Communication Unit B-1049 Brussels Fax (32-2) 29-58220 E-mail: research-eu@ec. europa. eu
Intelligent Transport Systems and Services (ITS) refers to the integration of information and communication technologies with transport infrastructure
to improve economic performance, safety, mobility and environmental sustainability for the benefit of all European citizens
It underpins employment, economic growth and global exports, while providing citizens with resources and mobility that are essential to the quality of life
by aâ continuous increase in traffic demand as aâ result of higher levels of motorisation
intelligent systems and services could reduce congestion by up to 15%,CO2 emissions by 20 %and road fatalities by up to 15
Bidirectional communication is needed from vehicle toâ vehicle (V2v) and vehicle to infrastructure (V2i. This requires the development of
aâ communication architecture that provides aâ common frame for cooperative systems to work together. Examples of applications based on cooperative systems that are currently
Several services of the European commission contribute to the development and deployment of ITS in Europe:
standardisation and interoperability of services are essential, in order to avoid the emergence of aâ patchwork of ITS applications and services
It is increasingly evident that technological improvements involving individual vehicles or infrastructure components and sub-systems are insufficient.
Even with relatively small investments, the integration of existing technologies could create new services bringing more reliable, real-time traffic information and better routing.
This would make more effective use of the available infrastructure and avoid delays caused by traffic jams
as well as reducing the need for new investments in additional roads. Continuing progress in ICT and sensing devices will open the door to even more radical advances.
Europe (representing the interests and expertise of European multi-sector stakeholders involved in providing ITS), no †umbrella†structure for the advance from research to realisation in the
to facilitate the continuity of ITS services, and to do so through aâ coordinated and concerted
and freight management ITS services in European transport corridors and conurbations •road safety and security
whenever ITS services or applications are adopted in the Member States. To increase its efficiency, the European parliament and the
•EU-wide multimodal travel information services •EU-wide real-time traffic information services •road safety-related minimum universal traffic information free of charge to users
•interoperable EU-wide ecall (for emergency calls using aâ single dial-up number •information services on safe and secure parking places for trucks and commercial vehicles
•reservation services for safe and secure parking of trucks and commercial vehicles For more information on the ITS Action Plan and Directive, see
http://ec. europa. eu/transport/its/road/action planen. htm IN T E L L IG
interactions, and to construct aâ simulation environment for the evaluation of new technologies. A general-purpose driver
services usable and useful †and that only really became possible aâ decade on. â€
public-sector stakeholders. The general objective of this joint platform is to promote and monitor the implementation of
environment around them. They facilitate control, accident avoidance and journey planning †either by providing the
as services such as journey planning and dynamic in-vehicle navigation, could thus interact and be networked with each other across whole transport systems
also present opportunities to make them smarter, by adding facilities for self-monitoring and the communication of conditions to passing vehicles. â€
Interviews conducted as part of the INTRO project confirmed that some road operators are waiting for evaluation of existing solutions and equipment from research
sensing and communication units installed in aâ fleet of vehicles. Extensive field tests were conducted under
communication (DSRC) and mobile wireless local area networks (WLAN. In conjunction with satellite positioning, this will support personalised applications such as emergency calls and
Much can be accomplished using mobile communications alone, without incurring the cost of extensive infrastructural investment and complex in-car equipment,
but this has some limitations. For example, issuing aâ black ice warning to all vehicles approaching aâ particular
High investment in fixed equipment for this purpose is justifiable in urban areas, where most congestion occurs,
-way communications via onboard units interoperable with Galileo and UMTS systems. Under the SAFETRIP project, low
personalised services, including emergency calls and messages traffic alerts, incident/accident warning, speed alerts, vehicle
allow two-way communication over an open platform permitting many different services and applications to be
added with ease by any vendor. Whereas existing wireless communications technologies use different systems to tackle
drivers about their immediate environment and impending situations They would be able to receive more complete and up-to-date
while †always-on†communication would allow safer interaction with home and office, as well as access toâ information and
for the urban environment The CITYMOBIL project builds on the results of recent European and national projects to create aâ complete
involved in emergency or public transport services †or even to goods vehicles, where appropriate The same data can also be used to extend the functionality
improves fuel economy by managing the fuel injection thermal systems and battery charge/discharge cycles
aâ form of demand-responsive ATS that was promoted strongly during the 1960s and †70s,
which can run on demand on existing urban infrastructures that also accommodate pedestrians, cyclists and even aâ limited numbers of cars.
