Europe has fallen behind the United States and Asia in a number of areas that will be key to economic success in the future. The EU will have to take a few key steps if it is to make up lost ground.It is no secret that Europe is an aging continent. The Germans are second only to the Japanese as the oldest population in the world, with an average age of 45 years. Americans, by contrast, are only 37 on average, and their country is incredibly attractive to immigrants. Score: US 1; Europe 0.
The United States also has an advantage when it comes to energy. The US produced more natural gas in the last year than Russia’s Gasprom, and more oil than Saudi Arabia. But Europe? We are still on the hunt for a reasonable energy strategy – one that envisages wind farms where there is wind and solar panels where there is sun, while creating a functional energy transfer network to ensure that the energy produced is available where it is needed. Until something changes: US 2; Europe 0.
Next up for consideration: capital resource strength. Microsoft, Google, Facebook, Amazon, and Apple are downright young companies, all between just 15 and 40 years of age. But their total stock market value in New York is twice as high as that of the top thirty German companies combined. Here we speak of € 30-90 billion capitalization; there, it is $300-600 billion. Sorry, Europe – 3:0.
How about digital superiority? It is a category where we have our strengths: Sweden’s Ericsson, France’s Alcatel-Lucent, and Germany’s own SAP, based in Walldorf. Bosch was producing mobile telephones 15 years ago, Siemens just ten. Global leader Nokia held a 50 percent worldwide market share just five years ago. (The company has since been purchased by Microsoft.) The cell phones of yesterday, however, have morphed into the smartphones of today, produced by Samsung, LG, or Apple. They use data from across the planet, and today whoever has the data has the power. Germany may have SAP, good universities, and a roaring Berlin start-up scene, but we have lost the IT leader race.
With a score of 0:4, then, Europe is desperately in need of a comeback – a push for “Industrie 4.0.” The wrestling match to establish a decisive role in industrially significant digital platforms has already begun, and the winner could walk away with market dominance similar to what we are already familiar with on the web. Europe’s industry has no choice but to contribute substantially to the development of the next generation of digital platforms – the ones that will replace today’s search engines, operating systems, and social networks.
Such digital technologies will change existing business models significantly, upending established industries like the automobile industry along with the cultural and artistic industries. Value-added chains will continue to evolve; the borders between products and services will blur. So-called intelligent products with internet connectivity will become significant not only for their functionality, reliability, and adaptability, but also for the way in which they will change the behavior of consumers themselves – the automated car will likely prove an excellent example.
The Americans have a clear strategy: they want to push this reindustrialization forward on the backs of low energy prices and existing digital services, thereby carving out an overall economic leadership role from a place of digital superiority. And nothing against our allies, but this strategy ultimately harms Germany.
Take the auto industry as an example. The worst-case scenario in ten years would look something like this: car bodies are no longer produced from sheets of steel or aluminum, but rather from carbon produced in the US. This alone would result in a loss of a serious amount of demand for German machine tool manufacturing. Batteries are produced in Asia. And an electric motor doesn’t need gears – further bad news for the German auto parts industry. Finally, the digital components are naturally produced in Silicon Valley. German industry is facing a terminal diagnosis – it just doesn’t know it yet.
All of Europe Is Afflicted
The links in today’s value-added chains connect all of Europe; combined with advancing industrial digitalization, this means no single country can solve these problems alone. Yet massive gaps exist between various EU member states, between high-tech industries and traditional sectors, and between large corporations and small and medium-sized enterprises when it comes to the use of digital technologies.
Just 1.7 percent of all businesses in Europe use digital technologies to their full extent, and 41 percent of companies do not use them at all. The former number needs to rise at least to 30 percent should European industry hope to be any match for its international competition. And we need a wave of digital innovation – and not only in high-tech fields, but also in traditional sectors like agriculture and food production.
Such initiatives already exist to a certain degree, they simply need to be Europeanized: Germany’s “Industrie 4.0”, the Netherlands’ “smart industry”, France’s “Usine du Futur”, the UK’s “industrial strategy”, and Sweden’s “Produktion2020”. The problem now is less about integrating more digital technology on a national scale – within German or Swedish industry, for example – and more about pan-European adoption. The consolidation of these initiatives under an EU roof would not only ease the exchange of valuable experience while minimizing the risks for each country individually, it would also lead to the creation of a single EU standard that would enjoy worldwide acceptance. In fact, Europe is already well-positioned to play a leading role: it is already a market leader in industrial robot technologies and automated manufacture (30 percent global market share), in embedded digital systems and product design software (33 percent), and in 3D- and laser-based manufacture (25 to 40 percent).
