Europe's Grand Digital Catch-Up Plan

European Commission President Jean-Claude Juncker didn't mince words when he announced the economic bloc's digital single market strategy earlier this year: Europe, he warned, needs to plug into the digital economy fast or risk falling further behind the United States and Asia. Economic growth in the 28-member European Union, he said, hinges on the region's ability to develop digital skills, support tech startups, and invest in advanced communications infrastructure. Europe has been moving toward greater integration since World War II. The first steps toward creating a common market, in 1951, were all about coal and steel to help rebuild the devastated continent after WWII; later efforts focused on adopting a common currency. Now, Juncker is calling on Europeans to take integration to yet another level. This time, he says, the continent needs to come together around bits and bytes. To compete in the new global economy, the EU urgently needs a common market for digital goods, capital, content, and services. The current economic regime is tightly and often inconsistently regulated, creating high costs--and high barriers--for innovators. The digital single market envisioned by policymakers in Brussels would tear down those barriers with harmonized tax, e-commerce, and liability laws. It would create a larger stage for European businesses to perform, drive global technical standards, and attract investment from other digital enterprises around the world. These are benefits that the US has been able to enjoy with its large domestic market, common standards, and critical mass of global digital businesses. If the hurdles can be cleared, the awards may be colossal: a unified digital market, the Commission estimates, could add 340 billion [euro], or $387 billion, annually to Europe's gross national product, create 3.8 million jobs, and reduce the cost of public administration by up to 20 percent. The digital single market strategy is a reaction, in particular, to the growing dominance of US tech firms like Apple, Facebook, and Google, and their perceived encroachment on the crown jewels of the region's industry--networking infrastructure, automotive, and manufacturing, which together account for 2 million enterprises and more than 33 million jobs. It's not that Europe has missed the boat on digital innovation. The continent hatched the World Wide Web, the MP3 algorithm, and the GSM digital cellphone standard, among other innovations. But it has yet to produce a multibillion-euro game-changing player like Amazon, Apple, or Google. Only a few European Internet companies have even made it into the major leagues. The Internet telephone service Skype, now owned by Microsoft, is one of them. So is Spotify, the music streaming service that Google and others have on their radar screens. But of the world's 15 most valuable Internet companies, which have a combined market value of nearly $2.5 trillion, none are from Europe, according to Kleiner Perkins. Four are Chinese and eleven are based in the United States. Even more telling, every one of the companies on that list, with the exception of Apple, was founded after 1995, long after the era of heavy European investment in the kind of science, engineering, and entrepreneurial environments that have fueled the IT revolution in the United States and Asia. As a result, after the early success of Finland's Nokia, once the biggest maker of cellphones in the world and a key player in anchoring the GSM standard as the world's most-used digital mobile telephone technology, Europe is falling behind in the digital revolution. …