Jonathan Ruane’s Post

Great article about the importance of economic reforms in Europe to, hopefully, unleash greater advances in tech leadership. The US and Europe together comprise the LDW -- the "liberal democratic West" -- and it is crucial that we win the global race for tech supremacy -- together. The writer laments that real GDP per capita has grown twice as much in the US as in Europe, since the year 2000.... also, only four of the world's top 50 tech companies are European. While VC money flow to start-ups is part of the reason for lackluster tech innovation in Europe, it is mainly the laws, regulations, and other constraints on innovation that sap the region of dynamism. This is where reform is badly needed. And with that regulatory reform and reduction of state intervention, this will strengthen the "LDW" (liberal democratic West) -- which is particularly important during these times of great global conflict. https://lnkd.in/gU8pgCC4

Europe is rapidly losing ground in the global technology race, with significant economic challenges threatening to render the European Union (EU) increasingly irrelevant in the face of U.S. and Chinese dominance. Former European Central Bank President Mario Draghi's recent report highlights the structural weaknesses holding Europe back, especially in areas like financing innovation and economic productivity. While the U.S. leads in finance and technology, and China in manufacturing, Europe lacks a clear economic leverage point, and without serious reforms, the continent risks being squeezed between these two superpowers. Draghi’s assessment, while stark, is supported by economic data that underscores the urgency for Europe to revamp its approach. One of Europe’s major challenges is its demographic trajectory. Low fertility rates are leading to a shrinking workforce, with the EU potentially losing around 2 million workers annually by 2040. This decline in the labor force, coupled with sluggish productivity growth, spells trouble for the region's long-term economic prospects. As demographics and productivity are key drivers of sustained economic growth, Europe's failure to address these issues puts it at a severe disadvantage compared to the U.S. and China, which have been more successful in fostering innovation and adapting to global economic shifts. To remain competitive, Europe must rethink its approach to financing innovation. The EU has struggled to nurture a tech ecosystem on par with Silicon Valley or China's manufacturing prowess. This is partly due to insufficient investment in research and development, as well as a regulatory environment that stifles entrepreneurship. Draghi suggests that the EU overhaul its economic model to prioritize funding for cutting-edge technologies and foster a culture of innovation. If Europe can better align its financial and technological strategies, it has the potential to reclaim some of the economic leverage it has lost in recent years. Ultimately, Europe’s future hinges on its ability to adapt to the rapidly changing global economic landscape. Without addressing its structural deficiencies, the EU risks further falling behind in the tech race, leaving the continent reliant on external powers for both innovation and economic growth. The path forward requires bold reforms, particularly in fostering innovation and addressing the region's demographic challenges, to ensure Europe remains a relevant player in the global economy.

Europe's position in the world is as uncertain as it's ever been, and economic woes are part of that. However, I think broadly EU public finances are in better shape than they're given credit for, we have an economic model which has to be judged on its own merits (SMEs vs tech giants, for example) and quality of life remains high. The question really is whether our economic situation today is ready for what comes next. It's clear Europe needs to mobilise significant new investment in clean tech if it's to navigate the transition. That investment must be accessible, easy to deploy and quickly delivered; three points which the Recovery and Resilience Facility has significantly underperformed against. Fundamentally, this is about political will and not fiscal space, which exists. The EU elections, and following agenda setting including the Draghi Report, will mark a critical juncture as to whether Europe is ready to face up to the future, or pretend muddling along will get us there.

