Questions for my euro-optimist friends

I see a lot of posts on LinkedIn that try to encourage an optimistic view of Europe.

First of all, I sympathise with the sentiment. No one built anything of value by being pessimistic. Second of all, some points regarding quality of life and measurements outside growth (such as life expectancy) are absolutely right. Human flourishing cannot be measured exclusively in GDP growth or GDP per capita.

Having said that, there’s optimism, and there’s burying your head in the sand. These euro-optimistic narratives neglect how far back we are in software and IT, which are crucial backbones to modern economies. Software ate the world a long time ago and the dominance of Google, Microsoft, Amazon, Meta, Nvidia (and now the likes of OpenAI) is not an overheated stock market illusion. At the ground level, in the real economy, the dominance is absolute. Everywhere I look, every European org I’ve worked with, the tech stack - from the open source libraries to the cloud infra - is overwhelmingly American. In software and information technologies we are currently vassals to the Americans; a more optimistic or charitable interpretation is scarcely possible.

In the AI race, although base models are becoming increasingly commoditized, and even if some European players manage to launch competent models, we will most certainly remain light years away from America. As productization becomes more important, it is highly unlikely that European companies will buy their AI through Hetzner or Mistral. They are predominantly going to do it through AWS, Google and Azure and a new wave of American API suppliers. Something similar will happen at the more micro level regarding specialized applications. As the dust settles, new generation SaaS based on AI will most likely be predominantly American. Of course there will be a few European winners (yes, we have some outstanding entrepreneurs here too!), but even they will likely depend heavily on American technologies under the hood.

The Draghi report recognized how far back we are - in this and other areas - and proposed showering European economies with three quarters of a trillion euros every year to catch up. Questions remain as to how that money could even be raised at all, and then, without causing massive inflation, further crushing the European middle classes with taxes, or both. I’m personally skeptical that such large-scale industrial policy would even work - it risks being tremendously inefficient in picking winners (at the expense of the European citizen) or downright ineffective. We have seen with EU Next Generation funds how states are having trouble merely deploying the capital even when it’s been earmarked!

EU regulators have been busy mandating useless cookie banners, undetachable caps on plastic bottles, and throwing down entire industries where Europe was competitive down the drain. They mandated GDPR, which while well intentioned, and with a few strong ideas (like rights to deletion and third-party selling of personal data) is in many other ways overreaching and downright unenforceable. And now, many of these same regulators are promoting Chat Control which could erode citizen rights infinitely more than the lack of GDPR would have ever done.

Meanwhile, at a more fundamental level, the vision of a single market remains largely unfulfilled. For a startup or a small business, penetrating neighboring European markets remains a daunting prospect - many orders of magnitude more difficult than it would for an American counterpart. Private capital (financial but also human) cannot seem to concentrate around sectorial and geographic clusters and be allocated as efficiently as in the United States. What is the European regulator doing about these issues, which would be at the very essence of the post-Maastricht vision for the Union?

So to the Euro-optimists I ask the following, regarding our patent weakness in information technologies in particular. What should Europe do about it? Should we just accept, in a Ricardian way, that the ship has sailed, and focus on other competitive advantages? What would such an attitude mean for European sovereignty, at the bloc and national level? Where are we going to find new avenues of attractive margins and growth, then? How would we even capitalize on future digital revolutions, when progress in this area is incremental (e.g., Americans will probably succeed in AI because they already dominate cloud and enterprise software), compounding, and far-reaching?