A number of scholars and economists have debated this question for years, and offered very different proposals for why. Here are three leading theories and what they mean for EU tech and regulation.
A serious problem in the analysis is to look at "Europe" and the "USA" only in terms of global behemoths. Scaling to the largest scale is easier done in the USA, because of the size of the domestic market, which in turn creates global visibility. However, Spotify, Booking, SAP, Just Eat, ASML, Ericsson, Nokia, Orange, Ubisoft, Telefonica are examples of European players with massive reach across the world. Amazon may be big in retail in the USA. In continental Europe it faces more difficulty, because of stronger local competitors, such as Coolblue in the Netherlands, Mediamarkt in Germany etc.
The capital market issue is a massive thing however. A tech startup in the Netherlands will have a really hard time getting tens of millions of funding. To have any chance in the USA that type of money is needed. Scaling to global level is then eeasier from the USA than from the Netherlands, Belgium or Germany.
I appreciate this, but I think you're saying the same thing that I was in my point about the cultural, language, and regulatory boundaries between EU member states -- though I think your framing of "one domestic market" (though I do think this undersells US federalism) versus "27 domestic markets" is a distinctly helpful analogy!
Thanks, friend. It was a great read, and I always hope that that can be the goal of a good "review" -- that you can learn something about what you're communicating and the whole conversation from someone's reframing.
The points here are all very solid and worth thinking about, to the extent that I feel a little weird giving a "well, actually" to this, but I'll do it anyhow - it's not that the EU has no tech industry so much as that it is not nearly as strong at providing an environment for tech to get started. There are a lot of great videogame studios in Europe (CDPR, Arkane Studios) and several other tech subindustries have strong players there, and the big America-started tech companies also usually have substantial tech offices in Europe (usually significantly in Ireland).
We also might ask why Silicon Valley dominates tech in the US (partly venture capital, partly snowball effect, partly other things) and I think the two conversations have a lot to do with each other.
I am reminded of the ancient inquiry into “why Silicon Valley beat Boston’s Route 128” and the answer was “clustering of talent”. It’s never one thing.
I can’t imagine you’re assigning your law students any multiple choice exams, but the answer is “E. All of the above.”
To that end, I have to disagree that Europe (or, particularly, a select handful of EU member states like Germany) making it punitive to fail does not play much of a role. I hear about this from EU startups (but even more so from startup incubators/ investors) quite a bit. Dynamism is so important to the startup ecosystem. It needs to be easy to exit, whatever that exit is, success or failure. (Which gets at a related point about successful exits: less dynamic capital markets and fewer large acquirers in Europe).
And I can concede this bankrupcy law point is probably overall somewhat marginal, but it also seems easier (in relative terms) to "fix" than some of the broader regulatory points. That's probably the core of my nit--it's still directionally bad, so let's not discount the need to fix it!
A very nice article, Kate. I would also recommend looking into Mazzucato's work (the Entrepreneurial State). She explains well how the US government was/is key in creating many market opportunities for US firms down the line (due to funding, spillovers, clusters, etc).
Thank you for this reply! I am not familiar, and this looks EXCELLENT. I think this a fascinating topic and am hoping to explore it in longer form at some point -- maybe ten years from Anu's take just to space things out :)
This was a great read, and extremely timely to what I've been thinking (and writing about) on the subject. I think there's an adjacent problem that I've been thinking about, but you briefly mentioned here -- complexity in the law + bigness + extraterritorial scope mean that basically everyone operating online is probably violating at least a few laws at any given point in time -- not because they don't care, but because they don't know, and don't have the resources to wade through the complexity.
I'd love to chat with you a bit on this if you ever have a spare cycle.
I spent a while practicing corporate bankruptcy law, and I'll tell people - whether or not they want to listen - that the differences between US and EU corporate insolvency/bankruptcy law are enormously significant - far more significant IMO than personal bankruptcy law. Accordingly, "I don’t think it’s bankruptcy law" is fightin' words.
