PART I - SITUATION AND TRENDS
4 Factors determining real convergence
4.7 The knowledge economy
Information and communication technology (ICT) is at the base of the
knowledge economy. This makes it possible to store, process and circulate
a growing amount of data rapidly and inexpensively and is an increasingly
important source of productivity gains.
The transition towards the information society, however, is not just
about technology. The change involved is potentially the most far-reaching
since the Industrial Revolution and deeply affects the organisation of
both the economy and society. Managing this change is one of the main
challenges facing the Union today.
To this end, the European Commission's 'eEurope - An Information Society
for all' Initiative, endorsed by the European Council in Lisbon in March
2000, is aimed at increasing the rate of uptake of digital technologies
and at ensuring that everyone has the necessary skills to use them.
On average, EU countries spend an estimated 6% of GDP on ICT (see
Graph A.23 Value of ICT markets to GDP, in annex). 'Information and
communication industries are growing more than 5 percentage points faster
than other sectors, in real terms, effectively driving economic growth
in the EU.''1 ICT industries accounted for
around 4% of employment in the EU in 1997,2
and it is estimated that one in every four new jobs is created in ICT
or related sectors.3 If the attention is widened
to encompass the so-called 'knowledge-based sectors', these account for
around a quarter of employment and for most of the growth in jobs in recent
Liberalisation of the market combined with increasingly rapid technological
innovation is favouring competition in telecommunications provision, bringing
down costs, and enhancing the choice and quality of services in most parts
of the EU. The price of accessing Internet has dropped sharply in the
recent past, though high price remains a barrier to more widespread use
in some countries.
The potential is enormous.
Electronic commerce (e-commerce) is expanding rapidly, forcing firms
to rethink their business processes and creating at the same time new
forms of organisation, including new types of market and different kinds
of business relationship. Internet-based business to business (B2B) e-commerce,
the main component (estimated at 80% of the total now and 90% by 2003)
is developing fast and it is estimated that it will increase by over 90%
a year over the period 1999-2003. 5
The use of e-commerce technologies in B2B relationships can increase
efficiency through reducing and rationalising business processes. The
effects are already apparent in product design (shortening the design
process and increasing customisation possibilities and the standardisation
of parts), and production and logistics (lower inventory costs, faster
production, lower supply costs). The spread of B2B relationships in the
US is estimated to have the potential for reducing business costs by between
13% and 23%.6 While the e-commerce market
is less developed in the EU, a reduction in operating costs averaging
18% and one of 15% in the costs of sales is expected. (See
Graph A.24 : Expected costs savings from e-commerce, in annex)
How regions adopt and master ICTs is key to their economic performance
ICT penetration, defined as the value of ICT expenditure7
as a share of GDP, is an important measure of a country's transition towards
the Information Society as well as of its innovative capacity and competitiveness.
The difference in terms of this measure between cohesion countries and
other EU Member States is small and tending to narrow - the highest rate
of growth in expenditure over the period 1991 to 1999 occurred in Greece,
together with Italy. In absolute terms, however, given their low level
of GDP, cohesion countries will have to invest relatively large amounts
in ICT in the future in order to catch up.
Though improvements in the standard of information and telecommunication
infrastructure is a key determinant of the capacity to participate in
the Information Society, other factors play an equally, and increasingly,
important role, such as public awareness, the level of educational attainment,
the role played by the public sector in promoting the Information Society,
and the organisational and investment capacity of firms.
The telecommunications infrastructure gap is closing
Over the past 20 years, differences in access to a fixed-line telephone
have narrowed significantly between Member States (see
Graph 14 : Total number of lines per 100 inhabitants). In most countries,
the proportion of households with a telephone line is around the EU average
of 92% but is still as low as 69% in Portugal as against 97% in Sweden.8
While the figure in Finland is only 78 %, this is compensated to a significant
extent by the large proportion of households with a mobile telephone and
no fixed line phone (18% almost five times the EU average). The same phenomenon
is also evident, though to a lesser extent, in Portugal (12%) and Ireland
(where only 84 % of households have a fixed line phone), but a fifth of
Portuguese households and a tenth of Irish households do not have access
to telephone services at home at all as against an EU average of just
4%. Nevertheless, there are marked differences - of over 15 percentage
points - in the proportion of households with fixed lines in Germany,
France and Italy between regions.
