EIT Digital, the European research and educational institute focused on digital innovation, warns that Europe will come at an insurmountable distance from America and China. “Europe underestimates the impact of the digital transformation of the industry and the importance of emerging industrial data platforms,” says Willem Jonker, CEO EIT Digital. In the report Digital Transformation of European Industry EIT Digital has further elaborated on the warning: “The report is a wake-up call,” says Jonker.

Most worryingly, Jonker says, is that Europe is not sufficiently aware of how fundamentally the digital transformation of the industry will change our society. “Economic relations at a global level will also change completely in a relatively short period of time. Europe has learned too little from missing out on the social media platforms and runs the risk of the same in the digital transformation of the industry because the effects are underestimated.”

The study of EIT Digital, supported by Digital Enlightenment Forum, outlines four scenarios for policy choices that could be made on labour market regulation and taxation in the digital economy. These scenarios zoom in on the impact on economic growth, employment and social cohesion. EIT digital says it wants to contribute to the public debate through the report. “The report provides well-founded options for policymakers to anticipate and act on the digital transformation of the industry”, says Jonker.

Social vision and values play an important role in the policy decisions that lead to these scenarios. Of the scenarios described in the report (utopian, dystopian, ultra-social and ultra-liberal), the two ultra-scenarios contain the most handles for policymakers, writes the report. “Given the specific European values, a combination of policy measures from these two scenarios is most likely”, says Jonker.

“For EU countries, this means a strong alignment of their policies to manage the digital transformation of their industries to safeguard economic and societal interests.”

The ultra-social scenario attempts to transform technological innovation into social innovation through a mix of technology, economic incentives and social production. A Digital Intermediary Tax is one of the means to maintain the tax balance and provides an incentive to keep research and development (R&D) high. It is also used for a flexible labour market while maintaining social security. According to the report, this scenario stimulates social cohesion and economic growth. On the other hand, there is a risk of instability at the geopolitical, global and European level. This scenario requires strong coordination at the European level to prevent mutual tax competition between the Member States.

The ultra-liberal scenario focuses on stimulating technological innovation and offering economic incentives. These should be fed by lowering corporate taxes and maintaining or increasing machine-related R&D incentives. This should result in a sprint of innovations and greater productivity than in the ultra-social model. No new taxes are being introduced and no social reforms are being carried out. The disadvantage of this scenario is that polarisation and social exclusion are lurking.

The consequence of these scenarios is that, according to Jonker, many policy decisions should be taken at European level. “Policy measures by the individual Member States will have specific effects as indicated in the scenarios. Certain parts of industry and the economy have an inherently European or even global character, which makes coordination desirable or even necessary.

With regard to trade and industry, the emergence of a world order with three major power blocks becomes visible, writes EIT Digital: North America, Europe and Asia. Jonker: “The Individual Member States will find it difficult to survive in certain sectors without joining these blocs. For EU countries, this means a strong alignment of policies to manage the digital transformation of their industries to safeguard economic and societal interests.”