between city centres and airports or peripheral parking sites †ready for pick-up by customers
bringâ closer the vision of end-to-end travel services extending fromâ pre-trip preparation to on-trip support and post-trip
accessibility, based on data provided via RTTI services Forâ passenger transport, the envisaged systems embrace all
increasing demand, especially in urban areas, it becomes more and more crucial to have ready access to accurate real
-vision of information about demand-responsive trans -port (DRT), now being developed in many cities and regions
be fully coordinated with the fixed line services †which would be of great value to people with reduced mobility
making informed investment decisions. Key Performance Indicators (KPI) will enable the impact of ITS to be measured
aâ wide range of information services for transport operators industrial users and public authorities. In this way, the freight
distribution on the city environment. †One more approach to reducing the number of circulating vehicles, especially applicable in crowded urban envi
can be adapted for different functions according to demand at any given time C H A p T E R 6
HEAVYROUTE derived aâ prototype satellite-based mapping system for pre-trip route planning that takes account of
the surrounding environment, and it is important to help drivers in minimising them. Some studies are therefore
network that brings together key stakeholders in the fields of ITS, urban mobility and road infrastructures development.
economies. Supporting interesting and innovative research projects in the field of transport is aâ great way to start
benefit the world economy. †New instruments Three such projects have been launched under FP7, taking advantage of the SICA (Specific International Cooperation
during major events that place unusually heavy demands on the host cities†infrastructures. Demonstrations are planned at
Cities face ever increasing demands on their transportation systems, especially in developing regions with growing car
infrastructure investment, strategic mobility management is becoming the most important tool for meeting this demand
The VIAJEO project will design, demonstrate and validate an open platform which will facilitate data sharing and exchange
management to support aâ variety of services. The project will integrate the open platform with local components and
of demand. Incentives and sanctions will favour low-impact collective and individual modes of passenger transport,
loading, parking and the associated logistics services On the positive side, ITS will enable connected vehicle-infrastructure communication systems
The evolution of mobile communication networks to 4g and beyond will deliver continuous connectivity to vehicles and travellers, giving access to on-line services via mobile Internet links
Multimodal traffic and travel information services will grow in quality and quantity †with mobile handsets becoming increasingly powerful personal mobility terminals.
Travel guidance on-line booking and payment facilities will be combined with location-based Web 2. 0 applications to facilitate ride-sharing,
•construction of an e-marketplace in traveller services (predictive traffic management, real -time multimodal traveller information, demand
•creation of seamless and ubiquitous connected services (simple, upgradable and scalable via low-cost universal devices
•development of demand-driven, easy-to-use and affordable services for all users, learning from the success of portable navigation systems and Web 2. 0 social networks
the potentially complex offerings of new mobility services, combining multimodal traveller information with options such as demand-responsive transport and car sharing or pooling
•exploration of the possibilities offered by new-generation fully electric vehicles, especially inâ cities, to support more sustainable mobility behaviour
DRT Demand-responsive transport DSRC Dedicated short range communication EGCI European Green Cars Initiative ERTMS European Railway Traffic Management System
ERTRAC European Road Transport Research Advisory Council ESC Electronic stability control EU European union GSM Global system for mobile communications
ICT Information and communication technologies ITS Intelligent transport systems PRT Personal rapid transit RFID Radio frequency identification device
the sustainable mobility of citizens and goods in response to increase in traffic demand, resulting from
Manufacturing and Services BERD, 2003-2011 11 Figure 8: BERD by firm size, 2003-2011 11
Services firms by R&d expenditure ranges, 2003-2011 27 4. Types of Research and development 28 Figure 35:
ï§Enterprises across all business sectors in Ireland spent â 1. 86 billion on in-house
Enterprises active in R&d in 2011 estimated an R&d spend of 1. 96 billion in 2012, an
ï§Foreign owned enterprises accounted for 71 per cent of the total business R&d spend in
ï§61 per cent of BERD was generated in the services sector in 2011 ï§Medium and large enterprises (more than 50 employees) accounted for almost three
-quarters of BERD in 2011 ï§89 per cent of BERD funding was from company funds in 2011, down from 92 per cent in
ï§The majority of R&d personnel (63 per cent) were employed in the services sector ï§Medium to large companies employed two thirds of all research personnel
58 per cent were in the services sector and 42 per cent in manufacturing ï§Small firms with less than 50 employees accounted for 69 per cent of all R&d active
ï§More than 72 per cent of all R&d performing enterprises spent less than â 500k on R&d
activities and one in ten enterprises were engaged in large scale R&d activities spending in excess of â 2 million
ï§In both the manufacturing and services sectors, 27 per cent of firms were engaged in
ï§Nearly two-thirds of Irish enterprises were engaged in experimental development compared to three-quarters of foreign owned companies
ï§Small enterprises were more likely to engage in applied research (28 per cent) than
medium and large enterprises (23 per cent Collaboration ï§Of all R&d performing firms, 35 per cent engaged in joint research projects with other
manufacturing and total services, pre 2007 Forfã¡s included the following 2 sectors under manufacturing whereas the CSO include them under services
ï Agriculture, Forestry, Fishing, Mining and Quarrying ï Electricity, gas supply, water supply, sewerage, waste management and
Figure 1 presents details of aggregate levels of R&d expenditure by enterprises in Ireland between 2003 and 2011 and an estimate for 2012,2010 is also an estimate as BERD is a
Enterprises in Ireland spent â 1. 86 billion on in-house research and development in 2011 and
economy between 2003 and 2012. For Ireland, two measures of economic activity are employed, GNP and GDP.
