The European Union (EU) is a large and powerful economic area. With a gross domestic product of around 19 trillion dollars in 2018, the EU has a similar economic size as the United States of America. It is home to 512 million inhabitants and remains more populous than the United States even after the departure of Great Britain. Europe hosts numerous world market leading firms, especially in manufacturing, which export high-quality products everywhere. It is a highly competitive and advanced economy.
The architecture of the Eurozone is currently under reform. But countries remain divided about the speed, even about the direction of the required changes. Some economists push for strong automatic stabilizers and elements of risk sharing at the European level. Others fear that such instruments would imply massive fiscal transfers across countries, undermine market discipline and exacerbate moral hazard problems. What is left from this debate is uncertainty whether the European economy will be resilient enough when the next large-scale crisis arrives. This uncertainty is certainly one important cause for a somewhat pessimistic outlook into the future.
The biggest challenge for Europe may come from new digital technologies that change production in numerous, if not all sectors of the economy, and thereby fundamentally reshape the labor market.In manufacturing, we have already witnessed the proliferation of industrial robotics. For this particular technology, we have detailed empirical evidence about its labor market consequences. In a nutshell, our research shows that dramatic dystopia about robots creating a “technological mass unemployment” are vastly overblown. But this does not mean that we can be relaxed and need not worry about digitalization. Problematic distributional consequences from this technological development have already become visible: the real income gains are not widely shared across society but tend to be concentrated on capital owners and a minority of highly skilled workers. Robots have caused the labor income share to fall. So far, this impact has still been small in magnitude. But things may get worse.
Industrial robots are no longer the technological cutting edge. Their labor market impacts may have been limited. But more profound changes are ahead, coming most likely from advances in artificial intelligence (AI) and big data analysis. Those technologies can substantially raise productivity and open up many previously unexplored business models. But these technologies, in particular, have the potential to replace many tasks or even entire jobs formerly carried out by humans, from truck drivers and bank clerks to radiologists. And those labor market impacts may, to a large extent, happen in the service sector where union coverage tends to be low and where jobs are mostly unprotected.
Current projections suggest that technologies will make spectacular progress in the next decades. Self-driving trucks are just the beginning. Some estimate that machines equipped with full AI will soon be able to compose best-selling books and operas, perform heart surgery, and at some point (maybe in 2060 or so) perform essentially all human tasks for only the crystal ball knows whether those speculations are correct. But it is probably safe to assume that fundamental technological changes are indeed ahead.
Competition for Technological Leadership, the five most valuable companies in the world by market capitalization are Apple, Amazon, Alphabet (Google), Facebook and Microsoft.5 In the top ten, there are eight American and two Chinese firms. Europe has none. In modern software and information technology, Europe is almost entirely dependent on the United States. The same is true for military and defense. Such observations and statistics may have led Tim Höttges, CEO of German telecommunications provider Deutsche Telekom, to conclude that “Europe has lost the first half of the game called digitalization.”