Trend EU lag in digital technology and a static industrial structure

Summary

The report, drawing on Draghi, locates the core of the EU-US productivity gap in Europe's weakness in digital technology. It traces the divergence since the mid-1990s to the first internet-based digital revolution, in which Europe fell behind both in creating new tech companies and in spreading digital technology across the economy. Excluding the main ICT sectors, EU productivity growth between 2000 and 2019 was broadly similar to that of the United States, which shows how much of the gap the tech sector explains. A second cause is a static industrial structure in which incumbents specialised in mature technologies have little incentive to invest in research and innovation, so new growth engines struggle to emerge. For two decades Europe's three largest R&I investors were all carmakers, while in the United States the leaders shifted from cars and pharmaceuticals to software and hardware and then to digital firms.