Europe’s Technological Potential: The Challenge of the European Union’s Single Market
Analysis of Technology and Economics Articles
I have a friend who does not understand why the United States holds technological leadership and Europe does not.
This summer, he asked me how it is possible that, on the other side of the Atlantic, the world’s most important digital companies are located there, while Europe lacks such technological leadership.
This question made me reflect: why was Europe the world leader in the automotive industry for years, yet today it is not the leader in artificial intelligence? Why was OpenAI (the company behind the ChatGPT revolution) founded in San Francisco and not in Barcelona? Why, when we want to carry out an analysis, do we have to use solutions such as Excel (Microsoft) or Google Sheets (Alphabet), instead of a European alternative?
A few days ago, I read an article in the newspaper Le Monde that helped me find answers to some of these questions.
The reason why Europe is not a global technological leader is not a lack of investment, but rather the failure to complete the implementation of the European single market.
In the article “If Europe Wants to Exist as a Technological Power, It Is Necessary to Implement a Radical Single Market”, published in Le Monde, the 2014 Nobel Prize in Economics laureate Jean Tirole explains that Europe’s technological deficit is due to the lack of implementation of a single market.
For example, the French government prioritizes, in France, the development of the artificial intelligence start-up Mistral AI to the detriment, for instance, of the German start-up Black Forest Labs.
Jean Tirole argues that this logic of prioritizing national markets is incompatible with the scale of the technological markets of superpowers such as the United States or China.
Today, if a French start-up wants to enter the Spanish market, it faces the barrier of having to comply with Spanish regulations and taxation. In the United States, this is not the case. On the other side of the Atlantic, there is direct access to a market of 330 million people. In Europe, for each of the 27 member states, there are different regulations, tax systems, and public markets.
This reality makes the American market more attractive than the European market for investors in technology companies. A start-up founded in the United States has access to a larger direct market than one in the Old Continent. For investors, access to a larger market is synonymous with potentially higher returns. If an entrepreneur creates a start-up in the United States, they have direct access to a market of 330 million people. If that emerging company is created in France, the market is reduced to 68 million people.
The European single market is not consolidated. In the 27 member states of the European Union, there are 27 different regulatory frameworks, tax systems, and public markets.
The Nobel Prize–winning economist asks why the implementation of the European single market has not been completed. Why can a future start-up founded in Berlin not have direct access to the European Union’s commercial area, with a market of 450 million people?
The French economist states that if Europe wants to exist as a global technological power, it must take the initiative to complete something it has been postponing for twenty years: the implementation of a real, radical, and operational European single market.
Perhaps this article does not fully answer the question my friend asked me.
What is clear is that the consolidation of the European technological sector does not depend solely on increased investment, but on the implementation of a real, radical, and operational single market.
Antonin Bergeaud Professeur d’économie
