1 The contribution of ICT in achieving the new Lisbon Agenda Brian Williamson David Lewin Puntoit/Key4Biz Workshop 7th June 2005 +44 207 324 1800

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1 The contribution of ICT in achieving the new Lisbon Agenda Brian Williamson David Lewin Puntoit/Key4Biz Workshop 7th June 2005 +44 207 324 1800 www.indepen.co.uk Slide 2 2 Agenda 1. The challenge a productivity problem in Europe 2. Market context to 2010 regulation is not keeping pace 3. Allowing creative destruction to revitalise Europe 4. Moving forward Slide 3 3 1.The Challenge A productivity problem in Europe Slide 4 4 Europe no longer catching up but falling behind Source: Denis et al. February 2005. Labour productivity growth per hour Slide 5 5 ICT contribution to labour productivity growth per hour Source: Denis et al. February 2005. Two-thirds of productivity gains in the US come from the use, rather than production, of ICT Slide 6 6 Breaking down the ICT contribution Source: Indepen-Ovum, January 2005. Slide 7 7 ICT investment in Europe has been low ICT investment/capita in Europe is at levels seen in the US 20 years ago Source: Indepen-Ovum, January 2005. Slide 8 8 Contribution of ICT investment to GDP growth Source: OECD. May 2005. Key ICT indicators. Slide 9 9 Contribution of ICT-using services to value added Source: OECD. May 2005. Key ICT indicators. Slide 10 10 Observations US productivity acceleration coincided with An explosion in networking of ICT during 1990s The rate of decline in semiconductor prices in mid-1990s doubling But everyone has similar access to ICT Many ICT goods and services are traded internationally - no need to produce ICT to benefit (e.g. Australia) Much of telecommunications is an exception must get it right at home US has invested more in use of ICT and gained greater productivity payoff per unit of investment => Why is ICT investment more profitable in the US? Slide 11 11 Effective ICT use depends on creative destruction ICT is less compatible with European incentive structures than investment in other types of capital. Professor Crafts, London School of Economics, 2004 [ICT] provides a striking example of the need for policy makers to promote entrepreneurship and a healthy process of creative destruction EC Directorate-General for Economic and Financial Affairs, February 2005 The European economic environment creates too little room for good firms to excel and for failing firms to exit the market so as to free up resources for the much-needed transition Bart van Ark, Groningen Growth and Development Centre, April 2005 Slide 12 12 Creative destruction provides a guide to policy Simply promoting investment will not work due to diminishing returns Underlying problem is that ICT investment in Europe is less profitable because Levels and types of skills are less suitable skills tend to be industry specific in Europe Product market regulation limits opportunities (e.g. in retail) Companies cannot exploit the full scale economies offered by ICT - Europe is a less integrated market than the US for services There are greater impediments to making the required organisational changes Slide 13 13 2.Market context to 2010 Regulation is not keeping pace Slide 14 14 The supply of ICT is important Traded goods and services can always be bought on a global market But efficient supply of, and investment in, non-traded ICT goods and services (such as telecoms and some software services) is essential There are also benefits from having a local ICT research and development capability The benefits from networking computers will grow rapidly, pointing to the increasing importance of communications within ICT But the EU lags the US on almost any measure of use of communications services Slide 15 15 Industry transformations - NGN effects SoftSwitch and applications servers SoftSwitch and applications servers SoftSwitch and applications servers Access networks - fixed and mobile IP transport networks Content NGN roll out well underway by 2010 and nearing completion in some member states NGNs lead to separation of applications and services from transport and access We see much stronger competition at this first level This competition captures a high proportion of the economic benefits of infrastructure based competition Slide 16 16 Industry transformations - other Slow down in market growth (