In European tech, regulation vs innovation is a spurious debate
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Europe’s grip on Big Tech is tightening.
Brussels this week extended the list of companies that it considers “gatekeepers”, which are subject to strict rules under the Digital Markets Act, adding Booking.com to its roster.
Critics point to this type of regulation in explaining the continent’s lacklustre record in hatching start-ups and nurturing them to global success. US tech companies lobbied hard against tougher regulation and for good reason it turns out — witness the EU’s March probe into Apple, Google and Meta’s adherence with the strictures of the DMA.
Amazon, for example, commissioned a paper by consultancy Oxera warning that the then-pending law “risk[ed] reducing innovation overall”. But these types of complaints look increasingly disingenuous. A new paper by Anu Bradford of Columbia Law School evens up the debate.
The rulebooks that matter most to success in tech innovation probably are not regulatory ones. Flexible immigration policies bring the best talent; plenty of US founders hail from outside the US. Punitive bankruptcy rules tamp down entrepreneurial spirit; the cost of failure is lower in the US.
Capital markets are also fundamental. The geysers of US venture capital are not found in the same way in Europe. When companies enter later-stage D and E funding rounds, the percentage of total European VC funding as a proportion of US VC funding halves.
Still, that money is not bound by borders. Look at how much US capital flooded into Chinese tech before regulators clamped down. But state largesse plays an important role. Manufacturing incentives in the US Chips Act have already unleashed $450bn of private investment. Long before that, healthy defence budgets — spent at home — galvinised research and development in the sector. Not for nothing are the US, China and Israel thriving tech hotspots. Only recently has Europe articulated the desire to spend more of its defence budget regionally.
But the biggest drawback is geography. For sure, Google and its ilk operate globally. But they had a large, homogenous home market in which to cut their teeth. The EU is a grouping of 27 countries with 24 different languages and still more cultures. Legal systems and lawbooks complicate matters further. There is not yet a single market for online copyright, for example.
Even this should not be an insurmountable impediment. The same applies, to a lesser extent, to south-east Asian companies such as GoTo and Sea, which span markets divided by language, culture and borders. Closer to home, take music streaming app Spotify. Europe’s best-known tech company hails from one of its smallest member countries.
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