Digital Single Market: the European innovation challenge.

Europe's digital market has changed significantly over the last five years: this is reflected in the new roaming regulation of 15 June 2017, which allows European citizens to pay for mobile internet at their national rate regardless of where they are in the European Union (EU). Its unification will continue in 2018. Soon, with the modernisation of copyright laws, online content will be affected: a traveller will be able to access his Netflix account beyond the borders of his country of subscription. These changes are an integral part of Europe's digital strategy, which includes, for example, the entry into force of the General Data Protection Regulation (GDPR) on 25 May 2018. However, while the single digital market is essential, it is not enough on its own to make the EU a force to be reckoned with when it comes to new technologies.

 

The creation of a single digital market is essential. The challenge for Europe is to create fertile ground so that European companies, now limited to a national market (e.g. the 66 million inhabitants of France), can expand their playing field and compete with the technological giants of China and the United States. For the figures are worrying. While in the United States there are nearly 106 unicorns (a start-up with a market capitalisation of more than 1 billion euros), there are only 17 in Europe. This is much more than a simple cockfight: in view of the transformations that technology brings with it, in the long term the sovereignty of the region is at stake.

 

Today the American giants dominate the market when it comes to creating and training "intelligent" algorithmic systems based on user data (from Google, Apple, Facebook, Uber, etc.). As decisions become more and more automated and assisted through their use, the question of information accessibility arises. If a country is no longer able to open the "black box" of such software itself in order to better understand its decisions, it is dependent on the willingness of a foreign supplier, which thus increases its bargaining power. This subject is particularly sensitive when it comes to national security data: if the French State cannot develop on its territory the technologies capable of ensuring its security in a digital world, should it resort to American or Chinese tools? Can a country be independent when it relies on a foreign organization to undermine such information?

 

Moreover, dependence is also economic. Today, it can reasonably be estimated that the balance of trade in digital services is in deficit by several billion Euros. On the other hand, French digital exports currently represent only small, if not marginal, amounts. This phenomenon is not getting better: tomorrow, with the advent of services considered vital, such as the smart grids (energy networks using algorithmic calculations to regulate the amount of energy produced and distributed according to the consumption of a geographical area) or banking software (allowing the automation of transactions), this imbalance could reach a significant share of national GDP.

 

In the face of these threats, the emergence of strong, innovative, critical-size European companies, capable of exploiting the astronomical amount of data produced every day, is our best asset. The completion of a digital market is the first step towards achieving this. If we want to stand up to the competition, we need to enter into the position of a transformative player with a body of European digital policy ideas.

 

For if the single digital market (or Digital Single Market in Brussels) is indispensable, but is not in itself sufficient to sustain the European digital economy and, in the long term, to ensure its influence in the world. Drawing inspiration from foreign technology hubs (for example, from west to east: Silicon Valley, Atlanta, Boston, New York, London, Stockholm, Herzliya, Haifa - in Israel -, Shenzhen or Shanghai), we can see that the development of digital ecosystems rests on four pillars:

 

1. accessibility of capital to digital enterprises from seed to maturity ;

2. the quality of human capital and therefore a training system (higher education and vocational training) in line with the transition to the digital age ;

3. the emergence of critical size clusters (at least 5,000 dedicated people in contact in a limited geographical area) creating links between universities, large companies and start-ups ;

4. Accommodating public policies that facilitate the entry of newcomers.

 

The challenge is therefore to create these conditions for innovation and growth in the technological environment.

 

Looking at the recent history of the United States, it is possible to trace the guidelines in this direction. For example, the country was the first to introduce the famous principle of net neutrality, which recently caused so much ink to flow after it was repealed on 14 December last year. This allowed a large number of start-ups to access the digital infrastructure, thus touching on the fourth pillar mentioned above. Similarly, Al Gore had introduced a federal tax on e-commerce in the 1990s, prohibiting US states from individually taxing profits from online commerce. Finally, we note the introduction of accommodating regulations on venture capital or ambitious public policies for financing breakthrough technologies with a military vocation (which, among other things, led to the invention of the Internet) by the government during the Cold War. This strongly favoured the emergence of the military-academic complex, which had the triple advantage of training talent, making capital available and initiating the creation of clusters. These initiatives have contributed enormously to the development of the digital economy in the United States.

 

For our part, too many innovative companies in Europe are today hampered by regulation that favours traditional, generally national, players. However, if innovative companies are not able to grow, their services or technological products will remain the prey of giants such as Facebook, which can either acquire or copy them, and thus transfer innovation to the United States.

 

We therefore need to encourage our businesses at European level, firstly by offering them a single digital market like the one we are creating, but also by encouraging the emergence of environments with the above characteristics (accessible financial capital; skilled human capital; clusters; accommodating public policies).

 

It is difficult to envisage a digital emergence strategy without creating European military innovation logics. The principle of a major European breakthrough innovation agency, as currently envisaged with French support, can only be encouraged in this respect. Its success will depend on the quality of its governance. On this point, it is wrong to believe that it all comes down to the amounts invested, as is often understood: bold strategies in areas of disruption (such as artificial intelligence, decentralised systems, etc.) can lead to very high levels of efficiency.

 

Paradoxically, with the election of Emmanuel Macron on the one hand, the Brexit and the election of Donald Trump on the other hand, a form of momentum which could be conducive to European innovation. Moreover, the many conflicts between European states and American platforms may be catalysing a desire to unify the continent on technological issues. In the case of Google and competition policy, only the 28 Member States under the name of the European Commission were able to carry enough weight to inflict this two billion euro bill. We can welcome this event, which has highlighted the need for a European digital policy agenda. And while public policies are taking shape in the face of adversity for the moment, it is to be hoped that in the future they will stem from a willingness to take on the role of a player in the digital transformation.

 

Gilles Babinetguest columnist for UP' Magazine

An entrepreneur in the digital sector, Gilles Babinet has co-chaired several working groups Higher and digital education: connect! and big data and connected objects. Making France a champion of the digital revolution. He is also the author of the study For a Digital New Deal.

He has created several companies in fields as diverse as consulting (Absolut), building (Escalade Industrie), mobile music (Musiwave), or co-creation (Eyeka). He is also Executive Chairman of Captain Dash, a company that provides a new generation dashboard marketing offer. He was the first President of the National Digital Council between April 2011 and April 2012. He was named "Digital Champion" in June 2012. In this capacity, he represents France at the European Commission on digital inclusion and education issues.

 

The original version of this article was published by the Montaigne Institute