GDP for Ireland is inflated by the inclusion of profits of inter-firm activities of multinational firms but GNP excludes these profits giving a truer measure of
economic activity. BERD as a percentage of GNP has increased from 0. 93 per cent in 2003 to
1. 46 per cent in 2011 and is estimated to reach 1. 47 per cent in 2012.
The increase in BERD intensity from 2009 to 2011 is entirely due to a fall in GNP as BERD remained unchanged
2003 as shown in Figure 6. Capital BERD expenditure totalled â 253 million in 2011 falling from
Information and communication services (J) 487.9 571.2 Financial and insurance activities (K) 157.5 47.6 Real estate professional, scientific and technical activities (L-M) 291.0 292.5
R&d expenditure in the services sector increased by 15.9 million (1. 4 per cent) over 2009
ï§Information and communication services-â 83.3 million (17.1 per cent ï§Administrative and support service activities had increased an spend of â 13 million
Manufacturing and Services BERD, 2003-2011 Source: CSO databank, Forfã¡s BERD 2003 and 2005 surveys
Figure 7 highlights the shift from a manufacturing to service economy between 2003 and 2011
services sector, a complete reversal since 2003 when 61 per cent of BERD was generated in
Also, when aggregating the subsectors up to total manufacturing and total services pre 2007 Forfã¡s included the following 2 sectors under manufacturing whereas the CSO
include them under services ï§Agriculture, Forestry, Fishing, Mining and Quarrying; and ï§Electricity, gas supply, water supply, sewerage, waste management and
Manufacturing Services 265 320 278 300 326 495 519 840 1, 009 1, 325 1, 568 1, 507 1, 364
expenditure, the majority (63 per cent) of R&d personnel resides in the services sector in
Manufacturing Services 4, 591 5, 125 3, 815 4, 443 6, 490 7, 442 8, 501
Figure 22 shows Phd researchers are concentrated more in the services sector since 2009 with the sector accounting for two thirds of all Phd researchers employed in the business
Selected services Manufacturing industries FORFÃ S BERD 2011/2012 ANALYSIS 21 sector. This contrasts with the profile in 2003 when only 22 per cent of all Phd researchers
were working in services. Phd researchers in both sectors have declined slightly since 2009 Figure 23: Phd researchers by gender, 2003-2011
cent of all enterprises spent less than â 500,000 on R&d activities compared with 77 per cent
in ten enterprises spent in excess of â 2 million in 2011 up from 7 per cent of R&d-active firms
firms spending less than â 500k on R&d activities accounted for 81 per cent of all enterprises
enterprises up from a 48 per cent share in 2003. In absolute terms, this accounts for a further
Enterprises investing between â 500k and â 2 million (mid-scale R&d activity) increased by 52 per cent from 80 firms in 2003
Over 1, 600 enterprises were engaged in R&d activities in 2011, of which 58 per cent were in
the services sector and 42 per cent in manufacturing. This contrasts with 74 per cent of R&d
Manufacturing Services FORFÃ S BERD 2011/2012 ANALYSIS 27 Figure 33: Manufacturing firms by R&d expenditure ranges, 2003-2011
Services firms by R&d expenditure ranges, 2003-2011 Source: CSO databank, Forfã¡s BERD 2003 and 2005 surveys
Figure 34 shows the R&d spend categories for services firms between 2003 and 2011. Services
firms engaging in R&d have increased exponentially since 2003 from 294 firms to 926 firms in
products and devices, to installing new processes, systems and services, or to improving substantially those already produced or installed
Figure 37 shows a strong focus on experimental development projects in the services sector making up almost three quarters of R&d expenditure.
The services sector now holds the majority share of total BERD, driving the increased focus overall on experimental
Nearly two-thirds of Irish enterprises were engaged in experimental development (figure 38 compared to three-quarters of foreign owned companies (figure 39) in 2011.
