How can Europe regain its innovative edge?
by Pal Erik Sjatil, Managing Partner of McKinsey & Company in Europe
German chemists invented aspirin. One of my Norwegian compatriots invented aerosols. Russian and Spanish inventors independently developed the first pressured space suits. Two Swedes founded Spotify. Europe has a long history of innovations that have changed the world, but it cannot rest on its laurels.
In recent years, Europe has started lagging behind the United States and, increasingly, China in areas such as disruptive innovation (see exhibit below), digital platforms, tech giants, and some of the most promising “frontier” technologies, including artificial intelligence and synthetic biology.
Europe still has great success stories and a lot of depth in its research talent. For example, the continent has 5.7 million software developers versus 4.4 million in the United States. But it has a harder time translating promising ideas into billion-dollar “unicorns.” Above all, it is held back by fragmentation and a lack of scale.
My colleagues at the McKinsey Global Institute and I have taken a closer look at this issue and have just published a discussion paper, Innovation in Europe: Changing the game to regain a competitive edge (PDF available here). It’s a forward-looking piece that identifies five ways that Europe could build on its strengths to achieve scale. The core message is that the continent can catch up technologically by defining its own innovation model rather than by playing by everyone else’s rules.
Reviving innovation in Europe
Europe a century ago was a global powerhouse of innovation, but it has started to lose its edge: today, despite some…
The five paths (see exhibit below) are, of course, just a few of the policy options and approaches that could be adopted. One is to draw on Europe’s industrial strength to benefit from the scale that already exists. For example, telecom operators, vendors, car and truck manufacturers, and suppliers are currently combining their research efforts to achieve more scale in customer and data access for the automotive industry. Another is to use some of the €2 trillion that the European public sector spends on procurement annually to bolster innovation. Switching to e-government services more actively, as Estonia has done, for example, would be a good start.
More too could be done to consolidate Europe’s position as a leading global actor in data governance. Europe could emphasize openness and connectedness as an alternative to scale, including by altering high-skill immigration flows and connecting local ecosystems. Some networks, such as Innovate UK and Cap Digital in France, are already demonstrating the value of strong ecosystems. Creating better pathways for high-skill professionals from other countries and changing taxation on stock options would make the continent more attractive to international talent.
Finally, Europe could leverage the scale of global firms that have set up operations in Europe to the continent’s benefit. For example, if Chinese and US firms were encouraged to bring more R&D to Europe, the continent as a whole could benefit.
The most important takeaway from our research is a broad one: Innovation is a major driver of economic growth, and European leaders need to be bolder in thinking about ways to foster it more effectively. Europe is still a beacon of innovation, particularly in areas such as manufacturing and robotics, and there’s no shortage of talent or startups. What’s missing is a focus on scaling up.