Europe, Tech and War

In its latest annual report, Nvidia, the main provider of semiconductors for artificial intelligence, did not even bother reporting its revenues in Europe. This is suggestive of a wider trend.

Today, investment in tech research and development in Europe is only one-fifth of what it is in the US, and half that in China. Investment in AI is around 50 times higher in the US than in Europe. European tech is falling behind its competitors at an alarming rate. How did we get here?

The recent wave of tech lay-offs offers insights into some of the key structural weaknesses of the European model. Restructuring in Europe takes much longer and costs much more than in the US, which impedes investment in AI.

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The consequences are profound. As Coste shows in his book Europe, Tech and War, investments that are deemed profitable in the US don’t make the cut in Europe, precisely because of the lack of cheap and swift restructuring capabilities at large companies.

At a more macro level, this diagnosis is confirmed by a McKinsey study which shows that large European companies are much less profitable than their American counterparts, and that 90 per cent of that gap can be attributed to technology-creating industries.

Tech is unpredictable, disruptive and volatile. With higher severance costs and longer delays, the costs of adaptation in Europe are about 10 times higher than in the US. After decades of greater agility, American companies have the financial means to invest in AI; European companies simply can’t compare.

AI is powering the current industrial revolution, just like the steam engine in the 19th century and the internal combustion engine in the 20th. Global investment in AI infrastructure is forecast to reach around $150bn in 2024, primarily driven by the US and China. In Europe, by contrast, we have been able to identify just a couple of billion dollars-worth of investment, by both tech leaders and start-ups. This shortfall cannot be allowed to continue.

Other factors can explain European difficulties in tech — market integration, market size, funding, regulation and even culture. Yet none of these factors seems to have prevented the emergence of European leaders in mature, lower-risk industries such as automobiles or aeronautics. We are facing a tech-specific problem that will quickly permeate all sectors if we are not careful.

A solution that does not threaten the European social model, and which could be highly effective, would be to reform employment protection laws for salaries above a high threshold. That, more than anything else, could help bring Europe back to the forefront of innovation.

Read the full article in the Financial Times

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