New Technologies in the European Union Within the Framework of Creative Destruction Theory

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Abstract

With a Schumpeterian approach, new technologies are vital for economic development in today’s modern states. Despite the fact that Far Eastern countries have been overruling the new technology industry, the European Union also has made multiple attempts which have resulted thanks to the application of the creative destruction theory of Schumpeter. This paper examines mobile and everyday technologies within the framework of the creative destruction theory in the European Union and tries to evaluate its future status about new technologies with the help of previous research and surveys and analyses its current global position.

Keywords: New technology, creative destruction, Schumpeter, European Union, innovation, mobile technologies, everyday technologies.

Özet

Schumpeterci yaklaşıma göre, yeni teknolojiler günümüzün modern devletlerinde ekonomik kalkınma için hayati öneme sahiptir. Uzak Doğu ülkelerinin yeni teknoloji endüstrisine hakim olmasına rağmen, Avrupa Birliği de Schumpeter’in yaratıcı yıkım teorisinin uygulanması sayesinde sonuçlanan birçok girişimde bulunmuştur. Bu makale, Avrupa Birliği’ndeki yaratıcı yıkım teorisi çerçevesinde mobil ve gündelik teknolojileri incelemekte ve önceki araştırma ve anketlerin yardımıyla yeni teknolojiler konusundaki gelecekteki durumunu değerlendirmeye çalışmakta ve mevcut küresel konumunu analiz etmektedir.

Anahtar Kelimeler: Yeni teknoloji, yaratıcı yıkım, Schumpeter, Avrupa Birliği, yenilik, mobil teknolojiler, gündelik teknolojiler.

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New Technologies in the European Union within the Framework of Creative Destruction Theory

In our modern world order, new technologies have become initial indicators of having a strong and stable or weak economy. Being one of the most profitable and powerful elements in the world’s economy, new technologies, along with research and development (R&D) activities, are also at the core of the global market. But first, one has to understand the terms.

1. To understand the new technologies and creative destruction

According to the Merriam-Webster dictionary, the term “technology’ refers to ‘the use of science in industry, engineering, etc., to invent useful things or to solve problems” (Merriam-Webster, 2021). It should be borne in mind that technology evolves continually. Accordingly, it is said that every five years, all the technology existing becomes obsolete and they need to be renovated. And here, we meet the new technology. New technology is something that has links with the innovation and bringing some new features or adjustments to another technology already existed. It belongs to the present and will be used in the future, keeping in mind that it is developed thanks to the research in the past. So, what we considered as a ‘new technology’ ten years ago has become just a ‘technology’ right now as a result of the inventions and innovation. Also, technology products don’t necessarily have to be electronic. For example, a lighter was a ‘new technology’ of its era, but now, for us, it is a very simple -and maybe old- technology. As for this paper, it will talk about the new technologies in terms of mobile as well as everyday ones in the European Union (EU) by examining them within the framework of Schumpeter’s creative destruction theory. 

When it comes to the creative destruction theory, we need to understand its whole concept to be able to interpret the EU’s current status. It is coined by Australian political economist Joseph Alois Schumpeter. This theory adverts to the non-stop innovations which replace the old and obsolete ones for the sake of economy. In his book titled ‘Can Capitalism Survive?’ (2009) he explains that creative destruction can be fully and best observed in capitalist economies. Because capitalism, in its nature, is obliged to change continuously. The underlying impulses of this change result from the innovation in terms of goods, production, transportation, manufacturing, markets and industrial organizations (pp. 41-42). 

Figure 1. Schumpeter’s conception of innovation Source: (Günar & Doğan, 2020, p. 684)

Entrepreneurs are the key actors of this system. S/he is the one who is responsible for the radical change. Bringing innovations to the market or the wheel, entrepreneurs disarray the current modus operandi of production, distribution and organization. As a result of this, creative destruction occurs; old-fashioned systems collide and new and contemporary ways start to function. If we want to give an example in our daily life, we can talk about Uber replacing taxis. Before, we needed to call taxis to come and pick us and give them the full address. But now, after the innovation of new entrepreneurs, we can ask for a taxi on our phone which can point our location along with more additional advantages. Making our daily life easier, using Uber has been preferred over the old-style taxis. Also, when the first touchscreen phones were launched, some brands like Nokia and Motorola were hit hard. And in today’s market, these brands are barely seen because creative destruction ‘destructed’ them and their products. Ultimately and unsurprisingly, one can say that these innovations have considerable effects on the economy.

2. Trio of Creative Destruction, New Technologies and European Union

The European Union has always been conscious of the importance of science and R&D activities. But systematic and significant attention was given first in 1961 with the transformation of the Organization for European Economic Co-operation (OEEC) to the Organization for Economic Co-operation and Development (OECD) (Delanghe, Muldur & Soete, 2011, p.8). According to Reinert, “the alternative experience-based theory was kept alive much longer in Europe’s own policy than in Europe’s approach towards the Third World” (2006, p.9). This was followed by the Lisbon Strategy in 2000. After that time, we can say that the Union European has officially started to apply a creative destruction policy, leaving behind the standard textbook economy. The Lisbon Strategy’s aim was to develop the economy of the Union and to make the UE the most competitive economy by 2010. At its base, there were three pillars; economic, social and environmental. What we are interested in here is its economic pillar which lays “the groundwork for the transition to a competitive, dynamic, knowledge-based economy and contains a strong emphasis on adapting quickly to changes in the information society and to investing in research and development” (Eurostat). But unfortunately, this strategy failed. According to the Lisbon Review 2010 of the World Economic Forum, the EU 27 average on innovation and R&D was 4.23 while the United States’ was 6.03 and China’s was 5.24. So it had not become the most powerful economy in the world, but made the widest gap between the EU and its competitors (World Economic Forum, 2010, p.11). By analyzing the chart in the review, it is obvious that on the total of the network industries (telecommunications and utilities and transport), the EU lagged behind in the market, compared to the US and China.

