On the funding of digital initiatives and on what constitutes a ‘real’ job

Neil McNaughton comes back from an EU ‘Masters of Digital’ event in Brussels and reports on EU attempts to ‘compete’ digitally with the US and China. But should politicians (on either side of the pond) be placing bets on the next big tech thing? Why are governments, or for that matter, venture capitalists, so obsessed with ‘digital’? Is IT cannibalizing the real economy?

The US Bureau of Economic Analysis recently reported that in the decade from 2006 through 2016, the US economy grew at a measly 1.4%/year, in part down to the 2008 financial crisis. However, there was a ‘bright spot’ in that ‘digital economy’ grew at 5.2%/year, a whopping 67% over the period. My initial response was that ‘digital' is really a kind of service industry to the rest of the economy. I asked the BEA if this meant that the digital economy is growing at the expense of the rest of the economy. The BEA responded kindly to my troll, stating, ‘No. It simply means that the digital part of the economy (as defined in the report) was growing at a faster pace than the overall economy over that specific period of time’. Right... I was not greatly the wiser. I fiddled around with Excel trying to squeeze some more insight from the numbers and gave up, still wondering a) how long it would take ‘digital’ to become 100% of the economy, b) how do you ring-fence ‘digital’ in the first place and c) does this even make sense?


I attended a meeting of ‘Masters of Digital’ event this month. MoD is an annual event organized by Digital Europe, a Brussels-based trade body that represents the EU computer industry. DE members actually include a number of US companies, not least Google, Intel and Microsoft all of which sponsored the MoD event. Huawei is also in DE but wasn't a sponsor. MoD, like the EU itself takes the view that a foreign company is sufficiently European to take part in EU taxpayer-funded R&D as long as it employs a large number of Europeans. That would be OK if it were not for the fact that much of subsequent discourse turned on the ‘competitive advantage’ that digital investment all this R&D will bestow on Europe.

Mariya Gabriel, the EU Commissioner for digital economy and society, took to the stage to outline ‘Europe’s vision to boost digital innovation and enable digital scale-ups to thrive’. The EU lags behind in the world’s digital ecosystem. It is not a ‘center of digital innovation’. The web and other digital ecosystems are run by the US and China. So, what is the EU to do? It has to ‘master blockchain, quantum computing and launch moonshot projects’. And at the same time ‘put people first, framing innovation to align with EU values’. Europe needs to develop artificial intelligence ‘in a climate of security and confidence’ and to ‘make a competitive advantage of this value-based approach’. To achieve such and ensure the EU ‘rightful place’ in AI, the EU AI Alliance has been set up with 52 experts drafting guidelines for ‘ethical’ AI.

At the MoD, the DE’s ‘Future Unicorn*’ Awards (the ‘FU’ awards?) were presented to some rather unlikely candidates for unicornism*. One, Finland’s MaaS Global has developed ‘Whim’, a rather neat, multi-mode transport app. Another, a content management system from Umbraco (Denmark) is, by its own admission, unlikely to become a unicorn. CEO Niels Hartvig challenged the prevalent ‘obsession’ with unicorns and questioned whether they make for sustainable businesses. 80% of tech IPOs don’t make a profit and the unicorn model represents ‘extreme, capital intensive survival of the fittest’. Perhaps the EU should aim for a ‘true sharing economy’ where companies are not (just) evaluated on their financial worth, but also on ‘how much value is created elsewhere in society’. Such noble goals contrast with Silicon Valley’s invasion of privacy and China’s ‘invasive communism’. The EU GDPR is an ‘amazing achievement’ that will create privacy-focused companies that respect the citizen.

* Unicorns are by convention, companies with over $1 billion market capitalization.

Schneider Electric France president Christel Heydemann agreed that much digital technology is perceived as a threat by citizens. She implied that for the EU, the digital battle was already lost in the consumer space. The bigger digital opportunity lies in business to business (B2B) exchanges and in industrial applications of digital technology. So the EU should focus its attention on its current leaders in industrial software, Schneider Electric, Siemens, SAP and others. Turning to the environment, Heydemann described electricity as the most efficient way of transporting energy and to ‘decarbonize’. Here there are great opportunities in building automation. Buildings are ‘massively energy inefficient’. Green energy, automation and zero nighttime consumption are the way forward.

Speaking only a few weeks before Brexit, assuming it happens, Lord Ashton, UK Parliamentary under-secretary of state for digital stated that although the UK is leaving the EU and its digital single market, cooperation will still be needed on privacy, fake news and to ‘keep the internet as a global, multi-state, liberal enterprise’. We will need ‘common frameworks for uninterrupted data flows post Brexit’ and have a mutual interest in starting ‘data adequacy’ discussions asap. Fortunately, the UK data protection act is already aligned with the GDPR. ‘We need to use technology to make the bonds between citizens and governments stronger and to make sure that the UK and EU stay in touch’.

The rest of MoD was not too much of a disappointment, my expectations were low. We were regaled by sharp young start-uppers strutting their stuff and rather older EU buffs pontificating on this and that and encouraging more investment in ‘artificial intelligence and blockchain’. A great occasion for buzzword bingo. An 'entertainer’ came on the stage and had the assembled throng signing ‘We are the masters... of digital’ to the tune of Queen’s ‘We are the champions’.

I was left with the impression of a rather undignified scrabble for EU cash. The sums involved are considerable. Investment by the EU taxpayer in digital ‘initiatives’ is countable in the billions of euros. In order of magnitude, this is probably comparable to Series A funding from venture capital in the US. So, which is best? Obviously, the US has produced the big shots so far. But not all IP in the US is generated in the private sector. As Ms. Gabriel stated in her address, the US DARPA is a poster child for the EU’s digital initiatives. So who do you think is best qualified to decide where to invest, government or private industry? That sounds like a troll. Let me backtrack, after all, US technological successes are not all out of the private sector, from the Panama Canal to the atom bomb and Darpa’s own internet. But there is one significant difference between the public and private which comes into play when, as do many digital projects, there is failure. In private sector projects, failure is taken on the chin by the VC (and possible its kleptocrat backers) while in public-funded failures, it is the taxpayer that gets the sucker punch.

The interesting facet of all this scrabbling for funds is how can the various demands be justified. How do you arbitrate between investing in the latest shiny new technology and say building a new hospital, or not even bothering to tax folks in the first place? How much of EU research twisted and tuned to satisfying the politicos. Indeed, how do you arbitrate between spending money (public or private) on things digital. How can you be sure that a growing digital segment of the overall economy is a good thing as the BEA clearly thinks? I’m not going there right now, but I do have another thought for you.

Many years ago I used to listen to ‘Letter from America’, a BBC radio program where the late great Alistair Cooke kept the UK up to speed on goings-on on the other side of the pond. In one issue, possibly in the 1970s, Cooke reported on US census figures that showed that the number of hairdressers in the US had overtaken the number of steelworkers. This seemed at the time to be quite extraordinary and sparked off a long debate between me and my dad as to exactly what constituted a ‘proper’ job. We never did get to the bottom of that one. Perhaps in future years, increasing digital employment will seem as puzzling as the rise of hairdressers in the US. If you are making steel, selling hamburgers, producing oil and gas or whatever, then you may view the expense of cyber security, computer ‘upgrades’, ‘lifting and shifting’ to the cloud and a host of other ‘necessities’ as orthogonal to your business. Such activities may be ‘growing’ the digital sector of the economy, but probably do come at the expense of more directly productive investments. But to the economist, it doesn’t matter whether you are a steelworker, a hairdresser or a bug fixing code monkey, a job is a job. Matter of fact, I need a haircut!

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