Economic Growth

How Europe can build a Silicon Valley

View of a giant incandescent light bulb as part of the Incandescence installation by artist Severine Fontaine during the rehearsal for the Festival of Lights in central Lyon late in the night December 4, 2014. The Festival of Lights (Fetes des Lumieres), with designers from all over the world, is one of Lyon's most famous Festivals to date and will run from December 5 to December 8, 2014. Picture taken December 4, 2014.   REUTERS/Robert Pratta (FRANCE - Tags: SOCIETY TRAVEL) - RTR4GUQZ

'You need more than just start-ups; you need an entire ecosystem' Image: REUTERS/Robert Pratt

Drasko Draskovic
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Innovation

Silicon Valley holds less than 0.1% of the world's population (3 million people) and yet they've launched nearly half of the most valuable tech companies in the world, with a valuation of more than $100 billion. Other Silicon Valleys can be built in Europe, but it's really hard. To make this happen, you need more than just start-ups; you need an entire ecosystem: a constant stream of entrepreneurs, capital and companies of all sizes.

Public sector leadership in Europe is highly aware of the need to foster innovation-driven entrepreneurship and a large number of relevant priorities are already on the policy agenda. Interventions are being made to tailor education to the needs of entrepreneurial careers, to improve access to finance and to enhance the availability of and access to relevant talent.

Environments that encourage strong innovation are crucial components of national development. Innovation, especially in ICTs, is a driver of economic competitiveness and growth in modern economies. Furthermore, innovation ecosystems need to be established in order to expedite sustainable development and their creation can play a critical role in advancing the Sustainable Development Goals (SDGs). But such a dynamic business environment does require a coherent regulatory setting that guides, facilitates and promotes innovation activities.

Image: Statista/EY

The right environment can provide both an inspiration for innovation and a source of competitive advantage. The development of strong innovation ecosystems is seen as a central policy area for productivity, comparative advantage, economic growth and enterprise value in a knowledge-based economy. Achieving “innovation readiness” often requires organizations, leaders and networks to change. Building the capacities of individual stakeholders in the innovation ecosystem helps to create that change.

The introduction of new digital technologies, while helping governments better deliver services to citizens, will likely be the most important instrument to guide, facilitate and promote innovation. Governments that are not digitally mature should work on their digital transformation roadmap with a clear vision and strategy aimed at fundamentally transforming their processes and establishing innovation agencies and funds. There is very little coordination among countries on innovation policies and best practices are often not shared across borders. This divided approach to innovation hinders the prospect of scaling its benefits worldwide.

European countries are well positioned in the Global Innovation Index 2017 – eight of the top 10 countries are on the continent. But when we look at data from the European Commission, the picture looks very different: the European Union is lagging behind the United States and Asia in innovation and entrepreneurship. Europe was home to just 16 unicorns in January 2017, compared to 91 in the US and 44 in Asia. While 17 of the world’s 50 most valuable companies in 2006 were from the EU, today only six are.

There is an ongoing loss of technological know-how and intellectual property from Europe to the United States. American companies account for nearly half of all buyouts of European start-ups. This may not seem very important in a globalized world, but it is. Whole new areas of emerging technology are at risk of being plucked out of Europe and developed under US control instead. Concrete measures could prevent these departures. Many young people in Europe (some data shows nearly half of those between 18 and 24) hope to start their own business. If Europe wants to keep them, it must develop innovation hubs, harmonize taxation and ease access to capital.

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US venture capital firms must start to promote innovation in Europe. The continent has many strengths compared to Silicon Valley. It has highly-skilled people and lower wages, for example. Major institutions like the European Investment Bank and the European Commission should confidently back young entrepreneurs, be far less risk averse and shed their hostility to rapidly earned wealth. Europe needs to grow its number of smart locations and innovation ecosystems if it wants to keep the best entrepreneurs in Europe. Scandinavian countries like Sweden or Denmark could lead the way through the early encouragement of entrepreneurial culture.

The productivity problem

There has been a decline in productivity growth since the 1990s in the European region. Some experts explain this as premature de-industrialization. Strict liability, data portability and access to data all have an impact on innovation. To address these problems we must balance public interest (customer protection) and market forces that drive innovation, encourage public–private partnerships and find a way to harmonize regulation internationally.

Technological innovation is the most powerful driver of wealth and increased well-being, and a massive opportunity for all of us. At the same time, leaders are obliged to make sure the benefits of this innovation can be felt by people at all levels and in all locations around the world. Countries and regions that have less developed innovation capabilities must be aided in their efforts to catch up, and leading innovators must be supported to continue to grow sustainably.

It is of great importance for policy-makers, senior executives and entrepreneurial leaders to receive evidence-based guidance on the design of innovation-focused policies and programmes in their organizations, local regions and nations. Learning from best practices and benchmarking to understand the latest developments in supporting research, development and innovation are important steps towards speeding up economic growth and achieving the SDGs.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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