Europe, Tech and War

The keys to Europe’s comeback in tech

(translated from “Tech : quand l’Europe s’éveillera”, by the same authors, published in Commentaire in December 2023)

Yann Coatanlem & Oliver Coste

December 2023

“Technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce.”

  Xi Jinping, 2021 [1]

Information and communication technologies ("tech") are in a dire situation in Europe, lagging further and further behind American and Chinese industries. Like coal in the 19th century and oil in the 20th century, tech is an industrial revolution transforming our economies and reshaping geopolitical relations. In a world led for decades by American tech, but where China and soon India are challenging Western technological domination, Europe’s lag in tech is a threat to its standard of living and to its defense and security.

The underlying reasons for this failure have so far not been well understood. National and European action plans follow one another without reversing the trend. This article demonstrates that the prohibitive cost of failure, unique to Europe, hinders investment in risky projects necessary to disruptive innovation, which is central to industrial revolutions like tech today. There lies the cause for Europe’s poor technological standing and for its specialization in mature industries dating back to early the 20th century.

However, Europe retains exceptional assets: political stability, legal certainty, infrastructure quality, large markets, educational excellence, governmental will and transparency. This article proposes practical solutions to reduce this prohibitive cost of failure. Such a reform is necessary for Europe to regain the technological advantage it held between 1450 (invention of printing) and the Second World War.

Europe clearly lags the United States and China in terms of R&D

European tech companies invest significantly less in research and development (R&D) than their U.S. and Chinese counterparts. According to the European Commission, tech companies in Europe invest only around €50 billion in R&D, compared to around €240 billion in the United States and €80 billion in China.

The collapse of Europe and Japan’s share in the digital industry only took about 15 years, to the benefit of the United States and China. Within that period, Germany's share of global investment in R&D in tech fell from 8 to 2 percent, while that of France from 6 to 2 percent.

The same trends apply for all R&D expenditure in both the public and private sectors. Here too, the gap is large and has widened over the last ten years. But the greatest difference in R&D spending between the United States and Europe comes from tech.

R&D plays a foundational role in the performance of firms operating at the technological frontier: the top one percent of patented firms control 98 percent of the most useful patents.5 The impact of R&D investment is therefore not proportional and is more akin to a "Winner Takes All" phenomenon.

When looking at R&D expenditure, the tech champions are American and Chinese, while European firms only play a marginal role in the global tech industry:

German, British, French, and other European efforts to foster the development of startups have achieved little: European startups (including the United Kingdom) attract three times less capital than their American competitors.

The geopolitical impact of tech

For the past 30 years, experts have characterized Europe’s lag in tech as a sectoral rather than a strategic and geopolitical issue. But like the steam engine in the 1800s and the internal combustion engine in the 1900s, tech is driving an industrial revolution by transforming all economic sectors and upsetting geopolitical balances.

[...]

Read the full article in French in Commentaire

Contact us for a copy of the full article in English (bottom of the home page)