Europe’s progress on sustainable, inclusive growth

| Video

McKinsey: How is Europe tracking on sustainable and inclusive growth, relative to other major regions?

Magnus Tyreman: Sustainable, inclusive growth is definitely the equation of our time. It’s the equation the world and Europe needs to solve. And if we look through those three lenses of sustainability, inclusion and growth, I think it’s fair to say Europe leads the world in sustainability in terms of aspiration, action, and progress.

I think it’s also fair to say Europe is the most inclusive region in the world when measured by things like life expectancy, income equality, and social mobility. In fact, the ten highest rated countries in the world for social mobility are all European.

When it comes to growth and value creation, the picture is not as rosy, especially when you compare it to other major economic centers of the world, like the United States and China. In fact if you look at the aggregate performance of European corporations in the most recent 5- to 7-year period, you find that European companies grew 40 percent more slowly than America companies, were 20 percent less profitable, and importantly, invested 40 percent less in R&D.

There’s been a tendency in Europe to explain this discrepancy by the emergence of tech giants in the United States, but we would argue that that’s not necessarily a relevant explanation if you look to the future. Because tech is moving from being a stand-alone industry to being everywhere, and is now part of every industry. So we looked at ten of what we call “transversal technologies,” like cloud, the future of connectivity, next-generation materials, clean tech, etc.

These technologies are already in the process of revamping almost every industry. And when we looked at those technologies, we looked at innovation, production, and applications. So where are the patents and innovation coming from? Where are things being manufactured? And to what extent are these technologies being applied by companies in those regions?

And we found that Europe lags in eight of these ten transversal technologies. We are on par in just one, clean tech, and we lead in only one, next-generation materials. We cannot afford or achieve, as Europe, to lead in on of all these technologies. But we cannot afford to lose on all of them all either.

So this is a big issue for Europe, and we also have other immediate challenges to deal with right now, as we all know. But we would argue this is a bit of a crisis in slow motion, and something European companies need to address by being bold. We also have to create an environment geared more towards helping European companies achieve the kind of global scale and competitiveness they need to compete.

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