Europe's Real Opportunity in the Digital Economy

The European Commission has embarked on an ambitious journey to create a seamless 28-country market for digital goods and services in Europe. It is a journey that carries great hopes and expectations, because while there has been considerable progress since 1992 in establishing a single European market for goods, there are still significant barriers to a digital single market (DSM), which the Commission's proposals, under the leadership of European Commission Vice President Andrus Ansip, attempt to overcome. Ansip's visit to Boston this week highlights that what Europe does with the DSM is likely to have considerable impact on U.S. technology companies.

There is both promise and peril in what the Commission and Europe more broadly are trying to accomplish. First, the peril. For at least a decade, policymakers have worried that Europe has fallen behind the United States in the digital economy. While some hot spots are emerging in places like Berlin and London, Europe doesn't have its own Boston when it comes to tech hubs. And unfortunately rather than work to develop those hubs, European policymakers have sought to bring U.S. tech companies down a peg, thinking that will make European companies more competitive. We hear talk from Brussels about "replacing today's Web search engines, operating systems, and social networks with European ones" and for "digital independence" from the United States. We see Germany proposing antitrust enforcement against Facebook for the having too much data; France making it illegal for Amazon to provide free shipping on books; multiple countries banning Uber; and the Commission itself possibly regulating Internet platforms like Google, Twitter, and Apple, while at the same time discussing how to create a "European cloud computing industry" (to keep the Americans out). While these actions all might hurt U.S. companies, they hurt European businesses and consumers more by making it harder and more expensive to use cutting-edge information technology services.

At the same time, the Commission is proposing a number of changes that could lead to increased innovation. From regulatory harmonization between the 28 member countries, to measures to reduce cross-border package shipping costs, to a more continental telecommunications market, these measures will help Europe thrive in the digital economy while at the same time increasing opportunities for U.S. technology companies to sell more to Europe.

So as the Commission moves forward with its DSM proposals, it should drop the stick and embrace the carrot. In other words, rather than seek to drag down U.S companies to give European ones a leg up, the Commission should double down on and build on the unique strengths Europe already possesses, particularly its ability to engage in smart public-private partnerships. Case in point: while the United States leads in many areas of IT, it lags in areas involving "chicken-or-egg" technologies. A case in point is digital signature and electronic ID technology. The technology exists to provide every American with their own unique digital signature capability they can use to authenticate themselves online (goodbye identify theft) and sign legal documents online (hello convenience). But almost no American has one because what would they do with it? No governments or companies accept them, because no consumers have one. Contrast that with Estonia, a small country in Eastern Europe. Because of smart leadership by then-Estonian Prime Minister Andrus Ansip, the Estonian government established a program so that 94 percent of Estonian citizens now have an E-ID they can use for securely accessing databases holding their own records, signing documents, and even voting in elections online. There is no reason the European Commission couldn't use Estonia, or as some say "E-stonia," as a model to ensure that every European citizen has E-ID digital signatures.

They could do the same with personal health records. The United States struggles to get doctors to have digitized health records (although Massachusetts does better than most states), but in Scandinavia, if people's doctors don't have electronic records, patients think they are old school. Again, there's no reason with the leadership of the Commission that all Europeans could have electronic health records.

The same for smart cities. While Boston has done some cool things with technology, European cities like Amsterdam, Barcelona, and Copenhagen lead. Why not have all European cities lead? And Europe could also lead in the emerging data economy, in part because success will depend on government open data and smart partnerships. As data-driven products and services define next wave of the digital economy, Europe could expand their efforts to publish open data, ensure there are no restrictions on the reuse of government data, and adopt high standards for data quality.

In all these areas and many others, Europe has the potential to leapfrog America in the next digital economy, but only if it embraces the digital carrot and not the digital stick. And Europe putting down that digital stick could end up being a boon for U.S. tech companies, too.