With the exception of 2005 small enterprises were more likely to engage in applied research
than medium and large enterprises Figure 41: Types of R&d spending by medium/large firms, 2003-2011
Figure 45 shows the share of manufacturing and services firms engaged in joint R&d projects
With the exception of collaborations with other firms in Ireland, services firms had higher collaboration rates with all other partners.
Overall, 36 per cent of services firms engaged in collaborative R&d compared with a third of manufacturing firms
Manufacturing Services 34 Forfã¡s Board members Eoin O†Driscoll (Chairman Chairman, Southwestern Martin Shanahan Chief executive, Forfã¡
Secretary general, Department of Jobs, Enterprise and Innovation Barry O'Leary Chief executive, IDA Ireland Frank Ryan
Chief executive officer, Enterprise Ireland Michael O†Leary Secretary to the Board, Forfã¡s FORFà S BERD 2011/2012 ANALYSIS
Social Enterprise in Ireland: Sectoral Opportunities and Policy Issues Forfã¡s July 2013 Ireland†s Construction Sector:
Outlook and Strategic Plan to 2015 Forfã¡s July 2013 Annual Report 2012 Forfã¡s
Global Entrepreneurship Monitor 2012 Global Entrepreneurship Monitor July 2013 Annual Employment Survey Forfã¡s July 2013
Ireland†s Competitiveness Performance 2013 Forfã¡s May 2013 Making It In Ireland: Manufacturing 2020
A Review of the Equity Investment Landscape In Ireland Forfã¡s January 2013 Regional Labour markets Bulletin 2012
A Review and Audit of Licenses Across Key Sectors of The irish Economy Forfã¡s December 2012
Global Entrepreneurship Monitor (GEM) 2011 Global Entrepreneurship Monitor September 2012 Annual Employment Survey 2011 Forfã¡
s August 2012 National Skills Bulletin 2012 NCC July 2012 Monitoring Ireland†s Skills Supply †Trends in Education and Training Outputs
Key Skills for Enterprise to Trade Internationally EGFSN June 2010 Sustainability of Research Centres Advisory Science Council
Most commentary on Europe†s economy focuses on its precarious financial system and anemic employment recovery since the Great
communication technologies (ICTS) by all organizations (for-profit nonprofit, and government) throughout the European economy
Increasing productivity is the key way that countries can raise their per capita-income income. It should not be surprising, then,
competition that Europe faces in the coming decades, it is crucial that Europe find a way to
throughout an entire economy, reshaping entire systems of production and distribution Raising productivity growth rates will be
communication technologies by organizations PAGE 2 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014 Around two-thirds of U s. total factor productivity growth between 1995 and 2004 was
are primarily due to the efficiencies of ICT capital, as well as associated complementarities and spillovers Compared to the United states,
proximate cause is simply the lack of investment in ICT capital: European countries have lagged significantly behind the United states in ICT investment, both as percent of total
investment and as a percent of GDP, since the 1990s. And this is true not just of the ICT
-producing sector itself. ICT-using sectors, primarily the service sector, that have been large drivers of growth in the United states have been untouched relatively by ICT in Europe
Productivity in European private-sector services grew only one-third as fast as it did in the
and land markets limits possible business models, raises the cost of ICT investment, and slows down market forces that can push firms to adopt
more productive practices. For example, privacy regulations reduce the effectiveness of online advertising, the â€oeright to be forgotten†legal provision can significantly raise the cost
a role as well as depreciation rates for ICT capital investments are generally less generous than in the United states
size of demand for European products (particularly services), which in turn makes it harder to achieve economies of scale from ICT investments.
Moreover, Europe†s much higher proportion of small firms makes it hard for firms to surmount the high fixed costs of many
ICT investments. In the latter case, regulation has provided the significant bottleneck to firm growth, by favoring small firms at the expense of large ones
from ICT investments requires organizational redesign, and that U s. firms are better at employing management techniques that can facilitate such transformation
improvement the centerpiece of economic policy is crucial. While employment presents a formidable challenge in many European countries, sacrificing productivity for jobs†that
such as retail and professional services, by encouraging the adoption of ICT. Europe should focus primarily on ICT-using sectors
increases to the economy without the adoption of ICT in other sectors. In addition, actions to encourage the ICT-producing sector may sometimes hurt ICT-using sectors, if
right conditions for ICT investment and adoption. The government can do this through its own procurement and adoption of ICT products,
investment. By minimizing taxes on ICT investments, policymakers encourage the productivity effects of ICT use.
These tax incentives are particularly important because while ICT investment provides large benefits for the broader economy, the nature of these
benefits makes them hard for any single firm to capture; therefore, firms tend to underinvest in ICT.