I, for one, won't hold my breath that the EU could (!) adopt greater economic freedom and progress to further human flourishing. Any "localization" in terms of subsidiarity is pretty much "no" as long as there is always something the EU can regulate at scale. Unfortunately, the "EUcratization" of the whole European economy cannot be rolled back quickly, as there is a kind of institutional-level regulatory spanking fetish, and incentives are so wrong. Before 2020, all the companies coming to the the EU made sure that their services and products were EU-compliant—and what about now? They don't care, as there is just arrogant regulatory control mindset left. "If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions. 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐚𝐧 𝐞𝐱𝐢𝐬𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐜𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞. ... First – and most importantly – Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies. 𝐄𝐮𝐫𝐨𝐩𝐞 𝐢𝐬 𝐬𝐭𝐮𝐜𝐤 𝐢𝐧 𝐚 𝐬𝐭𝐚𝐭𝐢𝐜 𝐢𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐚𝐥 𝐬𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐞 𝐰𝐢𝐭𝐡 𝐟𝐞𝐰 𝐧𝐞𝐰 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐫𝐢𝐬𝐢𝐧𝐠 𝐮𝐩 𝐭𝐨 𝐝𝐢𝐬𝐫𝐮𝐩𝐭 𝐞𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐢𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐞𝐬 𝐨𝐫 𝐝𝐞𝐯𝐞𝐥𝐨𝐩 𝐧𝐞𝐰 𝐠𝐫𝐨𝐰𝐭𝐡 𝐞𝐧𝐠𝐢𝐧𝐞𝐬. 𝐈𝐧 𝐟𝐚𝐜𝐭, 𝐭𝐡𝐞𝐫𝐞 𝐢𝐬 𝐧𝐨 𝐄𝐔 𝐜𝐨𝐦𝐩𝐚𝐧𝐲 𝐰𝐢𝐭𝐡 𝐚 𝐦𝐚𝐫𝐤𝐞𝐭 𝐜𝐚𝐩𝐢𝐭𝐚𝐥𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐨𝐯𝐞𝐫 𝐄𝐔𝐑 𝟏𝟎𝟎 𝐛𝐢𝐥𝐥𝐢𝐨𝐧 𝐭𝐡𝐚𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐬𝐞𝐭 𝐮𝐩 𝐟𝐫𝐨𝐦 𝐬𝐜𝐫𝐚𝐭𝐜𝐡 𝐢𝐧 𝐭𝐡𝐞 𝐥𝐚𝐬𝐭 𝐟𝐢𝐟𝐭𝐲 𝐲𝐞𝐚𝐫𝐬, 𝐰𝐡𝐢𝐥𝐞 𝐚𝐥𝐥 𝐬𝐢𝐱 𝐔𝐒 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐰𝐢𝐭𝐡 𝐚 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐚𝐛𝐨𝐯𝐞 𝐄𝐔𝐑 𝟏 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧 𝐡𝐚𝐯𝐞 𝐛𝐞𝐞𝐧 𝐜𝐫𝐞𝐚𝐭𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐩𝐞𝐫𝐢𝐨𝐝. This lack of dynamism is self-fulfilling." – GEG - Groupe d'Études Géopolitiques https://lnkd.in/dW_qcV_s

Apropos Mario Draghi’s competitiveness report: Regarding digitalization, he noted that 🇪🇺 EU’s competitiveness would be slightly higher than the U.S.’s, but if you factor back in the 🇺🇸 U.S. digital sector, the EU’s chronically weak productivity becomes clear. This highlights that #digitalization is a key driver of growth and prosperity, rather than traditional factors like labor costs and flexibility. The engine of digitalization is #innovation, driven by #skills, #education, and #entrepreneurship. The report urges closing the innovation gap with the U.S., which requires interventions of historic proportions. While roughly the same companies are driving innovation in Europe today as they were 20 years ago, in the U.S. (and China), today’s innovators are entirely different from those of 20 years ago. Also, 30% of European 🇪🇺 unicorns have left Europe due to structural burdens and lack of scalability. While Draghi does not advocate a relaxation of enforcement, he calls for competition law that is more flexible towards innovation. Bringing the EU back on track will require an estimated investment of $880 billion, equivalent to 5 percentage points of GDP (for comparison, the Marshall Plan contributed only 2-3% to GDP, while Germany grew around 10% in the 1950s). Without deep structural reforms, better policy coordination, and political unity, this will not be possible. What is not needed, based on this report, is certainly not more regulation, but rather more focused regulation. The EU has over 60% more regulatory pieces than the U.S., and tech companies in the EU face 100 tech-focused laws and 270 regulators active in digital networks across all member states (p. 26). While some of the new digital regulations enhance safety and security and may trigger innovation (although mainly targeted towards U.S. big tech or Chinese firms concerning digitial infrastructure), they do not boost the productivity needed to sustain Europe’s competitiveness and prosperity.

The first step to solving a problem is to admit you have a problem. This is how I see the European competitiveness report recently put out by Mario Draghi. The report singles out a confluence of four factors that have now come together to make it clear that Europe must undertake a radical course correction, and do so quickly. - Digitalisation: This factor alone, per the report, largely explains Europe's productivity gap with the United States. Look no further than the recent report that the market capitalization of the entire stock market of Germany was overtaken by that of one US tech company (Nvidia) founded in 1993. - Decarbonisation: Decarbonisation is a must for the sake of the planet. It is also an economic imperative in a continent with few natural resources of our own to remove the shackles that high energy prices (multiples higher than in the US) place on the potential for growth. - Dependency: Whatever happens in this year's presidential election, the days of being able to count on the US security umbrella, freeing up resources for other things, may be numbered. At the same time, we saw the effect that dependency on Russian energy had on European economies, particularly Germany's, when that energy stopped flowing. And let's not forget the still greater threat of our dependency on chips and semiconductors from East Asia. All these factors will require investments greater as a share of GDP than the Marshall Plan. These investments will not be possible without robust growth, which brings us to... - Demographics: Most European countries have had sub-replacement fertility since 1980. As a result, per the report, by 2040, the European workforce will diminish by 2 million people every year. The great successes achieved by European founders in the US make clear that we do not lack the brainpower and imagination to innovate and grow our way out the situation. The obstacles we face are largely institutional and self-inflicted. The report points the finger at the regulatory and administrative burdens faced by European companies, as well as fragmentation of the common European market. In other words, the situation is critical. So what can be done? The report proposes a new industrial strategy, resting on a few pillars: - Reducing frictions in the common market - Reducing regulatory burdens - Increasing both public and private investment - Implementing a more competition-friendly industrial policy If we take this report as a wake-up call, we can get Europe back on track to achieving our ambitions for our posterity. But it will require coordinated and at times uncomfortable actions. Will we rise to the occasion, or dwindle into quaintness? Let me know in the comments what you think, and stay tuned. #europe #growth #investment