The Lisbon Strategy was followed by ‘Horizon 2020’ in terms of a big attempt. It is the biggest EU Research and Development programme. Except for its possible private investment revenues, it had a funding of €80 million over seven years (2014-2020). It aims to encourage science in Europe, to abolish all kinds of barriers in front of the innovation activities and facilitate the cooperation between public and private sectors. Along with Horizon 2020, Digital Agenda for Europe had been set to boost the economy via sustainable economic and social benefits of the digital single market (DSM). It is the first EU programme aimed at digital transformation (European Parliament, 2019, p.8). And a DSM Strategy was created in 2015 to assure digitalization.

Another important topic of this paper is the new technologies. As it is a very broad term, we will examine only mobile and everyday technologies in the scope of this paper. According to the research made by GSMA (2018), which is an association representing the interests of mobile operators, the most importance is given to 5G thanks to the 5G Action Plan for Europe in 2016. This technology is relatively new in the EU and other countries compared to China who has the most power over this kind of innovation. But it is estimated that companies like Elisa and Telia can come forward towards the end of the decade. In 2018, mobile technologies had a significant contribution to the total economy of Europe with an economic value of €550 billion, meaning 3.3% of GDP (p.22). Another survey made by W. Bock, D. Field, P. Zwillenberg and K. Rogers suggests that in 2013, the mobile economy contributed approximately €90 billion in revenue and hold half a million of the employment numbers in EU5 countries that consist of France, Germany, Italy, Spain and the United Kingdom. The mobile internet sector recruits around 3 million people in subject countries in the scope of this survey. R&D activities have also focused on artificial intelligence (AI), internet of things (IoT) and robotics, following the Digital Agenda of Europe. EUR-Lex explains that “the EU has a 25 % share of the global industrial robotics market and 50 % of the professional service robotics sector” (2014, p.6). Also the 2019 budget plan of Parliament emphasized the annihilation of any obstacles and the support for R&D and digitalization. Also the article of Günar and Doğan (2020) explains the following: The numbers of patents are considered as another data indicating the technical changes in the economies of the countries and it is stated that there is a direct relationship between the increase in the number of patents and economic growth (p.697).

Reminding that and analyzing the European Patent Office’s (EPO) 2020 figures, we can say that the EPO received less patent applications than 2019, with a percentage of -0,7 % (180.250). 45% of all these patent applications were made by EPO countries, including 27 members of the European Union (European Patent Office, 2021). But this regression may not be an indicator of the EU’s innovation because like the entire world, the EU also hit hard by COVID-19. As well as other sectors, the patent sector also may be affected badly by this global depression. We may see in following years if it is just because of COVID-19 or failure of programs.

3. Problems and future outlook

While the status is like that in the EU currently, for the future outlook, in GSMA’s research, it is estimated that by 2025, Europe will be the third largest share of 5G connections, behind the Asia Pacific and Northern America and early 5G investment is underway, although the majority of operators’ capex will occur in the period after 2020’ (p.3). It is estimated that the EU will make this percentage 4.1% by 2022 (p.26). 6G works are on the way also. The Commission adopted a proposal that includes R&D and innovation efforts for 6G over the period of 2021-2027 (2021). So, we can conclude that the EU can be present in the market of 6G technologies in the near future. The mobile internet business and commerce reached €23 million in 2013, accounting 13% of all e-commerce. Growing extremely fast, connected device numbers for 2003 was 500 million, while in 2010 this number went up to 12.4 million (2021, Bock et al.). Nevertheless, unfortunately, digital transformation has brought a couple of questions along with itself such as liability, ethics – especially in the AI area-, security, and investment. Since the proposal of DSM, some of these problems have been getting through. Digitalization, cybersecurity, protection of data and the free flow of non-personal data are good steps to demolish all obstacles to achieve DSM. Nevertheless, the newly adopted laws and regulations to protect personal data which make people anxious, also kind of restricted the easy application of innovations. Because the more the laws are adopted and applied, the more the process becomes longer and complex. One can say that one of the reasons that the EU is not leading this sector is the strict protection of personal data. For artificial intelligence, primarily ethical issues arose. Initially, the European Commission formed a group of experts on AI, whose name is ‘High-Level Expert Group on Artificial Intelligence (AI HLEG)’. In 2019 – following the 2018’s draft and comments by open consultation- they published Ethics Guidelines for Trustworthy Artificial Intelligence. This guideline contains different subtopics such as privacy data and governance; transparency; diversity, non-discrimination and fairness. Being closely related to AI technologies, regulations on machinery products, from robots to 3D printers, have been made. In the direct application of these regulations, the Member States and the European Parliament need to adopt the Commission’s proposals on AI and machinery products. For the near future, it looks like the bureaucracy within the Union will delay the innovations, but for a short time period.

Conclusion

It is highly obvious that the European Union has witnessed a number of creative destruction of policies, industries, jobs and so on so forth within itself. Despite the fact that the Lisbon Strategy failed, it also brought some positive effects on policy and it was a starting point on innovation in the European Union. Horizon 2020 and Digital Agenda for Europe have been more effective than the Lisbon Strategy. As of today, the EU is in competition with the US and China and still have to make some inroad into innovations. But it can be seen that the strategies are not strong enough to make the EU more ‘present’ in new technology areas in near future. The EU also needs to regulate its laws and facilitate the application of innovations. Unless, the innovative activities will not turn into the economic outputs that help the EU to get bigger in every sense. 

Buse Kamer ÖZTÜRK

European Studies Staj Programı

Resources

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