Additionally, the Transatlantic Trade and Investment Partnership TTIP) would better facilitate access to U s. markets
been protected from competition Finally, Europe needs to be vigilant about â€oedoing no harm. †At this stage the large benefits
services. 7 Figure 2: EU-15, EU-13, and U s. labor productivity growth trends (GDP per hour worked) 8
The irish productivity gap with the U s. economy shrank from 35 percent in 1995 to 17 percent in 2013
relative sizes of the EU-13 economies 2004-2013 Diverging Converging 1 9 9 5
Higher productivity is the sine qua non of economic growth. 18 To see why, consider that if the EU-15 nations had maintained the productivity growth rate they enjoyed from 1980 to
to input, where output is valued using the amount of goods or services and input is typically an hour of labor, a single worker,
physical capital. Using hours of work or the amount of workers as the denominator yields labor productivity (the measure used in this report unless
while using the combination of workers, physical capital and other inputs as the denominator yields total factor productivity (TFP;
physical capital Productivity is the main determinant of national income per person, because over the long term a nation can consume only what it produces
or is able to trade for Nations can increase their productivity in two ways. If most industries, even low
effect†occurs when an economy shifts resources from less productive industries e g.,, call centers) to more productive ones (e g.,
services. 29 Policymakers, not just in Europe but around the world, tend to prioritize the three
Indeed, new growth economics accounting suggests that the lion†s share of productivity stems from the use of more and better â€oetools. †30
And in today†s knowledge-based economy, the tools that are most ubiquitous and most
manufacturing to services to government. In the United states, 48 percent of non -structures capital investment is in ICT,
and the number would be even higher if all IT -enabled machines were classified as ICT. 32
what economists call a â€oegeneral purpose technology†(GPT. GPTS have appeared historically at a rate of once every half
what economies produce; how they produce it; how production is organized and managed; the location of productive activity;
they increase in sophistication as they diffuse throughout the economy; they engender extensive spillovers in the forms of externalities and technological
innovations in products, processes, business models, and business organization. By any of these measures, ICT ranks well against the most transformative technological
At both the firm and the country level, greater investment in ICT is associated with greater productivity growth. †36 In fact,
different levels and sectors of economies, from firms to industries to entire economies, and in both goods-and services-producing industries. 38 Firm level studies have shown also that
PAGE 11 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014 â€oefirms with high levels of ICT are more likely to grow (in terms of employment) and less
2000s found that investment in ICT capital increased productivity by three to eight times more than investment in non-ICT capital. 43 Likewise, Wilson finds that of all types of
capital, only computers, communications equipment, and software are associated positively with multi-factor productivity. 44 Hitt and Tambe find that the spillovers from IT nearly
double the impact of IT investments. 45 Rincon, Vecchi, and Venturini confirm the GPT nature of ICTS through an exhaustive industry-level study of both productivity benefits
and spillovers. 46 These studies have been corroborated with research on the benefits of ICT in a richer variety of contexts, including developing countries and public sector
other capital. First, in economies where ICT capital equipment innovations are new, they are able to pick off the â€oelow hanging fruit†of relatively easy to improve efficiencies
Second, ICT doesn†t just automate tasks, it also has widespread complementary effects including allowing companies to fundamentally reengineer processes.
economists call â€oenetwork externalities, †which are the â€oespillovers†from adding additional users to a network.
ICT capital contributed 0. 53 percentage points to the average annual GDP growth rate in the United states and 0. 56 percentage points in
Figure 7 shows contributions in both the total economy and private sectors for the EU-15
Corry et al. find that the contribution from the â€oeknowledge economy, †which includes labor composition, ICT capital,
and TFP, increased in the UK from 2 percentage points to 2. 3 percentage points of overall growth after 1997.54 Goodridge et al. find sectors
most heavily in ICT capital. 55 In Finland, Mairesse, Rouvinen, and Ylã¤-Anttila find that
increased revenues in small-and medium-sized enterprises by 9 percent. 58 In a large survey
Castiglione measures the impact of ICT investments in Italian manufacturing firms and finds that they had a positive and significant effect on firms†efficiency,
economy EU-15 market sector USA total economy USA market sector Other (residual TFP (ICT-use
TFP (ICT-production IT investment/hour PAGE 14 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014
of national growth. 63 Also in Italian firms, Hall, Lotti, and Mairesse find that ICT
investment is associated strongly with productivity. 64 In Spain, Romero and Rodrã guez find that e-buying had significant impacts on firm performance over the 2000-2005 period. 65
percent for manufacturing and services firms and 62 percent for ICT firms. 69 Belgian firms
productivity growth. 70 These studies confirm that ICT investment goes hand in hand with firm productivity growth,
slower without investment in ICT Moreover, ICT doesn†t just increase firm productivity, it enables firms to be more
and services. †73 Garcia-Muniz and Vicente look at the EU as a whole and find that ICT
investment, broadband use, and e-commerce are all very important for innovation in the service sector,
and that ICT investment and broadband use are less but still important drivers of innovation in manufacturing as well. 75
and economy-wide levels why has failed Europe to gain from ICT the way the United states has?