Comprehensive Broadband Coverage
For a European Industry 4.0 strategy, we first need a reliable digital infrastructure, and that means comprehensive broadband coverage. Connected cars, automated driving – these can function only with 5G networks and a pan-European infrastructure, one that spans from large cities to villages. Any small town without broadband is doomed. Its demise lies not in the opening of the nth bypass road, but rather in its lack of invisible investment: satellite, wireless, and broadband networks. This will be our generation’s challenge.
It does not matter whether we are talking about eHealth, digital surgery, automated driving, machine-to-machine communication, or factory 4.0 innovations; the amount of data we will need to transport is poised to explode – and not on a linear basis, but rather an exponential one. We need speed, we need quality, we need capacity. We shouldn’t talk in terms of 3 MB/sec, nor even of 30 or 50, but rather 100 to 1000 MB/sec. We do not have 30 years to achieve this, either – we must be ready in the next five to eight years.
Here we must also include targeted investment in research and development. On the EU level, we have budgeted € 1.5 billion per year for digital technologies and industrial digitalization. Yet if we want to digitize industry Europe-wide, we will need the support of the member states. They must invest on a massive scale in the expansion of their digital competency and knowledge centers, as well as open the door to digital integration in small- and medium-sized enterprises. Investment by member states and regions must reach at least ten times the level of EU funding in order to bear real fruit.
In the end, it is not only the production of information and communications technology itself whose value is significantly influenced by digital technologies; in the digital factory, investment releases stifled potential, creating space for creativity, productivity, and greater resource efficiency.
Digital Competency Gaps
This leads us to the second point: education. Digitalization will create new, highly specialized jobs, while at the same time eliminating many others – in administration and management, for example. The need for new, well-trained workers in industries like big-data analysis, cybersecurity, and cloud computing is growing massively at the moment. Yet the digital skills gap in Europe is increasing: this year alone 500,000 expert positions will go unfilled. Creativity, communication skills, and the ability to learn new production methods are becoming increasingly important, and it’s high time that they appear on university syllabi.
The Germans, on average eight years older than Americans, are burdened by nearly an additional half-generation of non-digital natives. Continuing education would help – Germans already in the workforce may never become IT specialists, but the CEO, the toolmaker, the factory foreman, the bookstore owner, and the master butcher could become more productive with the acquisition of digital skills. This is the only way we can ever overcome our deficit compared with the US in the medium or long term.
Warnings, Punishments, and Expulsions
Third, we need comprehensive, systematic data security. We created and saved as much data in the past two years as in the entire history of mankind until that point. We must expect that data volumes will continue to increase by 60 percent annually. In Germany, this has led to (justified) greater concerns over data security, but we must remember that any location prioritizing perfect and comprehensive data security is no longer an attractive location for data use and storage. Big data and data security are not necessarily mutually exclusive, but a pragmatic balance of their interests must be achieved.
Furthermore, this balance must be a work of pan-European cooperation – while many things can be resolved nationally, the idea of national digital policy is absurd today. When I took office in Baden-Württemberg’s state parliament in 1984, we had just negotiated our first statewide data security law. Does anyone today still believe that such a law can protect their data? Baden-Württemberg’s data security law will neither be observed by Facebook, nor translated, nor applied, nor utilized as precedent – it will land in the trash bin. As long as Europe has 28 fragmented data security silos, Apple, Facebook, and Amazon will continue to shop around and settle for the country with the laxest data security laws available. They will suck up European data, save it, and sell it.
The only thing that could help in such a case is Europe-wide data security regulation. If the basic data security ordinance introduced by Viviane Reding two and a half years ago were finally enacted, then we would have the ability to go after those skirting our data protection laws in the name of competitiveness with warnings, punishments, and ultimately expulsions. Microsoft already knows this drill, and Google will soon learn it.
Digital infrastructure and digital networks are per se porous. The question is whether the gaps are so large as to allow data theft or even industrial espionage. Industry 4.0 cannot function without cloud computing, but small and medium-sized enterprises will not load their data onto the cloud until they can trust that no one can access it without their permission. For this reason Brussels has made its first attempt at a European standard for data security, the so-called Network and Information Security Directive. So far, only small member states like Malta and Cyprus have signed on – they know they are too small to protect their own data security interests. The large member states have yet to understand this.
It is also a matter of sensitivity. In Europe, we enjoy a high level of job security, as well as a sensitivity to the requirements of workplace protections. But when it comes to data, our sensitivity drops to zero. Every one of us can do more to prevent data theft. Our energy infrastructure, our traffic control centers, our airspace control: every single one of these is highly vulnerable without requiring the bodily sacrifice of a single terrorist. To avoid becoming the Achilles’ heel of our democratic, free market, liberal economies, public infrastructure will require the highest level of data security. Only a Europeanization of digital policy offers the level of defense needed in order to reestablish competitiveness with the US and South Korea. In making this happen, German industry and German politics will play an important role.
Read more in the Berlin Policy Journal App – January/February 2016 issue.