Europe is lagging both the US and China in its investment in high technology, according to analysis by McKinsey Global Institute.
In Investment: Taking the Pulse of European Competitiveness, the firm calculated US per capita investment in intellectual property and equipment was double that of the continent, with large US corporations devoting about €700bn more to capital expenditure and R&D in 2022 than their European peers.
To raise its ‘pulse’, the company added, Europe must remove a number of barriers including energy costs, talent shortages, business and market labour regulations, as well as tempering current geopolitical and macroeconomic uncertainty.
“A region that is not investing cannot be competitive, and a region that is not competitive will fail to attract domestic or foreign investment – a vicious circle,” it reasoned: “For Europe – defined here as the 27 member states of the European Union (EU) plus Norway, Switzerland and the UK (also referred to as Europe 30) – failing to increase investment puts Europe’s prosperity, way of life and place in the world at risk.”
It continued: “After the global financial crisis, net investment in the US and Europe fell significantly but the decline was especially pronounced in Europe amid the Eurozone crisis, an environment of austerity, and weak demand. In the past decade, European net investment rates as a share of GDP were on average 2.8 percentage points – or about €550bn a year (nominal) – lower than in the decade before the global financial crisis.” In contrast, capital per worker over the past 25 years has grown by 50% in North America, and by 700% in China.
‘Notable differences’
McKinsey also highlighted “notable differences” in the type of investments made across the world. While Europe leads in publishing scientific and journal articles, it said, it lags the US and China in commercial innovation, accounting for only about 5% of global patent filings, compared with 15% for the US and 80% for China.
“The US is investing two percentage points of GDP more than Europe in IP and machinery,” it added. “Leaving aside differences in per capita GDP, this is twice as much (€4,900 per year) in per capita terms. It is notable that Europe’s share of gross domestic expenditure on R&D relative to the US and China fell from 39% in 2010 to 29% in 2021. Moreover, Europe’s spending has tended to be directed toward mid-tech sectors much more than high-tech ones.”