Recently, several prominent economists have argued that productivity growth in the United states is slowing down significantly for the foreseeable future.
uncertain process, economics does in fact have a good deal to say about how it develops and how policies can play a role in creating it.
economics, and not enough agency to policy Second, techno-pessimist accounts frequently conflate economic growth with
productivity. The two are related but distinct, because growth can occur simply by adding more workers.
size of the economy, they do not affect productivity or income per capita Productivity is what matters for competitiveness and for per capita-income income, so it
Moreover, the techno-pessimists stand in stark contrast to other economists arguing that technological change will soon be progressing too quickly
Amount of ICT Investment Firms in Europe do not invest as much in ICT as firms in the United states. Higher levels
of ICT investment drive higher productivity growth: in a recent survey of both micro and
over the last two decades an increase of ICT investment by 10%translated into higher
States have maintained a healthy lead in both ICT investment as a share of overall investment and ICT investment as a share of GDP. 83 (Figures 8 and 9) And that lead has
grown, not shrunk, since 2000: the EU invested about 80 percent as much as the United
States in ICT as a share of total capital investment in 2000, but by 2011 that number had
overall in fixed capital than the United states. Figure 9) In other words, while Europe invests more overall,
investment. ICT investment both as a percentage of GDP and as a percentage of total
nonresidential investment peaked in the late 1990s for both the United states and the European union. However, the United states has maintained much higher levels of
investment in ICT as a share of fixed capital investment since the 1990s.86 (Figure 10
Moreover, U s. ICT investment is significantly higher as a percentage of overall investment than in any other large European nation other than the UK. 87 Continuously higher levels
of ICT investment by the United states mean that it has built up a larger stock of ICT
capital goods, even though these goods normally depreciate faster than other capital goods From 1991 to 2007, ICT capital stock†the total accumulated ICT investment†tripled in
ICT investment by 10 percent translated into higher output growth of 0. 5†0. 6 percent. â€
Gross fixed capital formation (investments) by type as a percentage of GDP (EUR-W is
Shares of ICT investment as percent of nonresidential investment93 Economists see U s. ICT investment as a key reason the United states has maintained its
place at the â€oetechnological frontier†as one of the most productive countries. 94 The effectiveness of greater ICT capital investment in the United states suggests that additional
ICT investment in Europe is likely to have significant benefits as well. Strauss and Samkharadze argue that â€oeus productivity has outgrown the EU-15 mainly because of
stronger ICT capital deepening and faster progress in productive efficiency. †95 0 %5 %10
Other investment as%GDP ICT assets as %GDP 0 %5 %10 %15 %20 %25 %30
ICT investment shows up in survey data on ICT use as well. The 2013 and 2014 World
Limited Impacts in the Services Sector Drilling down into the lack of investment, another reason Europe has experienced not the
same macroeconomic impacts from ICT as the United states is that it has not been able to
because services are such a large part of the European (and U s.)economy, â€oesubstantially higher productivity growth in manufacturing would not be
sufficient†to remedy the productivity slowdown. 100 Mas argues that it is â€oethe services and
not the manufacturing industries that make the difference between the US and the EU€ while in the US TFP improvements in the ICT producers sectors spilled over to the other
sectors of the economy (especially the ICT intensive users), in the EU-15 its positive effects
from their ICT investment means not only that productivity is lower, but also that fewer projects meet investment hurdles and firms in Europe end up investing less than firms in
the United states One product market regulation that appears to have a negative effect on ICT-enabled
on ad-based business models. 106 This appears to be one reason the EU lags behind the
Privacy regulations not only limit business models, they also increase the cost of doing business for firms, presumably decreasing their ability to invest.
small-and medium-sized enterprises, costing them between â 3, 000 and â 7, 200 per year, or
the effectiveness of IT investment include the new law requiring websites to obtain â€oeexplicit consent†before placing web cookies,
less robust mobile communications infrastructure Labor market regulations have a large negative impact on ICT investment and the benefits
firms can obtain from it. Van Reenen et al. find that labor market regulations reduce productivity gains from ICT by approximately 45 percent. 111 The authors attribute one
reduce the return on investment from ICT purchases, leading firms in Europe to invest less
Companies make decisions about capital investment on the basis of return on investment If the return is low due to factors like product market regulations, labor market regulations
investment. However, higher taxes on ICT consumption do discourage ICT use by consumers, making it more difficult for businesses to use ICT to adopt customer-facing
Europe†s high consumption taxes may only affect business investment decisions indirectly but corporate tax policies play a more direct role.