From a competitiveness standpoint, Europe faces both significant challenges and opportunities. The region's approach to regulation, sustainability, and social welfare, while beneficial for quality of life, can sometimes slow down economic growth and innovation compared to less regulated environments. Here’s a concise summary of Europe’s position in terms of competitiveness, along with perceived risks and strategic considerations: Summary of Competitiveness Innovation and Regulation: Europe excels in areas such as renewable energy, automotive engineering, and pharmaceuticals, driven by a strong focus on research and development. However, stringent regulations can hinder the rapid deployment of new technologies and business models, affecting competitiveness against more agile economies like the USA and China. Aging Population: Many European countries are facing demographic challenges, with an aging population that could strain social security systems and reduce the workforce size. This demographic shift may impact Europe's ability to sustain economic growth and innovation. Digital Economy: The EU is working to strengthen its digital economy through initiatives like the Digital Single Market, aiming to make Europe a global leader in digital innovation. Nonetheless, it is competing with the technological advancements and investments of the USA and China. Sustainability and Climate Leadership: Europe's leadership in sustainability and climate action, while potentially a competitive advantage in the long term, requires substantial investment and transition periods. The shift towards a green economy presents both challenges and opportunities for traditional industries and new ventures. Risks Global Economic Shifts: The rise of emerging markets, especially in Asia, challenges Europe's economic position. To remain competitive, Europe needs to enhance its engagement with these fast-growing economies. Technological Adaptation: The pace at which Europe can adapt to and lead in new technologies (AI, blockchain, quantum computing) is crucial. Falling behind could diminish its competitive edge. Political Unity and Stability: Europe’s political landscape, marked by the need for consensus among EU member states, sometimes leads to slower decision-making processes. Brexit and nationalist movements pose additional challenges to unity and stability. Strategic Considerations Embrace Digital Transformation: Accelerating the digital transformation of European industries and services is critical. This involves not only fostering innovation but also ensuring that the workforce has the digital skills needed for the future. Strengthen Global Alliances: By building stronger trade and innovation alliances with emerging economies, Europe can secure its place in the global supply chain and access new markets. 1/2

Europe must end its 30-year digital winter to ensure its long-run future as I explain my op-ed "Why Europe Must End Its 30-Year Digital Winter to Ensure Its Long-Run Future", today and working paper [https://shorturl.at/ajwX7]. Europe has created few leading digital businesses compared to the U.S. and China. The lack of digital innovation during an epoch in which most industries will be driven by digital, along with other cutting-edge technologies with similar trajectories, places #European industries at risk of falling even further behind the U.S., China, and other surging economies. To reverse its long losing streak in digital innovation, which may extend to other critical technologies as well, Europe would have to move to a greater reliance on markets, a stronger culture of risk taking and a smaller appetite for regulation. https://lnkd.in/eU4M-qHR

Mario Draghi's inconvenient truth about the Union: "At the root of Europe’s weak position in digital tech is a static industrial structure which produces a vicious circle of low investment and low innovation. Over the past two decades, the top-three US companies for spending on Research and Innovation (R&I) have shifted from the automotive and pharma industries in the 2000s, to software and hardware companies in the 2010s, and then to the digital sector in the 2020s. In contrast, Europe’s industrial structure has remained static, with automotive companies consistently dominating the top 3 R&I spenders. In other words, the US economy has nurtured new, innovative technologies and investment has followed, redirecting resources towards sectors with high potential for productivity growth; in Europe investment has remained concentrated on mature technologies and in sectors where productivity growth rates of frontier companies are slowing. In 2021, EU companies spent about half as much on R&I as share of GDP as US companies – around EUR 270 billion – a gap driven by much higher investment rates in the US tech sector. This innovation gap also translates into a gap in overall productive investment between the two economies, which is driven mainly by lower investment in tangible ICT assets and in software, databases and intellectual property. The resulting cycle of low industrial dynamism, low innovation, low investment and low productivity growth in Europe has been termed “the middle technology trap”