Over the years following the birth of the iPhone in 2007, the EU has become a digital laggard. The tech giants dominating the European digital economy in 2018 hail from the US, and their main competitors are Chinese, not European companies. Google, Amazon, Facebook and Apple (GAFA) have now a higher market capitalization than the whole French index CAC40. All the while almost all sectors in which European companies are globally competitive are undergoing a fast digital transformation whose outcome is unknown. How can the EU keep its competitive advantage in such a changing environment? What is the European answer to the digital revolution?

In this policy brief, Paul-Jasper Dittrich and Jan Krewer assert that ensuring Europe’s competitiveness in the face of the digital revolution requires two fundamental measures:

• reducing costs and improving quality of services through optimization techniques and digital transformation of its industries
• innovating and developing new services in new sectors

The European Union should participate in the coordination of knowledge and skills transfer, to support member states’ efforts to help traditional sectors in their digital transformation. Learning from success factors of other parts of the world, Europe should focus its efforts on facilitating access to public and private funding, and deepening the Digital Single market through harmonisation. Other priorities should be the building of “innovation ecosystems” of capital, talent and local regulatory expertise, as well as improving transfers between research and businesses. Catch-up strategies however are not enough to ensure a long term competitive advantage. This requires also capitalizing on Europe’s own strengths and shared visions, for instance regarding to fundamental rights and the ecological transition. In order to do so, past strategies based on individual “flagship” cooperation projects should be left out.