companion Digital Services Act could increase costs on European businesses by as much as €71 billion per year — of which nearly half would be incurred by Europe’s small and medium-sized businesses.

To crank up its economic engine, close its technology gap, and boost its long-term economic competitiveness, Europe must fully embrace a more trusted technology future. As mobile devices have become the primary means by which users now access the internet, it can start taking steps to maximize trust throughout the mobile ecosystem, overcome its lagging mobile 5G adoption rate, and achieve the €1 trillion in estimated gains that next-generation mobile innovation is projected to deliver.

At this pivotal moment that could decide its long-term economic potential, Europe stands at a critical digital crossroads. Will it move from technological laggard to leader and foster the foundational trust in technologies it needs to reap the vast rewards from a more innovative economy? Only time will tell. But the road to prosperity begins with a choice to drive a more trusted technological future and unlock the previously unthinkable opportunities that improve people’s lives.