What the US can learn from Europe’s open-source technology policy study

What the US can learn from Europe’s open-source technology policy study

Technology and innovation have long been known to be key drivers of growth allowing companies and
countries to better compete. The recent U.S. infrastructure bill aims to foster such growth by providing for investments in digital infrastructure.

However, these investments are nearly exclusively focused on better and more accessible broadband. Complementary to broadband, open technologies—those for which the underlying intellectual property, whether it is source code or hardware design, is publicly available—are playing an increasingly important role in the modern economy and companies’ and countries’ ability to innovate.

In particular, open-source software (OSS) and open-source hardware (OSH) have become critical building blocks for both everyday products (cell phones, cars, household appliances, etc.) and cutting-edge emerging technologies (artificial intelligence, big data analytics, etc.).

However, since most OSS and OSH is available for free and created through distributed efforts rather than by one particular company, it can be difficult to understand the full economic impact of these critical technologies.

To better understand this problem and work towards a solution, the European Commission, the governing
body of the European Union, commissioned a report to measure the importance of OSS and OSH for competitiveness, innovation, and technological independence in the European Union.

The full report, for which I was an outside advisor, was released in early September and contains a wealth of information useful for understanding the importance of the open technologies that underly the modern economy.

Further, many of these insights can be applied to the United States, although differences between the U.S. and EU environments limit the applicability of some of the report’s findings. On its face, it may seem unwise for any company or country to encourage its employees or citizens to spend time writing code that its competitors can use for free.

However, recent research by myself and others has shown that both companies and countries who contribute to OSS and OSH can reap benefits their competitors cannot, including enhanced productivity for companies and an increase in the number of tech startups and employment in tech jobs.

This is consistent with the headline finding of the EU report that shows that a one euro investment in OSS and OSH leads to a four euro contribution to total GDP. Therefore, it is important to take a deeper look at the recommendations of the EU report to see how they might be applied in the U.S.

The findings of the EU open source report Broadly speaking, the report, entitled “The Impact of Open Source Software and Hardware on Technological Independence, Competitiveness, and Innovation in the EU Economy” considers the economic impact of OSS and OSH on the EU along two primary dimensions: supply and demand.

On the supply side, it considers the level of investment that EU companies and individuals are making to create OSS and OSH, while on the demand side it considers the impact of the usage of OSS and OSH by EU companies.

The report finds that in 2018 (the last year of data analyzed in the report), EU countries, companies, and
citizens invested the equivalent of more than 1 billion Euro in creating OSS and OSH. It further found that
the impact on GDP of these investments was between 60 and 95 billion Euro.

Based on these numbers, the report shows that if EU policies could increase the contributions to OSS and OSH in the EU by 10%, EU GDP would increase by 0.4%, or 63 billion Euro per year, and there would be an additional 600 information technology startups created per year.

Using these numbers to conduct a cost-benefit analysis, the report finds that in the EU, after accounting for hardware and other related costs, for every one Euro invested in OSS and OSH, there is a return of four Euro. In particular, the report finds that small and medium enterprises (SMEs) both invest more and reap more benefits than larger firms.

Finally, the report argues that by increasing its support and usage of OSS and OSH, the EU could reduce its reliance on a small group of companies (mostly in the U.S.) for the provision of the bulk of its technology.