Bradford gives a pretty good rundown on this at 43-45, but among many other factors in the USA management can almost always control the company in Chapter 11, whereas in Europe it's generally a liquidation by the creditors. The EU system favors creditors, the US system favors investors. Not a shock VC and other investors find the US much more hospitable.
Many attribute Silicon Valley’s success to California law barring the enforcement of employment non-compete agreements. What is the European policy on this and does it vary by member state? Anyone know?
How do you define “tech companies”? For example, there is ARM, selling processor IP that goes into every mobile phone, all Apple computers and loads of other things with a processor in them (anything IoT for example). Without ARM, a lot of products would just not exist. I’m prepared to argue that companies like Aphabet, Meta and certainly Netflix are not tech companies, they are media companies, publishers.
"It has been thirty years since the technology revolution began in Silicon Valley."
Companies like Hewlett Packard, Fairchild Semiconductor, Intel, Texas Instruments, Applied Materials, Motorola, and Apple were around long before the 90s. To explain this phenomenon you need to rewind back to the 1950s when the transistor was invented, and ask why did no electronics firms arise in Europe to take advantage of that technology?
One possibility is that they were too busy rebuilding after the war, and by the time they finally did so (we could book-end it with the 1990 reunification of Germany), the ship had already sailed. In this theory, the tightly-integrated business infrastructure needed to support tech development (talent, venture capital, laws, manufacturing facilities, IP portfolios, ...) is too hard to build from scratch. It remains to be seen whether the Chinese can get their flywheel spinning in markets like semiconductors.
about the "best bet for Europe’s future: driving regulatory action..."
See the "Europe is about peace" part of this post of mine, and included links, for how this came to be and works today (without negating it could be done much better...):
A serious problem in the analysis is to look at "Europe" and the "USA" only in terms of global behemoths. Scaling to the largest scale is easier done in the USA, because of the size of the domestic market, which in turn creates global visibility. However, Spotify, Booking, SAP, Just Eat, ASML, Ericsson, Nokia, Orange, Ubisoft, Telefonica are examples of European players with massive reach across the world. Amazon may be big in retail in the USA. In continental Europe it faces more difficulty, because of stronger local competitors, such as Coolblue in the Netherlands, Mediamarkt in Germany etc.
The capital market issue is a massive thing however. A tech startup in the Netherlands will have a really hard time getting tens of millions of funding. To have any chance in the USA that type of money is needed. Scaling to global level is then eeasier from the USA than from the Netherlands, Belgium or Germany.
I appreciate this, but I think you're saying the same thing that I was in my point about the cultural, language, and regulatory boundaries between EU member states -- though I think your framing of "one domestic market" (though I do think this undersells US federalism) versus "27 domestic markets" is a distinctly helpful analogy!
Thanks for the careful read of my paper, Kate--and what a great post, canvassing and appraising Anu's and my approaches. I learned from your framing.
Thanks, friend. It was a great read, and I always hope that that can be the goal of a good "review" -- that you can learn something about what you're communicating and the whole conversation from someone's reframing.
The points here are all very solid and worth thinking about, to the extent that I feel a little weird giving a "well, actually" to this, but I'll do it anyhow - it's not that the EU has no tech industry so much as that it is not nearly as strong at providing an environment for tech to get started. There are a lot of great videogame studios in Europe (CDPR, Arkane Studios) and several other tech subindustries have strong players there, and the big America-started tech companies also usually have substantial tech offices in Europe (usually significantly in Ireland).
We also might ask why Silicon Valley dominates tech in the US (partly venture capital, partly snowball effect, partly other things) and I think the two conversations have a lot to do with each other.
Yes, it is not that there is no new tech in the EU. It's that it's never accelerating in quite the same way. . .
I am reminded of the ancient inquiry into “why Silicon Valley beat Boston’s Route 128” and the answer was “clustering of talent”. It’s never one thing.
I can’t imagine you’re assigning your law students any multiple choice exams, but the answer is “E. All of the above.”