may raise the price of ICT goods and services for everyone else. Moreover, the existing
Another important channel through which tax policies influence investment is depreciation rates†the rates at which corporations can write off capital investments for tax purposes. 126
Accelerated depreciation decreases tax revenues in the United states by 6. 6 percent, and thus comprises a substantial incentive to invest in new equipment,
which companies can depreciate ICT investments. 129 Over time these rate differences could have significant effects on ICT investment and thus
accumulated ICT capital stock. Unfortunately this is not a well-developed body of research and further work is necessary to determine
significant effect on investment Scale Economies Two additional reasons European firms lag in their investment in ICT capital are related to
scale. The first scale problem is with firm size. The United states has a higher percentage of
workers employed by large firms than all European countries. Figure 15) In particular Italy, Greece, and other Mediterranean countries stand out as having an unusually high
IT adoption by firms, ICT investments have high returns to scale because of their low marginal costs but higher fixed costs. 130 To be sure, the increased provision of software
through cloud-based services may change that somewhat, but scale benefits are not likely to
disappear, if for no other reason than most enterprise IT needs some customization which raises fixed costs
Figure 15: Percentage of total workforce employed at enterprises by size, 2010131 Regulation that favors small firms has been a significant bottleneck for ICT investment in
many European nations. 133 The firm-size problem ties into the regulatory issues above particularly because labor market regulation can limit the number of employees a firm
chooses to have. 134 France, for example, has a number of laws that apply only to businesses
economy is larger than that of the United states, in practice it is integrated much less Therefore, the market for a firm†s products or services is limited more, often to only the
nation it is based in. 136 Because the United states effectively has a much larger market there are larger potential returns to ICT investments for U s. firms, again because of the
high fixed costs relative to marginal costs in many ICT capital investments. Moreover larger markets mean more competition,
which in turn spurs firms to invest more in order to innovate and cut costs. This is why Van Reenen et al. suggest promoting product market
competition, more integrated European markets, and openness to trade as potential ways to increase ICT-based productivity. 137
Management Differences While regulations and taxes affect the return on ICT investments, in any given
environment firms still have investment choices. These choices are in part dependent on management practices which vary not only between firms but between nations
Management practices are another reason that European firms appear to have gained less from ICT than firms in the United states:
beneficial effects of the ICT sector for the broader European economy declined after the year 2000.149 Other recent evidence has shown that most of the productivity gains from
sectors, like market and non-market services, make up a much larger part of developed -country economies than ICT-producing sectors,
so productivity gains in those sectors have a much larger effect on the whole economy. 150 There are many possible reasons why policymakers prioritize ICT industry growth over
ICT usage. One is simply a misunderstanding of the true sources of ICT-related growth
and perhaps job loss in individual enterprises. Emblematic are comments from French Industry Minister Arnaud Montebourg, who recently stated that
the green economy for jobs, even though it will likely mean higher energy costs and lower
this view has been discredited thoroughly both by history and economics. 152 Figure 16: ICT use effect and ICT output effect on GDP (2000 to latest year, percentage points
As Europe emerges from the economic crisis, it faces continued challenges but also opportunities. With its financial system stabilized, Europe†s central economic challenge
over the next quarter century will be to raise productivity growth rates. Faster productivity growth will ensure that Europe†s production will be able to support a growing share of the
Its central opportunity will be to take advantage of the ICT engine to shift to a higher productivity path.
widespread adoption of ICT a policy priority across the entire EU economy. While it is
EU economy PAGE 27 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014 Focus on Raising Productivity Many European officials see increasing jobs,
or in applying IT to other sectors of the economy, and PAGE 28 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014
expensive and reduces ICT investment by firms and other organizations. As noted above this is already a key problem in most European nations,
which has less investment in ICT than does the United states. There is compelling evidence that tariffs ON IT products will
Estimates for the price elasticity of demand for IT products find that that for every 1-percent drop in price in IT products,
reduced domestic IT investment. 162 In a cross-national study of countries in the Asia
which would depress demand for ICT. 163 As Kraemer notes, â€oeone of the best ways to promote IT use is to not create barriers to use
barriers, and encouraging competition in distribution channels will help promote use as much as any specific efforts to encourage use. †164
economy seeking success needs to prioritize â€oeacross-the-board†productivity growth strategies, rather than efforts to raise productivity by modestly expanding output in high
Economists have argued long that businesses under-invest in research, which is the rationale for governments instituting research grants and R&d tax
Economists have documented also significant market failures around IT investment, including network externalities and â€oechicken-or-egg†issues that slow digital
transformation absent smart and supportive public policies. 165 Health care is a leading example. Success for any individual health organization that embraces a digital business
Use Tax and Trade policy to Spur ICT Investment It is only through investment in ICT that ICT innovation is diffused throughout the
economy. For this reason, public policies should focus on spurring additional investment by organizations in the latest-generation ICT.
