Challenges of the digital economy

At the end of April, I had the chance to attend the Meeting of the Chairpersons of the Committees on Economic and Digital Affairs, which took place in Riga, in the framework of the parliamentary dimension of the Latvian Presidency of the Council of the European Union. Events organised by national parliaments in the framework of their EU presidency are an important forum for discussions on topical EU policy issues in light of each presidency’s priorities.

The digital economy is one such priority. Given the global economic development trends, Latvia was right to set this as a priority because it is not merely about Latvia’s economy, but rather the future prospects of the entire EU. Competitiveness and economic growth in the future will be secured by those regions that invest in digital technologies today; however,  there are concerns that the EU is starting to lag behind the U.S. and Asia. In order to keep up, both Latvia and the EU have to become more proactive.

The article has been prepared based on materials from the meeting

The EU cannot afford to miss out on the economic development opportunities presented by digital technologies because they will allow Europe to strengthen its competitiveness in the global market. We have identified two directions for development in the digital economy to which the EU needs to pay special attention – big data and cloud computing. Big data is a new phenomenon created by the digital economy; it refers to huge volumes of various types of data which are quickly obtained from multiple sources. New methods and tools are necessary to be able to use these voluminous data.

In future, big data could be used to improve business competitiveness. According to the OECD, it could have a positive effect on productivity, raising it by 5%-10%. Big data also has the potential to transform services provided by the public sector, such as health care, territorial planning, public transport planning, etc. This would ensure more efficient and effective use of taxpayers’ money. The advantages provided by big data could also serve as a breakthrough in the development of so-called smart cities, which would open the door for many new technologies to the urban environment.

In order to take advantage of big data, both Latvia and the EU have to overcome obstacles and challenges related to accessibility to high-speed Internet networks and free flow of data (Latvia has already made great strides in this respect), data ownership and control thereof, incentives for data sharing, data analysis skills, accessibility and security of data analysis tools, as well as attraction of additional financial resources.

Cloud computing is a prerequisite for taking full advantage of big data, and it entails a range of other benefits. The European Commission has already adopted the communication on Unleashing the Potential of Cloud Computing in Europe, which is expected to create 3.8 million new jobs and a cumulative GDP growth of EUR 957 billion by 2020.

Many experts have pointed out that cloud computing is a catalyst for innovation. It significantly reduces the capacity needed for processing large amounts of data and thereby opens the door to innovations also for small and medium businesses. Likewise, the public sector can also benefit from cloud computing. In order to reap maximum benefits, it is crucial to use creatively the opportunities provided by these technologies. The OECD estimates that comprehensive use of open public data could cut administrative costs by 15%-20%. Are such savings of taxpayers’ money not a sufficient incentive to invest now in order to receive a manifold return in the future?

In order to take advantage of the opportunities presented by the new technologies, we need people who are proficient in information and communication technologies (ICTs). New technologies are already redefining our society, economy and labour market. ICT specialists are no longer confined to tech companies; they are needed in all sectors – in data analysis, mobile application development, business architecture, digital marketing, etc.

Europe currently finds itself in a situation where the number of ICT specialists does not meet the demand. Even at a moderate technological growth, Europe  will be short of 500,000 specialists with e-skills in 2015, and in 2020 this number will increase to nearly 1 million.

Such a gap can be severely detrimental to the economy. It can cause businesses to relocate to other regions where the needed workforce is more readily available. Or European businesses will rely more on outsourcing services from Asia and other regions; thus losing its potential for innovation.

Latvia, like other EU member states, needs to set ICT education as a priority. Those shaping the education system in Latvia have to understand that such education would boost the country’s potential. If we succeed in providing sufficient numbers of such specialists, we could create conditions for large ICT businesses to come to Latvia and provide their services not only locally but also to the whole of Europe and beyond. Are we ready to take advantage of this opportunity?

Equally important is ensuring lifelong learning in ICT for everyone. The rate of technological development is so rapid that knowledge gained several years ago is already outdated. If we look at the age structure of Latvia’s population, it is clear that lifelong learning is essential for ensuring economic competitiveness and equipping all individuals with the skills necessary for successful participation in the labour market.

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