European Innovation: Can It Escape Slow Death?
European competitiveness is suffering a slow death at the hands of tradition.
“The Europe is falling behind” this is the headline we have been seeing everywhere for a while now…
It’s true but the real question is why and whether it can be reversed?
Well, let's start with the basics: The US GDP per capita stands at $75,180 compared to the EU's $54,330 (2023 data). It can’t be simply because Americans work harder and Europeans are lazy. It goes way deeper in history than we can see on the surface.
Why the culture of innovation is different in the US?
Think of economic systems like soil types. Just as different soils nurture different plants, economic systems cultivate different types of innovation. How did Europe and America develop such different economic "soils"?
The story begins in their contrasting historical experiences. In America, the frontier mentality emerged from unique conditions: Vast open territories, weak existing institutions, and constant territorial expansion. When settlers faced new challenges, they had to improvise solutions. No guilds existed to set rules, no centuries-old practices demanded respect. This created a culture where innovation meant survival, and breaking with tradition carried little social cost.
Europe's guild tradition grew from entirely different circumstances. In densely populated medieval cities, craftsmen organized into guilds to maintain quality standards and manage competition. These guilds provided stability and ensured skill transmission across generations. But they also created rigid hierarchies: apprentice to journeyman to master, each step carefully controlled. This system produced exceptional quality - think Swiss watches or German machine tools - but it also made rapid change difficult.
These weren't just different business models. They created different ways of thinking about innovation itself:
❌America developed a "trial and error" culture:
Quick experiments
Accept frequent failures
Scale what works rapidly
Break with tradition freely
💯Europe built a "perfection first" approach:
Careful planning
Avoid mistakes
Scale gradually
Respect established methods
These cultural differences shaped economic development for centuries. World War II turned these existing gaps into a chasm. How?
Post World War II Developments
First came the physical impact.
While America's homeland remained untouched, Europe lost not just factories but entire industrial ecosystems. Cities that had been centers of craft and commerce for centuries were reduced to rubble. The human capital that had sustained Europe's guild traditions - master craftsmen, specialized engineers, skilled workers - was devastated.
Then came the psychological shift.
America emerged from the war with a powerful new conviction: That massive mobilization of resources, coupled with scientific research, could solve any problem. The Manhattan Project wasn't just a military success - it became a template for innovation itself. Government funding would tackle big challenges, private companies would commercialize the results, and markets would reward success.
Europe drew different lessons from the war.
The collapse of institutions and social order led to a deep craving for stability. The threat of communism from the East made social cohesion seem crucial. When rebuilding began, the focus wasn't just on restoring factories - it was about preventing the social upheaval that had enabled fascism's rise.
So when 1945 arrived, how did these wartime experiences interact with existing cultural patterns?
America's system perfectly matched its frontier mentality.
Just as settlers moved quickly to exploit new territories, American entrepreneurs rushed to commercialize new technologies. The Defense Advanced Research Projects Agency (DARPA), created to maintain military technology leadership, funded early research that later became the Internet and GPS. The government provided the research "territory," and companies raced to settle it.
Europe faced a different reality.
Cities lay in ruins, people were traumatized, and Soviet communism threatened from the East. The response? They fell back on their guild tradition: Build an economy focused on stability, quality, and worker protection. Germany gave workers seats on company boards - similar to how guilds once governed their trades. France had government agencies guide industrial development - echoing how guild masters once controlled quality standards.
What happens when these different systems face new opportunities?
Think of America's system like a rapid-response team: When semiconductors emerged, venture capital rushed in. When personal computers appeared, new companies formed overnight. When the internet exploded, whole new industries emerged within years.
Europe's system works more like a careful craftsman: Excellent at refining existing technologies (think German machine tools or French aerospace), but slower to embrace radical change. When Nokia dominated basic phones, this worked well. When smartphones required rapid transformation, the system's careful approach became a handicap.
These historical patterns created self-reinforcing cycles. Look at three key differences:
1. Innovation Funding:
US: Many venture capital firms, easy access to stock markets, simple bankruptcy laws.
European: Banks control most funding, prefer safe loans, failure hurts your reputation.
Result: In 2023, US startups got $170.6B in funding versus Europe's $48.8B.
2. Job Markets:
US: Easy to hire and fire, benefits move with workers, simple to change careers
Europe: Strong job protection, benefits tied to companies, strict job categories
Example: French labor law is 3,500+ pages long. American states let companies adapt quickly.
3. Market Size:
US: One big market, one set of rules
European: 27 different markets, each with its own rules
Impact: A French startup must get 27 separate approvals to sell across Europe
Example? Take Uber between 2011-2015. In America, Uber could quickly expand across state lines, just like 19th-century railroads once did. In Europe? They faced different rules in each country, just as medieval merchants once navigated different guild regulations in each city.
These patterns persist in today's most advanced technologies. Why are OpenAI, Anthropic, and Google leading in artificial intelligence while Europe writes regulations? Because America's system still embraces frontier-style risk-taking, while Europe's still prioritizes careful control and social stability.
Is there hope for Europe?
Yes, but change requires understanding how deep these patterns run. Just as Amsterdam once revolutionized finance by combining merchant wealth with new trading tools, Europe today needs a new synthesis. Estonia runs a fully digital government. Sweden has a thriving startup scene. But isolated innovations aren't enough.
How might real change work?
Europe could combine its guild-derived strengths with innovation-friendly rules:
One unified digital market
New ways to fund startups across borders
Same rules for new companies everywhere
Flexible laws for startups while protecting workers in traditional industries
The challenge isn't copying America's frontier model. It’s a long foregone possibility for Europe. Its challenge is creating something new: A system that preserves Europe's social benefits while encouraging innovation.
Can Europe forge a new model that combines innovation with social welfare?
Well everything is possible, but it’s a hard job.
* I want to know whether you are investing in European stocks? What do you think about Europe’s competitiveness against the increasing dominance of the US?*
Spot on dude. Spot on. And backed by facts. 27 approvals in France....are you kidding me. The go getters will always want to a place they have a chance if they work hard. Why we are winning at tech in the us and will continue to win.
Europe has to wake up! It’s now or never!