Policymakers should minimize, if not eliminate, taxes on ICT investments, including broadband telecommunications, Internet usage, and data.
They should allow companies to more rapidly depreciate ICT investments for tax purposes, including allowing firms to expense them in the first year
Some economists might question such policies, arguing that such tax incentives should only go to investments in areas like R&d where companies seldom capture all the benefits
However, there is evidence that because ICT transforms organizations and leads to innovations within other organizations, it operates in the same way as research, with high
spillovers that may be taken advantage of by other organizations. 167 In such an environment, the socially optimal amount of investment will lag behind actual investment
As such, it makes sense for the tax code to spur additional ICT investment, or at least to
avoid having the tax code penalize ICT investment At the same time, the EU should continue to embrace the ITA agreement in order to
ensure low prices for European ICT users. The ITA has played a critical role in the spread
of ICT products, helping to increase global ICT exports from $1. 2 trillion in 1997 to over
investment in ICT goods would decline, and productivity growth would slow. 169 Create Larger Markets for EU Firms
for an organization to recoup its ICT investments. The EU has been advancing frameworks for better intra-EU digital compatibility and access through the Digital Agenda for
particular, many professional services have national or sub-national barriers to entry based on ensuring quality of service.
goals, they may also function as barriers to competition and are not always worth their
Finally, the Transatlantic Trade and Investment Partnership (TTIP) would significantly expand markets for many European firms by reducing non-tariff barriers in the United
on investment on more ICT projects for firms in the EU Reduce Preferences for Small Businesses
firms in the economy in rhetoric and in policy. 173 For many policymakers, small firms have
come to represent everything good in the economy. Yet, on average large firms are more productive, pay higher wages, injure their workers less,
-growth â€oegazelle firms, †simply keep the share of the economy produced by small businesses
Putting spurring ICT adoption at the center of economic policy means not just supporting it, but just as importantly avoiding harm.
economy hurt productivity and income growth PAGE 31 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014
rulings to prevent the use of cloud computing services by municipalities when servers are not located domestically
communication so that data never physically crosses the Atlantic. 184 By definition, the result of these kinds of policies will be to raise the costs of ICT services for firms in these
nations, reducing their ICT adoption and productivity. European firms should have free access to the best in breed and best value IT goods and services,
regardless of where they are produced The issue of privacy regulations is similar. The responsible use of data can lead to
of enterprises to obtain these gains. 185 For example, less effective advertising reduces available revenue for websites and can cripple the growth of useful services
Another example is the â€oeright to be forgotten†rule implemented by the European Union. 186 The rule allows citizens to request that any information about them held by
crisis has kept Euro-area investment on the decline while preoccupying policymakers with other issues. Meanwhile, productivity rates continue to lag behind U s. rates in the
ICT investment (particularly in ICT-using sectors), lower taxes on ICT products, and larger economies of scale at both the firm and market levels.
adoption as a worldwide competition for the next new Silicon valley, Europe needs to focus on where ICT can make the most difference:
IT goods and services regardless of where they are produced PAGE 32 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014
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He is also author of the books Innovation Economics: The Race for Global Advantage (Yale, 2012) and The Past And Future Of America†s
Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar 2005), and the State New Economy Index series.
Dr. Atkinson received his Ph d. in City and Regional Planning from the University of North carolina at Chapel hill
Ben Miller is an economic growth policy analyst at the Information technology and Innovation Foundation. He has a Master†s degree in International Development and
Economics from Johns Hopkins School of Advanced International Studies ABOUT ITIF The Information technology and Innovation Foundation (ITIF) is a Washington, D c
technology policies to create economic opportunities and improve quality of life in the United states and around the world.
Amount of ICT Investment Limited Impacts in the Services Sector Regulation and ICT Adoption Tariffs and Taxes
Scale Economies Management Differences What About the ICT-Producing Sector 153f154f What Does need Europe To do
Focus on Raising Productivity Focus on Across-the-board Productivity Growth, Particularly Through Greater Use of ICT Actively Encourage Digital Innovation and Transformation of Economic Sectors
Use Tax and Trade policy to Spur ICT Investment Create Larger Markets for EU Firms Reduce Preferences for Small Businesses
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