Europe Tops World in Network-Readiness

A study finds the Old World strongly pushing tech resources to drive growth. The U.S. is losing steam, while China and India are lagging

by Dan Carlin

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By most measures, China's economy is charging full speed ahead. Annual growth in gross domestic product is estimated at 8%, whole cities are rising from the ground, and stock and real estate markets are booming. But according to an annual report released Mar. 28 by the World Economic Forum (WEF), for all China's success it still lags badly in some lesser-noticed indicators that could be critical to its future, such as cheap cell-phone and Internet access, the establishment of an entrepreneur-friendly legal framework, and protection of intellectual-property rights.

The sixth annual Global Information Technology Report, prepared by the Geneva-based WEF and French management school INSEAD, presents a snapshot of how well 122 countries leverage information and communications technology (ICT) to drive economic growth. The stunning result of the 2006 study: Five of the top 10 countries on this year's list are Nordic, and eight are Northern European. Singapore is the sole representative of Asia in the top 10. And the U.S. fell six places this year, from No. 1 on the 2005 list, due to what the report calls "relative deterioration of the political and regulatory environment."

Dozens of Factors

To be sure, the Global Information Technology Report isn't predictive. The study weighs dozens of factors, ranging from Internet penetration and the price of phone service to the quality of education and the availability of venture capital, and derives from them a "networked-readiness index" for each country. Those that rank highest this year—Denmark, Sweden, Singapore, Finland, and Switzerland took the top five slots, respectively—don't necessarily have the strongest short-term economic growth.

But according to the authors of the study, countries that have high networked readiness are more likely to flourish over the long haul in the emerging, information-driven global economy. That includes adopting clear strategies for spreading new technologies such as broadband Internet, third-generation mobile networks, and e-government, while fostering a transparent, business-friendly policy environment with excellent education and intellectual-property protection.

"Leveraging ICT is increasingly becoming an essential instrument for countries to ensure prosperity and competitiveness," says Irene Mia, senior economist for the Global Competitiveness Network at the World Economic Forum and co-editor of the report. "Nordic countries have shown how an early focus on education, innovation, and promotion of ICT penetration and diffusion is a winning strategy."

Estonia's Transformation

One case study in the report looks at the tiny Baltic nation of Estonia, which posted GDP growth of 10.5% in 2005 and ranked No. 20 this year in networked readiness—the first time a former Eastern bloc country has made the top 20. After the fall of the Iron Curtain, Estonia set out to transform itself from a backward, centrally planned economy to free-market capitalism. The government of Prime Minister Mart Laar put a priority on spreading the use of cell-phone technology and the then-nascent Internet, starting within his own cabinet. In 2000, the Estonian parliament even approved a clause protecting a citizen's right to Internet access, and made hundreds of free Internet access points available throughout the country.

The result, according to the study's co-editor, Soumitra Dutta, professor of business and technology at INSEAD, was that Estonia built a streamlined, business-friendly, and technologically advanced society that now attracts considerable foreign investment and hosts scads of small e-businesses. "It was never about gimmicks," says Dutta. "It was driven by an urge to increase transparency and to help the society modernize."

Such a transformation is easier to pull off in a small, coherent nation than in huge, chaotic places such as China and India. That's one reason those countries lag in networked readiness, despite impressive economic growth.