BOOK REVIEW: The New ICT Ecosystem: Implications for Europe, by Martin Fransman; Kokoro; €24.
EUROPEAN GOVERNMENTS have been worrying for years about why Europe produces so few fast-growing, innovative companies. Much of the anxiety centres on that vast cluster of industries known as information and communications technology, or ICT. While there are some European winners, such as Nokia in mobile phones and SAP in software, and the occasional high-flyer, such as Skype, there is nothing like the stream of new entrants that comes out of the US.
How much this matters is debatable. Countries have developed a competitive advantage in particular activities - the UK in pharmaceuticals, for example - and perhaps they should build on these strengths.
On the other hand, if Europe is missing out on creating new businesses, it seems reasonable to ask why this is so and what, if anything, can be done about it.
The first step is to understand how the ICT sector is organised. This is what Martin Fransman seeks to do. He divides ICT into several layers. The first is made up of networked elements, which can be devices such as microprocessors or systems such as telecoms equipment. Then come the network operators, companies such as British Telecom, Vodafone and BSkyB.
The remaining layers consist of internet service providers such as AOL, "middleware" companies, including search platforms such as Google, and providers of applications and services such as Yahoo, eBay and Amazon.
There is a clear distinction between the "back end", where the infrastructure on which the rest of the system depends is created, and the "front end", which deals with consumers.
Research and development spending has shifted in recent years from operators to suppliers.
As a result of deregulation, the telecoms network companies can no longer afford the big laboratories that were responsible for breakthroughs in the past. Although this does not seem to have affected progress, Fransman wonders whether telecoms regulators, in their zeal to promote competition and get prices down, are providing enough incentives for innovation.
Fransman urges the European Commission to benchmark European ICT performance against international competition. He also thinks governments need to decide what their ICT goals are and translate them into targets.
But what can governments actually do? They can improve the climate for business creation and can sometimes help in the diffusion of a new technology. But they cannot inject entrepreneurial dynamism into a particular sector.
Europe's main contribution to ICT comes from long-established firms at the "back end" - telecoms operators and equipment makers - that used to enjoy a semi-monopoly in their home markets. The big weakness - and the main area of US strength - is in applications and services.
In this context, European policymakers need look more closely at why potential users of new technologies in Europe appear to be more risk-averse than their counterparts in the US.
Sir Geoffrey Owen is senior fellow at the department of management, London School of Economics.
