Europe's analogue economy is now increasingly digital

If the European economy that in 2008 entered the financial crisis can be described as largely analogue, that which is emerging from the crisis looks increasingly digital.

Digital technology is affecting every sector of the economy, spanning not just industry but agriculture and retailing in ways that have caught out many established businesses. It has also wrong-footed Europe’s regulators and policymakers.

Many familiar goods and services have been replaced by digital equivalents, notably books, films and records. Others have been greatly enhanced, such as the shipping containers that can be tracked around the world and that are spurring the growth of international trade.

Consumers have benefited substantially, gaining free access to products like newspapers they previously had to pay for, and from the price transparency that internet websites have brought.

There less visible but equally important benefits for the wider economy include the use of “big data” in fields ranging from health care to traffic management, and from the “smarting” of infrastructure such as energy and water grids and even whole cities.

The rise of digital has created new business models championed by companies like the Uber car-sharing site or AirBnB, which enables people to rent out rooms in their homes to visiting tourists. It has also created a huge global pool of knowledge that businesses can call on to help them innovate.

These innovations must be encouraged, but there is also a balance to be struck between stimulating the spread of knowledge and protecting the rights of creators. And the pace of change has left many people without the skills to make their way in this new digital economy – with political leaders and policymakers struggling to keep up. To make the most of the digital economy, Europe needs to ensure it will have the necessary skills.

New technologies are also having a profound effect on the jobs market. According to McKinsey consultants, between 2000 and 2008 “the U.S. lost something like 5.8m jobs in manufacturing. Only 20% of them at most were due to what you might call globalisation, so offshoring and outsourcing.” The other 80%, the consultancy says, “can be explained by looking at the effects of technology and what happens to demand.”

The digital economy nevertheless offers huge opportunities and Europe needs to put in place the physical and regulatory infrastructures that will allow it to flourish in a safe and sustainable way.