Of the world’s largest digital companies, all are American or Chinese. Of the top 200, only eight are European. Why is this? Why is Europe failing to innovate? Most people just assume that the US and China are more powerful economies and therefore should be ahead of Europe. But it goes deeper than that. For starters Europe has an older, more established economy. They have companies like BMW, Volkswagen, British Petroleum, Royal Dutch Shell, UBS, and HSBC.
In the 18th century, Europe’s lack of standardisation made it the cradle of the industrial revolution. This lack of standardisation created competition which propelled companies forward. Today, however, Europe’s patchwork is a disadvantage. New technologies require big pools of data, skilled labour and capital.
Europe’s market is supposed to act like a single cohesive unit – that was why the European Union was created – but the reality is something actually very different. Language, regulations, and backgrounds often get in the way of financing, and company goals. Vast, speculative long-term capital investments that make firms like Facebook, Instagram and Twitter possible are too rarely available on European national markets.
However, there is progress. European universities are working more closely together, and 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.
The collective experience of two world wars, and communism makes many Europeans naturally protective of their data. Germans, for example, are surprisingly still behind many other nations in embracing technology.
America’s technological superiority is built on its ability to attract talented, success-hungry people from all across the world. One look at Silicon Valley and you’ll see people from India, Germany, Japan, and Brazil. Of the 98 high-tech firms in the Fortune 500, 45 were founded by immigrants or their children. America is a young country. While China lacks immigration, it sends many of its young abroad to study, and then repatriates their skills. European countries are very protective and most aren’t friendly to immigration and as a result no knew ideas or new talent are injected into the economy.
If it wanted to, Europe could improve. Its governments and the EU could create a genuine digital single market, do more to promote enterprise and institutional innovation and make the most of its strengths in, for example, biomedicine and transport. Better integration of capital markets would help as well. Europeans may even eventually come to view immigration as an opportunity. But all of this perhaps demands a greater awareness of history itself, of the diverging technological pasts and possible futures hovering over the continent.
It is time for Europe to change and not cling onto its Old World ways. By embracing a faster-paced economy with less protectionism, we might see the next billion idea come from the continent.