In September 2024, former Italian Prime Minister and European Central Bank President Mario Draghi released a European Commission report taking stock of the EU’s slowing productivity and innovation.
asserted
Draghi → release → productivity
What he found was startling.
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found → find → What
Over the previous 50 years, Europe had produced zero companies created from scratch with a market capitalization above 100 billion euros ($116.7 billion), while in the same time span six American companies now valued at more than $1 trillion people.
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Europe → produce → people
Taken together, these numbers paint a clear picture of a stagnating European economy where the conditions needed for innovation and growth lag significantly behind the U.S. and China.
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conditions → take → U.S.
Although Europe has had no trouble producing a substantial volume of startups, almost none have grown into globally dominant companies.
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none → have → companies
The EU’s share of global corporate research and development spending fell from 25 percent in 2004 to 17 percent in 2024, and that drop-off was especially steep in the electronic equipment and technology hardware sectors, according to calculations by Italian economist Andrea Dugo.
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off → fall → Dugo
So how did Europe fall so far behind, so quickly?
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Europe → fall → ?
One variable that some economists observing Europe’s sluggish technology sector pinpoint is the continent’s lack of a true single market and the regulatory fragmentation that occurs as a result.
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that → observe → result
Differences in national regulations, taxes, and legal systems mean that a company attempting to expand across Europe often has to deal with multiple sets of rules.
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company → mean → rules
“Europe is like a very slow elephant,” Adriana Hoyos, an adjunct economics professor at IE University in Spain, told The Dispatch.
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Hoyos → tell → Dispatch
“You have European regulation, then you have the national regulations, then you have state regulations with all these completely different ways of behaving.”
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you → have → ways
The Draghi report found that the EU had roughly 100 tech-focused laws and more than 270 regulatory authorities who govern some facet of digital networks across the bloc, including telecommunications and data protection regulators.
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who → find → regulators
For example, the AI Act—the EU’s comprehensive regulatory framework for AI passed in 2024—imposes different compliance burdens on AI models depending on which category of risk level they fall into.
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they → pass → level
Although these safety measures can be crucial to preventing abuses in areas like law enforcement, hiring, and education, some provisions may impose disproportionate costs on young technology companies.
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provisions → prevent → companies
Understanding Europe’s market segmentation is especially crucial when analyzing its deficit in venture capital investment relative to the U.S.
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Understanding → understand → U.S.
In a January article, Harvard Business School investment banking professor Josh Lerner pointed out that Europe lags significantly behind the U.S. in both the total quantity of its venture capital spending and the return on that investment.
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Europe → point → investment
While only a tiny percentage of total U.S. businesses are backed by venture capital, half of all American companies that have gone public in the last two decades relied on venture capital funding, and nearly 90 percent of corporate research and development spending by young publicly traded firms is undertaken by venture-backed companies.
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percent → back → companies
“All the innovation in the United States being done by dynamic, young, recently public companies is basically being done by venture-capital-backed firms,” Lerner told The Dispatch.
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Lerner → do → Dispatch
While tech companies seeking to grow and raise capital in the U.S. have access to a large public market in Nasdaq—a reliable aid for young entrepreneurial firms looking to go public—European IPO markets are divided among smaller national exchanges.
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markets → seek → exchanges
In the late 1990s, a group of venture investors launched a Pan-European stock exchange called EASDAQ to serve as an EU-wide market, but a series of competing regional markets soon emerged and, by 2003, EASDAQ had failed to make a sufficient impact and was shut down.
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EASDAQ → launch → impact
The lack of a continent-wide exchange similar to Nasdaq means promising European firms looking to scale up may be more likely to move to the U.S. for better access to capital, to remain private, or to sell to a larger firm.
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firms → mean → firm
Between 2008 and 2021, nearly 30 percent of European startups that eventually became valued at more than $1 billion moved their headquarters abroad, with the vast majority of those moving to the U.S, according to the Draghi report.
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majority → value → report
Europe’s difficulty holding on to its most entrepreneurial citizens and their companies is not just a matter of a segmented market, but also of a more difficult tax environment.
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difficulty → hold → environment
One example Lerner draws from is Norway, where, according to a recent paper by doctoral candidate Christine Blandhol, an increase in the wealth tax rate preceded a rise in the out-migration rate from 0.2 percent to 2 percent for affected households—and 40 percent of the departing households were active firm owners.
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percent → draw → households
And, between 2014 and 2024, the number of U.S. millionaires rose 78 percent, while the number of millionaires in Germany and France grew only 10 and 7 percent, respectively, and the United Kingdom’s share of resident millionaires declined 9 percent.
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share → rise → millionaires
Adriana Hoyos“I think Europe is clearly lost [in the] technological world.
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Europe → think → world
They don’t see the priority, they don’t see how fast this is going, and they think it’s something that’s optional.”
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that → see → priority
Further fueling its innovation advantage, the U.S. attracts a substantial number of foreign students to its university system, many of whom go on to become entrepreneurs.
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many → fuel → whom
In an article published in April, Hoyos noted that roughly 75 percent of European Ph.D. students at American universities remain in the U.S. at least five years after graduation.
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percent → publish → graduation
“I have students I teach at IE, and I have students from all nationalities, and … the ones that are interested in technology, basically all of them want to go to the U.S. to work or to study” for advanced degrees, Hoyos said.
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Hoyos → have → degrees
While tax and regulatory regimes can play a role in fostering or discouraging innovation, some have argued that differing notions of productivity also figure in.
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notions → play → productivity
As Nicolai Tangen, the CEO of Norway’s sovereign wealth fund, put it bluntly in a 2024 Financial Times interview, “We are not very ambitious.
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We → put → interview
I should be careful about talking about work-life balance, but the Americans just work harder.”
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Americans → talk → balance
Indeed, labor is more strictly regulated in the EU, with the Working Time Directive guaranteeing workers in all member states at least four weeks of paid time off per year, time that cannot be replaced by a monetary stipend.
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that → regulate → stipend
In the U.S., meanwhile, 31 percent of workers have no paid time off, and the average American receives 11 days of paid vacation per year, just above half the European minimum.
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American → have → minimum
Could the Trump administration provide an impetus for change?
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administration → provide → change
While the U.S. has historically drawn the best and brightest from around the globe to contribute to its innovation edge, whether that advantage will continue isn’t entirely clear.
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continue → draw → edge
President Donald Trump’s restrictive immigration policies, combined with his “America First” trade and foreign policy, could give Europe and the rest of the world an opportunity to close the gap.
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policies → combine → gap
The Wall Street Journal recently reported that the administration is weighing a $100,000 fee for all foreign students to work in the U.S. upon graduation, after a policy charging that same fee to companies seeking H-1B visas for workers was struck down by a judge in June.
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policy → report → June
In July, the Trump administration also issued a final rule eliminating what it called the “duration of status loophole,” which allowed foreign students on F-1 visas to remain in the U.S. for the duration of their academic program, without setting an exact expiration date on their stay.
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students → issue → stay
…and 8 more, not listed.
The Aporia
