Nowadays, there are many possibilities in order to select places for investing; however, there are not a lot of good analysis of the evolution of different economies and the reasons that are driving them to different performances. Financial markets are usually influenced by different piece of news related to innovation and technologies instantly, but are those pieces of news so important on the long term?
Imagine that I want to start a new business based on technology and I want to select a good place to do it, where will it be better based, in USA or Europe? Looking at the evolution of both economies we can see that they have a similar progress.
Graph 1 Evolution of the GDP of USA and the Euro Area in billion dollars. Data Source OECD.
As we can see the production volume of the USA is similar to the production volume of the Euro Zone. We can operate with a common currency in a market of 2,500 billion dollars being based on a so rich state as California or in a weaker country as Italy or Spain. Of course, currency is not the only thing that we must consider, but we must not forget that weaker places can provide better prices for many infrastructures and services than other stronger ones. Avoiding political matters and other more important as taxes and legal protection, I want to analyze the technical level of both economies. A way to do it is looking at its efficiency.
Graph 2 GDP per capita in dollars. Data Source OECD.
A higher GDP per capita is showing that the American economy is more productive in terms of population because it is providing more production per inhabitant. The reasons for this fact can depend on a different use of production factors, for instance, different access to national raw materials, a different technology level, or a more efficient financial system and public sector. It does not depend necessarily on a good or bad behavior of the work factor.
In order to analyze those aspects we can center the analysis on the European Union now.
Graph 3 GDP of the five main Euro economies. Data Source OECD.
Graph 4 GDP per capita of the main Euro economies. Data Source OECD
As we can see there are not significant differences among France, Italy and Spain, and Netherlands seems to have a better behavior than the other countries when we are analyzing the economies in relative terms. Netherlands has shown a strong financial system, but what can we say about its technology level?
Graph 5 Total Broadband Subscribers per 100 inhabitants. Data Source OECD.
Spain and Italy had less diffusion of the broadband technology than France and Germany, and Netherlands seems to be near the maximum diffusion. But is there a direct relationship between communication technology diffusion and production? We can see it at the next graph.
Graph 6 GDP to Broadband technology subscribers. Data Source OECD.
There is a linear relationship in the case of Netherlands (flat curve) between production and IT broadband technology subscribers. Italy is a country that can produce more with the same broadband subscribers; this fact is showing that Italian economy is not as IT technology dependent as other economies. On the other hand the production of Germany can be becoming more dependent of IT technology because it needs for the same production much more broadband subscribers. We can see how Spanish economy has become similar to the Dutch one in terms of total production over broadband subscribers although Netherlands has more subscribers per 100 inhabitants.
Until now, we have analyzed the effect of the integration of developed technologies in different countries, but what happens at the innovation chapter?
Graph 7 Gross Domestic Expenses in R&D. Data Source OECD.
In this case, we can see how only Germany has a similar effort in R & D as United States. This is probably a main reason why United States has shown to be more productive than the Euro Area.
As conclusion I would like to point out the following:
– The efforts in R & D are a very important driver of a strong economy.
– To incorporate technologies is clearly an extremely good way to improve the economy of a country.
– A lot of use of a certain technology does not imply always higher production because production requires several production factors.
– Although a certain technology is not very extended in a country, that country can have developed it yet. Development of technologies and infrastructure investment for a technology deployment are different aspects of innovation.
– Telecommunication companies usually are multinational; the deployment of the technology in a country can be done by a company based in another one.
Mr. Luis Díaz Saco
advanced consultancy services
Nowadays, he is Executive President of Saconsulting Advanced Consultancy Services. He has been Head of Corporate Technology Innovation at Soluziona Quality and Environment and R & D & I Project Auditor of AENOR. He has acted as Innovation Advisor of Endesa Red representing that company in Workgroups of the Smartgrids Technology Platform at Brussels