The Tech Industry Is Huge—and Europe’s Share of It Is Very Small

A risk-averse business culture and complex regulations have stifled innovation on the continent, weighing on its future

By Tom Fairless and David Luhnow of The WSJ. Excerpts:

"The world’s technology revolution is leaving Europe behind. 

Europe lacks any homegrown alternatives to the likes of Google, Amazon or Meta. Apple’s market value is bigger than the entire German stock market. The continent’s inability to create more big technology firms is seen as one of its biggest challenges and is a major reason why its economies are stagnating."

"Investors and entrepreneurs say obstacles to tech growth are deeply entrenched: a timid and risk-averse business culture, strict labor laws, suffocating regulations, a smaller pool of venture capital and lackluster economic and demographic growth."

one entrepreneur 'hoped he could help build a European tech giant to compete with the Americans. He was shocked by what he saw. Colleagues lacked engineering skills. None of his team had stock options, reducing their incentive to succeed. Everything moved slowly."

"Having largely missed out on the first digital revolution, Europe seems poised to miss out on the next wave, too."

"In Europe, venture capital tech investment is a fifth of U.S. levels."

"“This is an existential challenge,” wrote Mario Draghi, the former European Central Bank president who was tasked by the European Union’s top official to help diagnose why Europe’s economy is stagnating. In a report published last September, Draghi pinpointed the lack of a thriving tech sector as a key factor. “The EU is weak in the emerging technologies that will drive future growth,” he wrote. 

Only four of the world’s top 50 tech companies are European, despite Europe having a larger population and similar education levels to the U.S. and accounting for 21% of global economic output. None of the top 10 companies investing in quantum computing are in Europe."

"It isn’t creating its share of new, disruptive companies that shake up markets and spur innovation.'

"Over the past 50 years, the U.S. has created, from scratch, 241 companies with a market capitalization of more than $10 billion, while Europe has created just 14"

"Europe is dominated by old-school industries like autos and banks that extracted productivity gains long ago. The typical company in the top 10 publicly traded U.S. firms was founded in 1985, while in Europe, it was in 1911"

"By the late 1990s, when the digital revolution got under way, the average EU worker produced 95% of what their American counterparts made per hour. Now, the Europeans produce less than 80%. 

The EU economy is now one-third smaller than the U.S.’s and is stuck in low gear, growing at a third of the U.S. pace over the past two years."

"Entrepreneurs complain that everything takes longer in Europe: raising money, complying with local regulations, and hiring and firing workers."

"“What is different in America is the speed of almost everything,” said Fabrizio Capobianco, an early tech entrepreneur from Italy who lived for decades in Silicon Valley. “Americans make decisions very fast. Europeans need to talk to everybody—it takes months.”"

"In Europe, most business financing still comes from banks, which generally require physical collateral—a building, perhaps—in the event of losses. Other forms of financing include risk-averse public-pension funds. Early venture capital investors also demanded terms that left founders hamstrung, say entrepreneurs."

"while Europe has dozens of countries with their own language, laws and taxes. Labor laws slow down worker mobility by making it harder to hire and fire workers."

"Taxes are higher, and regulations designed to corral big business become a costly and time-consuming headache for startups."

"Europe’s love of regulation is one reason why Han Xiao started to think about moving his Berlin-based AI startup to the U.S."

"“When Germans talk about AI, the first topic is ethics and regulation,” whereas investors in the U.S. and China focus on innovation, Xiao said."

"Xiao’s attempts to fire underperforming workers have landed in court."

"European businesses spend 40% of their IT budgets on complying with regulations"

"European cities crowd the top spots on quality of life rankings, far ahead of their American counterparts. That lifestyle might contribute to less appetite for risk, along with a culture of equality that frowns on naked ambition."

"The Draghi report, said McAfee at MIT [Andrew McAfee, a principal research scientist at the MIT Sloan School of Management], did a great job diagnosing Europe’s lagging tech sector, but then urged governments to spend more public money spurring the sector, missing the point that it was private money that was absent—most likely due to regulation and other problems. 

Said McAfee: “That’s when I went from nodding my head in agreement to banging it on the table.”"