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To Unlock Potential of Digital Age, Europe Must Go Beyond Internet Access, Says World Bank

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Countries in the European Union (EU) must enact policies designed to better help workers adapt to new jobs being created by the internet if they want to avoid increasing inequality and exclusion in the region, notes a new World Bank Report. According to Reaping Digital Dividends: Leveraging the Internet for Development in Europe and Central Asia, launched in Bucharest Tuesday, affordable and nearly universal access to the internet has not been enough for countries in the EU to fully benefit from opportunities being created by digital technologies and more needs to be done to develop a policy environment that can better leverage this access by linking workers to digital jobs.

“We are clearly seeing that internet access alone does not automatically translate into economic gains,” says Hans Timmer, Chief Economist for the European and Central Asia region of the World Bank. “Given their level of technological development, countries around Europe should be doing better in terms of e-commerce, but we are not seeing the Googles or Facebooks emerging out of Europe just yet.”

Low usage of digital payment systems and stringent regulations are some of the complementary factors hindering the growth of the Internet economy in the EU, notes the report. For example, early retirement and the lack of lifelong learning opportunities for older workers limit their access to jobs in the digital economy of several EU countries.

Additionally, less than 30 percent of firms in the EU use cloud computing and even fewer use this technology for more sophisticated uses beyond e-mail, such as managerial and accounting tasks.

“Romania is well positioned to benefit from opportunities being provided in today’s digital world. We have fast and affordable broadband access around the country and an all-round high-quality infrastructure. Our goal is to correlate these opportunities with the capable Romanian workforce through targeted and sustainable policies. And this is exactly what we aim to do in the following phase of our Government Program for Digital Convergence,” said Augustin Jianu, Romania's Minister of Communications and Information Society.

In Romania, less than 10 percent of firms use cloud computing and high barriers to entrepreneurship in the services sector hinder the adoption of digital technologies. Furthermore, only five percent of individuals in Romania use the internet to download official documents from public websites, offering opportunities for big efficiency gains through further adoption of technology.

Individuals can also benefit from increased internet usage. Today, only 20 percent of unemployed people in Romania use the internet to search for a job. For those who are currently working, almost none of them telecommute, compared to more than 10 percent in Northern and Western Europe.

The report also notes that existing inequalities in the EU could be further exacerbated, as unskilled workers are less likely than skilled ones to use the internet to find a job or participate in professional networks.

“Although new and unprecedented opportunities are being created by the internet, there also exists the possibility of further exclusion – especially for unskilled workers,” says Hernan Winkler, World Bank ECA Economist and lead author of the report, “We need to put policies in place that can help people adapt to new challenges.”

“Focusing on measures that increase health and pension coverage for workers of the ‘gig’ economy or facilitate the transition of displaced workers toward new jobs can be more effective than creating regulations aimed at preventing inevitable technological changes.”

Policies to facilitate tax and social contribution payments in the sharing economy could nudge workers out of the shadow economy and provide them with some employment protection, according to the report. Improving competition may also help foster the adoption of ICT among firms in the EU, especially in Southern Europe, a region with a relatively weaker competition environment.

The rise of the sharing economy and alternative work arrangements pose a new challenge to existing labor market regulations and the social contract, which were established to protect workers in lifelong salaried jobs. The EU has the unique opportunity to lead the policy agenda to make the jobs of the digital economy more inclusive and more productive.

Reaping Digital Dividends: Leveraging the Internet for Development in Europe and Central Asia – The Case for Romania

Information technologies have been transforming the world for centuries. The moveable type printing press, which originated in the Europe and Central Asia (ECA) region about 500 years ago, was a fundamental condition for the diffusion of literacy in Renaissance Europe. This invention gave birth to a new culture of information exchange, where rising professionals benefited from cheaper books to conduct business.

Moreover, printing cities attracted scholars and universities, as well as novel industries through backward linkages (such as paper mills). As a consequence, cities that were early adopters of this technology witnessed more rapid and dramatic improvements in their living standards. Others lagged behind.

Today, the Internet is creating new opportunities for individuals and businesses across the globe. However, not everyone is benefitting equally. The economic gains - or digital dividends - associated with the Internet often go to those with higher incomes, with the right set of skills or in a suitable enabling environment. As a result, growing inequalities between and within countries may follow. According to the Reaping Digital Dividends: Leveraging the Internet for Development in Europe and Central Asia report, this need not be the case. If the right set of policies are established, digital dividends have the potential to be the driving force of poverty reduction and shared prosperity in the ECA region.

In Romania’s case, the country is well positioned to exploit the opportunities presented by the digital age. Nine of the world’s top fifteen cities with the fastest broadband internet are in here. At 59% of users, the country ranks second in the European Union in terms of subscriptions to fast broadband networks.

But while the country is making large strides in terms of the digital economy, many challenges still remain - for individuals, firms, and the public sector. Today, only 20 percent of unemployed people in Romania use the internet to search for a job. Less than 10 percent of firms use cloud computing and just five percent of individuals use the internet to download official documents from public websites.

The ICT sector in Romania represents a key driver of growth for the Romanian economy if the opportunities of high-speed Internet are fully utilized to meet these challenges. 

In order to fully reap the dividends of the digital revolution, however, policies need to be enacted in three major areas. First, Romania must improve its business environment, so that firms have stronger incentives to adopt digital technologies to grow and become more productive. Second, Romania must focus on providing training and opportunities to build the more advanced skills demanded by the digital economy. Third, Romania must expand e-government services for businesses and citizens.

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