Why can’t Europe compete with the US in the technological revolution?

Stan Ward

Stan Ward

June 22, 2015

In the past year, US corporate giants have found themselves in the crosshairs of Europe’s top anti-trust regulator for a variety of alleged anti-competitive behaviors. They claim this has amounted to a witch hunt fuelled more by jealousy than any actual violation of law or business practices. There have been no instances of the US targeting any European companies. In the background of such recriminations, however, a pervasive theory reverberates: Europe is just not competitive or innovative.

As Scott Hemphill, visiting professor of antitrust and intellectual property at NYU School of Law, notes,

There aren’t many European tech firms with market power in the US worth talking about. So it’s not a surprise that that (European companies) don’t get much attention from US antitrust authorities.

In fact the US has never filed suit against a European technology company for market manipulation. Is the fact that Europe is eyeing solely US companies for legal action a coincidence or a vendetta?

As it stands now, Amazon has joined Apple, Google and Facebook as targets for possible anti-competitive actions. They are among the top 10 companies by market capitalization which have been founded in the last 50 years. Stunningly, there are no European companies in the top ten. Yet with top universities – and old ones at that, a well-educated workforce, largely affluent consumers, and a rich history of invention, one would expect them to be more competitive. So what’s holding them back? According to German-born Petra Moser, assistant professor of economics at Stanford’s Europe Center, “the institutional and cultural differences are still too great.”

I think the reason can be found in the composition of the capital markets. The financial drama being played out in Greece is illustrative of the problem. The euro is simply not the dollar, as 28 separate countries with differing ideologies conflict. Though Europe, taken as a whole, can match the US in size and demographics, the disparate nature of its financial system is an impediment to innovation.

There is no central entity like the US Federal Reserve, and no unified capital market or stock exchange, thus the pools of capital are smaller. So as much as Europe develops a “Silicon Allee” in Berlin and “Silicon Docks” in Dublin, it can’t compete with the American engine of enterprise.

There are other barriers to overcome for Europe. The employment laws are too rigid, the bankruptcy process too punitive. There is also the concept of failure which is less onerous in the US. Professor Moser opines,

In Europe, failure is regarded as a personal tragedy. Here (In the US), it’s something of a badge of honor. An environment like that (in Europe) doesn’t encourage as much risk-taking and entrepreneurship.

She points out the many firings and rehirings in Silicon Valley, notably Steve Jobs, as indicative of the absence of stigma to failure of the workforce. Moreover, employees are encouraged to strike out on their own. Either they are hired back at some point, or the mother company buys out their successful enterprise. Moser contends that, say,

In Germany, you can’t do that. People would hold it against you. They’d see it as disloyal. It’s a very different ethic.”

The NY Times article paints the American as being less nostalgic and beholden to tradition in pursuit of profit, and highlights the very different experiences of Taxi riders vis a vis Uber. While threatening the black cabs of London, American upstart Uber is embraced in places like New York. According to Moser, “Americans tend to act in a more rational and less emotional way about the goods and services they consume.” They aren’t as fond of regional or national identities.

There is a trade-off for the success enjoyed by Americans, and that is that the atmosphere in America is more cutthroat. As an American living and working in Europe, and for decades having walked the corridors of capitalism, I can’t say I miss that aspect of business life there. Suffice to say that when it comes to business and innovation, Europe will never be the equal of the US. As long as we can still access the fruits of that innovation, I am content to be second best and live here.

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