Europe invests significantly in research, publishing, and patenting numerous ideas. However, it struggles to compete with the US and China when it comes to translating innovation into large, global technology firms. The seven largest US tech companies—Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—are 20 times larger than the EU’s seven largest, generating more than ten times the revenue.
That doesn’t mean Europe lacks tech success stories. Spotify, a Swedish company, leads the world in music streaming. Dutch company ASML produces the most advanced computer chips globally, while Danish drugmaker Novo Nordisk dominates the lucrative weight-loss market.
Interestingly, European start-ups offer a better deal for venture capitalists than US ones. Yet, they rarely grow into major global players. The main reason? Europe regulates more.
Research indicates that Europeans are less optimistic than Americans about social mobility, favor income redistribution more, and have a more cautious approach to owning risky assets. These attitudes lead to predictable outcomes: Europe excels in environmental, inequality, and life expectancy metrics, while the US outperforms in purely economic indicators.
This isn’t necessarily bad news. In the race to define global technological standards, combining the vast US tech ecosystem with Europe’s regulatory focus may offer the best chance to protect consumers, freedom of expression, and transparency worldwide.
The World Leader in Regulation
The US Food and Drug Administration (FDA) is quicker to approve new drugs than the European Medicine Agency. Pharmaceutical companies in the US also enjoy larger profits: drugs are, on average, three times more expensive than in the rest of the OECD.
As a result, pharmaceutical firms tend to develop products in the US first. The same applies to synthetic meat, modified crops, or AI-related products.
Europe could grow faster by changing its regulatory model. However, when asked which specific regulations they would relax, European leaders often remain silent.
Britain offers a telling example. A significant part of the Brexit project was aimed at simplifying European rules perceived as excessive. Yet, eight years after the referendum, the UK has made no major regulatory changes, and the government shows no interest in altering course.
In the US, innovation often comes with market concentration and power. Companies with high market power may innovate less and start to accumulate political influence.
This is where Europe’s role as an independent regulator becomes crucial. Large companies tend to comply with EU law to maintain access to the European market. Since they often offer the same products globally, European rules impact everyone.
European regulations are clear. The EU’s Digital Markets Act, which takes effect in March 2024, establishes rules for large online platforms—such as Google, Amazon, or Meta—to prevent them from abusing their market power.
Europe also has credibility when it comes to protecting consumers, citizens, and transparency. Unlike other regions, Europe can’t be accused of favoring its tech champions because there are none. For instance, Europe can evaluate TikTok based on its adherence to child protection rules, without concerns about protecting European market share.
Technology and Democracy
The ongoing AI race illustrates the benefits of Europe’s regulation and America’s innovation. The US leads in AI technology, driving products and applications like image generators, voice assistants, and search engines. Approximately half of the world’s AI investment currently occurs in the US.
Meanwhile, Europe is already implementing regulations. The EU’s Artificial Intelligence Act defines transparency levels and auditing requirements based on potential risks.
Europe may not win the AI innovation race, but it has the opportunity to set global standards according to its values. This could mean holding companies accountable for their AI tools, ensuring transparency in data usage, and requiring algorithm audits.
Most Americans support regulating AI, but without a clear legal framework, innovation is mostly unchecked. This has led to major tech companies accumulating power, which they can then use to shape AI policy to their benefit.
However, companies may change course if regulations allow them to use their resources, minimize legal risks, and optimize compliance costs. If that happens, Europeans may be able to enjoy the benefits of American innovation while limiting some of its excesses.
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