In the candidate countries, the total number of telephone lines per
100 inhabitants is less than half the EU average, though in both Slovenia
and, to a lesser extent, Estonia, the number is higher.9
Mobile phones and cable may provide alternative access to Internet
Though variations exist in the penetration of mobile telephones across
the EU, differences do not reflect relative levels of prosperity. All
the Nordic countries have a relatively high rate of penetration as does
Italy, but in Greece, Spain, and Portugal, the rate is also around the
EU average or above. Most countries, however, including the cohesion countries,
which have a relatively low ownership of PCs and/or limited Internet access
have high levels of telephone use, which opens up the possibility of using
mobile phones to access the Internet in the future.
It is evident that the high use of mobile phones in the Nordic countries
is partly a consequence of their geographical features and the dispersion
of population over large areas. In the southern Member States, by contrast,
the rapid growth in use reflects the low quality, or lack, of fixed lines
(See Graph A.25 : Growth of mobile phone penetration,
Perhaps unexpectedly, the use of mobile phones is somewhat lower in
rural areas (39% of households) than in urban areas (45%).
The rate of penetration of mobile phones in the candidate countries at
the end of the 1990s was only around a quarter of the EU average, though
increasing rapidly (at 108% a year between 1996 and 1999).
Technology in this area is developing fast, offering new means of access
to the Internet - through third generation mobile services with greater
band-width - as well as ISDN, xDSL, cable and digital TV connections.
Since in the future, the level of broadband access is likely to become
much more important for business and household Internet use, the availability
of this will be a key issue.
but access to the Information Society remains uneven
There are significant differences across the Union in the use of PCs
at home and in access to the Internet (see Graph
15 : PC equipment and internet connection). France apart, there seems
to be a clear North-South divide in the rate of internet connection. In
Greece, Spain, Portugal and Italy as well as Ireland, the rate is half
the EU average of 12%, while in the Nordic countries, it is well over
20% (in Sweden, 51%). In Greece, Portugal and Ireland, PC ownership is
In the candidate countries, the number of PCs per 100 people has increased
steadily. Three groups of countries can be distinguished: Slovenia, with
a rate similar to the EU average; Poland and the Czech Republic among
others, with rates similar to the cohesion countries; and Romania and
Bulgaria , with rates of between 10% and 25% of the EU average.
In the EU, there is also clear evidence of a social divide, with high
income households being six times more likely to be connected to the Internet
than low income ones. In addition, a higher proportion of households in
urban areas (13-15%) is connected to Internet than in rural areas (8%).
These differences, however, seem to arise more from lack of awareness
about the possibilities offered by the Internet than from the cost (45%
of EU households without access report not being interested and 9% not
to know about the Internet at all, as against 11% citing cost as a reason
Business use of the Internet is relatively high in a number of Member
States, especially in the Nordic countries, though marked variations remain
across the EU. For example, 76% of SMEs in Sweden are connected to the
Internet but only 16% in Portugal.10 While SMEs surveyed
recently, reported that they were moderately well informed about the potential
of the Internet, a third did not to have access. In cohesion countries,
the number without access is higher than elsewhere in the EU, which is
in line with the Commission analysis that low awareness of the potential
benefits and opportunities and a scarcity of ICT skills, along with the
often weak content of software at present, are the main barriers to the
development of the Information Society.
The focus of structural policy in this area should, therefore, be on
strengthening the demand side, and in particular, the capacity of firms,
institutions and individuals to use ICT effectively.
- "Job opportunities in the Information Society",
CEC 1998, p. 4
- 'Measuring the ICT Sector', OECD (2000). The ICT
sector is defined on the basis of 11 ISIC classes. For manufacturing
the products of an ICT industry must 'be intended to fulfil the function
of information processing and communication including transmission and
display or must use electronic processing to detect, measure and/or
record physical phenomena or to control a physical process.' For services
the industry 'must be intended to enable the function of information
processing and communication by electronic means.'
- Information Society industries include content industries
(e.g. publishing, audio-visual, advertising) and ICT-related industries
(e.g. computer and software, computer related services, telecom equipment
- See Employment in Europe, 2000, Chapter 3.
- Based on International Data Corporation (IDC) data,
Internet Commerce Market Model, 1999.
- Goldman Sachs US (1999), "B2B: 2B or not 2B,
e-commerce/internet" Goldman Sachs Investment Research.
- ICT expenditure includes IT hardware, software and
services, telecommunications equipment and telecommunications services,
at market value.
- Gallup Residential Survey (2000)
- European Survey of Information Society (ESIS) in
central and eastern European countries, CEC 1999.
- The Gallup Survey of Small- and Medium-sized Enterprises