European Commission EVP Margrethe Vestager's mission statement is found on her homepage: "A Europe Fit for the Digital Age" That, of course, is easier said than done, given that the digital economies of both the United States and East Asia are far, far ahead of the European Union. There's no European Google, Apple, Facebook, Twitter, Amazon, eBay, Uber, AirBnB, whatever. No European cloud. No European smartphones (practically speaking). And U.S. tech giants employ far more top-notch researchers than all of the world's universities combined, which is just one of various factors contributing to the brain drain affecting Europe (and for which Africa--let alone sub-Saharan Africa--is never going to provide an adequate replacement).
"Incredible Shrinking Europe" (as the WSJ called it) has a rich history and a bleak future. What Mrs. Vestager faces is not merely a Herculean task. Putting Europe on an equal footing with America and East Asia is mission (absolutely) impossible. At the end of her term, Europe will have lost more ground than during the previous decade, no matter how hard she tries. But the EU can at least try to slow down its decline in an increasingly digital economy, and maybe avoid or delay the point at which a future European Commission president--if the EU still exists at that point--will have to fly to Washington DC and Beijing to beg for development aid.
That may sound like an exaggeration, but it's basically where continental Europe is headed in economic terms. In a matter of a few decades, the economic discrepancies between the more advanced parts of the world and Europe will be comparable to today's differences between Europe and, say, Latin America. One of various early indicators is the severe underperformance of continental European students in math (as evidenced by TIMSS), which keeps deteriorating.
The EU is wasting money on such a non-starter as its European Cloud Initiative. I've heard enough about it from industry experts to have no doubt that it's a fool's errand. So let's talk about what the real priority should be.
By far and away the biggest threat Europe faces in connection with an increasingly digital economy is the demise of its automotive industry: a doomsday scenario in which European car makers will suffer the fate of the handset divisions of Siemens, Bosch, Nokia, Ericsson, Philips, and Alcatel--not necessarily in the sense of non-European companies acquiring or licensing their brands, but the likes of Google (as the recent Android Auto deal with BMW already shows) will own the digital services, which is where the high returns, network effects, and most of customers' loyalty (even a lock-in at some point) will be, while some European companies will go out of business and others will just be making the low-margin parts that don't provide much differentiation. There's plenty of portents that this might actually happen. Not during Mrs. Vestager's term, but not to so long thereafter that she might not end up being considered one of the EU leaders who missed the last chance to avert a catastrophe comparable to the dinosaur extinction.
In fields like digital platforms, the EU has no chance to make headway, which is bad enough. But when it comes to automotive, it stands everything--its "automojo" if you will--to lose. Last month I pointed to some numbers that show how incredibly important the automotive sector is to the European economy (and, by extension, society). But that industry is being affected by digitization at a breathtaking pace and, as a result, is basically getting absorbed by the informations and communications technology (ICT) sector.
The European Commission would have to be asleep at the steering wheel not to make the automotive industry its #1 priority with respect to digital-industry policies. Cars are smartphones on wheels, software is increasingly in the driver's seat, and what most politicians probably don't even know is that the whole business model is going to change. By that I don't primarily mean ride-sharing. Whether future cars will be owned by one household or called on demand, the most lucrative revenue streams will be digital. Today, money is made primarily by selling, maintaining, and repairing the thing. Services (such as navigation) play a minor role. It will be just the opposite in about ten years' time.
Automobiles are the most important category of (increasingly-)digital products in which Europe today has significant market share. But those companies are all on the wrong track. Here's one data point that an analyst recently highlighted to me:
Tesla's market capitalization of US$135B (as of closing on Wednesday) is roughly the same as the aggregate of the market caps of Volkswagen (€64 billion), BMW (€32 billion), and Daimler (€30 billion). Tesla will turn 17 this summer while those three large German automakers are, on average, about 100 years old.
The stock market isn't always right, and it often changes mind. One or more of those traditional automotive companies may at some point stage an Apple- or Microsoft-like comeback. But at this point, and based on the profile of the Old Boys' Network people running those organizations now--there's no reason to be confident it will happen.
The market cap comparison I just drew is not merely about propulsion technologies. To just the same extent, it has to do with the fact that Tesla is truly a digital company, and Tesla will know how to derive digital service revenues from its customer base, while those European companies are still struggling to deliver a great digital experience.
As CEO of Daimler, "Dr. Z" tried to modernize the Mercedes company. He should have started with Daimler's user interfaces, but that was probably a world too far from his area of expertise. He aspired to be unconventional, appearing in sneakers at a Green Party convention, but his 19th-century moustache was a visual symbol of him not being a digital leader. The EU can't force those automotive companies to appoint digital industry executives as their CEOs now (or people with a mixed background, though that may be hard to come by). But at least the EU could and should define the automotive industry as part of the digital sector, and ensure that it won't fall too far behind. Mrs. Vestager chairs the working group of EU commissioners on digital industry affairs ("Commissioners' Group on a Europe Fit for the Digital Age").
This here is separate from how the antitrust laws should be enforced. The focus of this post is purely on industrial policy, regardless of poor structural choices made by the EU when the current Commission was put together.
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