Why Europe Will Never Build Its Own Digital Giants

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    A few years back, I was asked to create a presentation for a few visiting European executives, to explain “what makes Silicon Valley, Silicon Valley.” It was a fun presentation, and one of the people who saw it later had me give it to an ever rotating crew of visiting European execs and policymakers (I even got to give the talk once over in the UK). I believe I did the presentation half a dozen times or so. The person who set up most of those talks later moved on to another job and it’s been years since I last gave the presentation. It always led to an interesting discussion, though, because so much of what I talked about seemed to go against their core instincts about innovation (the presentation also debunks some of the common myths about the success of Silicon Valley). Maybe, one day, I’ll get to give the talk again.

    However, what fascinated me most was the general resistance to understanding the fundamentals of both innovation and the internet. But in the past few years, it’s become increasingly clear that the EU’s concept of the internet is almost entirely out of sync with how digital innovation works, especially with the ways in which the EU has gone about regulating the internet — from the GDPR to the Copyright Directive, to the antitrust efforts, to the Terrorism regulation.

    The Economist recently explored this issue, suggesting that Europe will never produce its own Google. While there are a few European tech success firms, they’re still greatly limited and there are a lot fewer of them than elsewhere:

    London, a global tech hub, is home to DeepMind, a leading artificial intelligence (AI) outfit; Stockholm is home to Spotify, a dominant music-sharing service; Cambridge-based Arm makes processor chips for almost all the world’s smartphones.

    Yet still Europe lacks large firms in areas like social media, e-commerce and cloud computing comparable in scale to America’s Google and Microsoft, or China’s Alibaba and Baidu. Of the world’s 15 largest digital firms, all are American or Chinese. Of the top 200, eight are European. Such firms matter. They operate dominant online platforms and are writing the rules of the new economy in the way Cockerill’s innovations did in his day.

    Unfortunately, rather than focusing on the constant regulatory attacks by EU policymakers on the key elements of innovation in the digital age, the Economist article falls back on the same old excuse we’ve heard from Europeans for years and years: the country has too many different languages and a complex set of different laws in each country:

    Today, however, Europe’s patchwork is a disadvantage. New technologies require vast lakes of data, skilled labour and capital. Despite the EU’s single market, in Europe these often remain in national ponds. Language divides get in the way. Vast, speculative long-term capital investments that make firms like Uber possible are too rarely available on European national markets. True, there is progress. European universities are working more closely together, and in 2015 the EU adopted a new digital strategy that has simplified tax rules, ended roaming charges and removed barriers to cross-border online content sales. But about half of its measures—like smoother flows of data—remain mere proposals.

    And while I’m sure there’s some truth to that stifling some aspect of European success, it doesn’t stand up to much scrutiny. After all, most of the giant American internet firms have figured out how to work in those vastly different European markets, despite not even being headquartered there. So clearly it can be done.

    The larger problem, it seems has much more to do with the general distrust for disruptive innovations. The European approach, consistently, appears to favor slowing (or stopping) innovation unless all possible “harms” are minimized, even if this comes at the expense of the benefits. There are arguments to be made for this approach — preventing harm is a laudable goal. But it leaves out the other side of the equation: it kills off massive amounts of benefits. This is not to say that the general approach should be a free for all, or that potential harms should be ignored. Nor is it to say that we should be purely utilitarian and weigh the two sides. But, an innovative approach that enables experimentation and learning, and a focus on providing much more benefits for the public seems to be much more effective at creating incredibly valuable services.

    There is, of course, much more involved in building out a successful innovation ecosystem that builds hugely powerful services, but the EU seems to have little to no interest in actually figuring out how it can work.

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