12 There’s a lot of scope for European firms to catch-up in terms of improving management quality, to make the organisational changes required by new technologies, and in terms of improving ICT skills, so that workers can operate those technologies effectively. 13 But looking further ahead, it’s clear we need to reflect on what types of skills will be needed for the next phase of the ICT revolution: the replacement of routine service occupations by robotics. 14 There will obviously have to be larger human capital investment in people who will design robots. But greater upskilling and professional polyvalence will also be needed in the people who use them: those who work in automated warehouses, for example, may have to have  10  http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2016/01/13/090224b08405ea05/ 2_0/Rendered/PDF/World0developm0000digital0dividends.pdf. Similarly, Diane Coyle notes that the UK’s Statistical Abstract for 1871–85 – in retrospect, the height of the industrial revolution – devoted just 12 of the 200 pages on the economy’s output and trade to manufacturing and transport “Commentary: Modernising Economic Statistics: Why It Matters,” National Institute Economic Review, No. 234 (November 2015). 11  Robert J. Gordon, The Rise and Fall of American Growth (Princeton UP; 2016). See also: Juan F. Jimeno, Frank Smets and Jonathan Yiangou, “Secular stagnation: A view from the Eurozone,” Secular Stagnation: Facts, Causes and Cures, ed . Coen Teulings and Richard Baldwin (CEPR, 2014). 12  Bart van Ark, Mary O’Mahony and Marcel P. Timmer, “The Productivity Gap between Europe and the United States: Trends and Causes”, The Journal of Economic Perspectives, Vol.

That in turn requires that the most productive firms are able to grow and create new jobs. And it requires that workers have the incentives, skills and means to move to them. In an average mature economy, around 50% of productivity growth comes from such reallocation. When people think about reallocation, they tend to think in terms of people moving across sectors. But typically, that only accounts for a small share of productivity growth. 18 What’s more important for mature economies is within-sector reallocation, which means shifting resources towards the most productive firms within each sector of the economy. That’s encouraging because expecting, say, steel workers to become bankers is not realistic. But expecting them to move to better firms within their sector is. For this to happen, however, the structural conditions have to be right. Product markets have to allow market entry, to challenge unproductive firms; they have to support firm growth, so that the most productive can reach their optimal size; and they have to facilitate quick bankruptcy, so that the weakest firms can exit. Similarly, labour markets have to set incentives for mobility; support retraining and upskilling where needed; and allow wages to match productivity at the firm level, creating proper market signals. Clearly, for firms to prosper in this environment, they need to be agile. Increased agility would enable firms to switch production towards the higher quality, distinctive, more customised goods and services increasingly demanded by ever more sophisticated customers, which has long been the strategy of Europe’s leading exporters.