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Europe and the Digital Single Market: What Next?

Europe and the Digital Single Market: What Next?
 Gilles Babinet
Former Advisor on Digital Issues

The European digital market has changed considerably over the last five years, as the June 15, 2017 roaming regulation suggests. Indeed, European citizens are now allowed to pay the national fee for data wherever they go within the European Union (EU). This unification will be pursued in 2018. Soon, with the modernization of copyright laws, online content will also be impacted: travelers will be able to access their Netflix account beyond the boundaries of their subscription country. These changes are an integral part of the EU’s digital strategy, which for example includes the introduction of the General Data Protection Regulation (GDPR) on May 25, 2018. However, while the digital single market is essential, it isn’t sufficient to turn the EU into a major player in the field of new technologies. 

Why a digital single market? 

The formation of a single digital market is crucial. The EU’s challenge is to create a fertile ground to foster the growth of European companies. Today, they are circumscribed to their national markets, such as the 66 million consumers making up the French market. The EU needs to allow them to reach a larger consumer base if they want to compete with American and Chinese technology giants. Indeed, current figures are worrisome. While the United States has 106 unicorns (startups valued at over $1 billion dollar), there are only 17 in Europe. The issue goes beyond mere business competition. Taking a look at the deep transformations sparked by technology is enough to realize that, on the long-term, the regions’ very sovereignty is at stake. 

Today, American giants are dominating the market when it comes to the creation and training of ‘intelligent’ algorithmic systems based on user data (from Google, Apple, Facebook, Uber, etc.). While decision-making is becoming increasingly automated and assisted due to the use of such programs, the question of information access arises. If a country is unable to open a software’s “black box” to better understand its decision-making mechanisms, it becomes dependent on a foreign supplier, and thus increases the latter’s bargaining power. This subject is particularly sensitive when the data is related to national security: if the French State cannot develop the technology required to ensure its territory’s safety in a digital world, should it use American or Chinese tools? Can a country be independent if it turns to foreign organizations to mine its most private information? 

Moreover, the dependence is also economic. Today, we can reasonably assume that the trade balance in terms of digital services is equivalent to a deficit of a few billion euros. This is because French digital exports for now only represent fairly low - if not marginal - incoming revenues. This situation isn’t getting any better: tomorrow, with the rise of services considered as vital, such as smart grids (energetic networks using algorithms to regulate the quantity of energy produced and distributed according to the consumption of a geographic area) or banking softwares (allowing the automatization of transactions), this disequilibrium could affect a significant share of the national GDP. 

The four pillars of innovation

Given these threats, the emergence of significant, strong, and innovative European companies able to exploit the huge amount of data produced every day is our best bet. The completion of a digital market is the first step to success. If we want to deal with the existing competition, we need to position ourselves as actors of this transformation, with the support of a corpus of European political ideas in the digital field. 

Indeed, although the digital single market is essential, it is not sufficient to create a strong European digital economy and, on the long term, to ensure its influence in the world. If we examine the functioning of foreign technology hubs (such as, from West to East: the Silicon Valley, Atlanta, Boston, New-York, London, Stockholm, Herzliya, Haïfa – in Israel -, Shenzhen or Shanghai), the development of digital ecosystems seems to rest on four pillars

  1. capital accessibility for digital companies, from their birth to their maturity   stage;
  2. the quality of human capital, and thus a training system (higher education and professional training) oriented towards the digital era;
  3. the emergence of clusters of critical sizes (a minimum of 5,000 dedicated people, in contact within a restricted geographic area) connecting universities, large companies and startups;
  4. accommodating public policies, which facilitate the entrance of newcomers in the market.

The challenge is thus to create the favourable conditions for innovation and the growth of the technological sector.

The importance of public policies 

When focusing on the recent history of the United States, it is possible to trace back directives working towards this goal. For example, the country was the first to introduce the famous principle of net neutrality, which has been extensively discussed recently, after it was abolished on December 14. It allowed a large number of startups to access the digital infrastructure, thus emphasizing the fourth pillar mentioned above. Similarly, Al Gore had set up in the 1990s a federal tax on e-commerce, thus forbidding American states to individually tax online trade benefits. Finally, we notice the implementation of accommodating regulations over capital risk or ambitious public policies encouraging government funding of military technologies during the Cold War (which has led, amongst other things, to the creation of the Internet). This has strongly encouraged the emergence of a military-academic complex, which has had the triple advantage of increasing the quality of training, making capital available and triggering the creation of clusters. These initiatives played a significant role in the rise of today’s strong American digital economy. 

For our part, in Europe, too many innovative companies are slowed down by regulations advantaging traditional – generally national – actors. Yet, if innovative companies aren’t given the means to grow, their services or digital products will remain the target of giants such as Facebook, which can either acquire or copy them, and thus transfer innovation back to the United States. 

We must therefore support our companies at the European scale, first by providing them with the digital single market we are currently creating, but also by fostering the characteristics mentioned above (accessible financial capital; qualified human resources; clusters; compliant public policies). 

It is hard to pursue a coherent strategy for the rise of the digital economy without fueling innovation into the European military. The idea of a large European agency for groundbreaking innovation, like the one currently envisaged with France’s support, has to be encouraged. Its success will stem from the quality of its management and governance. On this point, it is wrong to assume, as is often heard, that results depend mainly on the amount of money injected. Audacious strategies in cutting-edge fields (such as artificial intelligence, decentralized systems…) can be highly efficient.. 

Paradoxically, with Emmanuel Macron’s election on one side, and the Brexit and Donald Trump’s election on the other, a European momentum, which could very well foster European innovation, is taking shape. Moreover, the many conflicts between European states and American platforms may catalyze the continent’s unification on technology. In the case of Google and the antitrust law, only the 28 Member States and the European Commission have had the bargaining power required to inflict the now famous two billion euro bill. We should be happy with this turn of  events, which showed the need for a strong European political agenda on digital issues. While today’s public policies are built in the face of adversity, we must hope that they will later follow from our will to endorse an active role in the digital transformation.  

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