To that end, I have to disagree that Europe (or, particularly, a select handful of EU member states like Germany) making it punitive to fail does not play much of a role. I hear about this from EU startups (but even more so from startup incubators/ investors) quite a bit. Dynamism is so important to the startup ecosystem. It needs to be easy to exit, whatever that exit is, success or failure. (Which gets at a related point about successful exits: less dynamic capital markets and fewer large acquirers in Europe).
Sure . . . but wasn't this kinda what I was saying by seeing the agreement between Chander and Bradford with the "Why not both" point?
I mean I even acknowledge that bankruptcy law might have something to do with it, but just probably at the edges.
Yes!
And I can concede this bankrupcy law point is probably overall somewhat marginal, but it also seems easier (in relative terms) to "fix" than some of the broader regulatory points. That's probably the core of my nit--it's still directionally bad, so let's not discount the need to fix it!
A very nice article, Kate. I would also recommend looking into Mazzucato's work (the Entrepreneurial State). She explains well how the US government was/is key in creating many market opportunities for US firms down the line (due to funding, spillovers, clusters, etc).
Thank you for this reply! I am not familiar, and this looks EXCELLENT. I think this a fascinating topic and am hoping to explore it in longer form at some point -- maybe ten years from Anu's take just to space things out :)
This was a great read, and extremely timely to what I've been thinking (and writing about) on the subject. I think there's an adjacent problem that I've been thinking about, but you briefly mentioned here -- complexity in the law + bigness + extraterritorial scope mean that basically everyone operating online is probably violating at least a few laws at any given point in time -- not because they don't care, but because they don't know, and don't have the resources to wade through the complexity.
I'd love to chat with you a bit on this if you ever have a spare cycle.
I spent a while practicing corporate bankruptcy law, and I'll tell people - whether or not they want to listen - that the differences between US and EU corporate insolvency/bankruptcy law are enormously significant - far more significant IMO than personal bankruptcy law. Accordingly, "I don’t think it’s bankruptcy law" is fightin' words.
Bradford gives a pretty good rundown on this at 43-45, but among many other factors in the USA management can almost always control the company in Chapter 11, whereas in Europe it's generally a liquidation by the creditors. The EU system favors creditors, the US system favors investors. Not a shock VC and other investors find the US much more hospitable.
Many attribute Silicon Valley’s success to California law barring the enforcement of employment non-compete agreements. What is the European policy on this and does it vary by member state? Anyone know?
How do you define “tech companies”? For example, there is ARM, selling processor IP that goes into every mobile phone, all Apple computers and loads of other things with a processor in them (anything IoT for example). Without ARM, a lot of products would just not exist. I’m prepared to argue that companies like Aphabet, Meta and certainly Netflix are not tech companies, they are media companies, publishers.
"It has been thirty years since the technology revolution began in Silicon Valley."
Companies like Hewlett Packard, Fairchild Semiconductor, Intel, Texas Instruments, Applied Materials, Motorola, and Apple were around long before the 90s. To explain this phenomenon you need to rewind back to the 1950s when the transistor was invented, and ask why did no electronics firms arise in Europe to take advantage of that technology?
One possibility is that they were too busy rebuilding after the war, and by the time they finally did so (we could book-end it with the 1990 reunification of Germany), the ship had already sailed. In this theory, the tightly-integrated business infrastructure needed to support tech development (talent, venture capital, laws, manufacturing facilities, IP portfolios, ...) is too hard to build from scratch. It remains to be seen whether the Chinese can get their flywheel spinning in markets like semiconductors.
about the "best bet for Europe’s future: driving regulatory action..."
See the "Europe is about peace" part of this post of mine, and included links, for how this came to be and works today (without negating it could be done much better...):
https://mfioretti.substack.com/p/5000-words-for-europe-again
oi vey. Its because of antisemitism and the holocaust.
thanks jews.
An absolutely fantastic piece.
You will like this podcast on the regulation deception. It is up your alley.
https://spotifyanchor-web.app.link/e/8ewVaIBUuJb