Information Technology Industries: The European Paradox

By Panos Mourdoukoutas
Professor of Economics, Long Island University

Panos Mourdoukoutas
With the exception of mobile communications and a couple of categories of semiconductors, EU is trailing US and Japan in information technology industries, especially in E-Commerce and Business to Business Commerce, where the US holds an unquestionable leadership. In 1999, for instance, the Internet had reached 37 percent of the US households, the 28 percent of the Scandinavian households, the 17 percent of the UK households, and the 14 percent of the French households.

As a result, Europe's productivity growth has slowed down and lagged behind those Japan and the US. Exports of high tech-gear has also slowed down, especially exports of the information and communication industries. Income disparities across regions have begin to grow again, as the Old Continent has failed to match the job growth of the US and Japan.

Europe's technological gap, which is officially acknowledged by Brussels, constitutes a paradox for Europe, for two reasons. First, Europe has been an inventor of several breakthrough technologies, including the radio, the television, the jet engine, and the World Wide Web, which played a crucial role in the commercialization of the Internet. Second, information technology industries are knowledge- intensive industries, their development and growth depends on the knowledge embedded in the economic active population ofa country, where the US trails most European countries. According to an Internal Labor Organization ranking of the 50 most knowledge-intensive countries, Holland ranks number 1, Germany 3, Denmark 4, Sweden 7, Finland 10, US 13, and Greece 20.

Books by Panos Mourdoukatas include Collective Entrepreneurship in a Globalizing Economy and The Global Corporation, both published by Quorum Books
The technological paradox of Europe can be attributed to several factors. First, the financing of high technology investments. In the US and Japan, high technology investments are fmanced with private funds, mostly with the issuing of corporate debt, equity, and venture capital. In Europe, high technology investments are financed with EU and Member-State funds. Thus, in Japan and the US in particular, high technology industries are developed bottom-up, by entrepreneurs, while in Europe, these industries are developed top-down by politicians and government bureaucrats.

Second, the continued presence of government regulations in commodity and labor markets. A host of several decades-old government regulations limit market entry, constrain the efficient and effective management of economic resources, and impede entrepreneurship. Third, the European pace of adoption and emulation of new forms of business organization like Collective Entrepreneurship, which allows the members of a corporation to share the risks and rewards associated with the discovery and exploitation of new business opportunities. The high taxation of stock options, for instance, impedes the development of Collective Entrepreneurship inside the boundaries of conventional large corporations, the blurring of the dividing lines between stockholders, managers, and workers. Government regulation and nationalistic outbursts impede the development of Collective Enterpreneurship outside and beyond the boundaries of the large traditional corporations, among suppliers, producers, distributors, retailers, and customers.

In conclusion, Europe's lag in the commercialization of new technologies reflects the lack of social institutions rather than economic resources, institutions that release the ingenuity and creativity of the people: the democratization of business financing, government deregulation, and entrepreneurship.