The conclusions of the Mario Draghi report are not pleasant to hear. The European Union has fallen behind the United States economically. It is urgent to revive growth. While the diagnosis is not encouraging, the solutions are there, and involve innovation and cutting-edge technologies. The report sets out several avenues in this regard, including a common plan for decarbonisation and competitiveness, as well as reducing dependence on geopolitically unstable players. But the European Union would also do well to copy certain ideas that have made the United States and China successful.
“None of the European companies born less than fifty years ago have a market capitalization of more than 100 billion euros, while the six American companies valued at more than a trillion were created during this period,” the former president of the European Central Bank relentlessly points out. Europe also pales in comparison to China in many areas. It is the latter, for example, which is at the origin of 70% of the patents related to generative AI filed in the world over the last ten years.
Investment, the mother of all battles
The ball and chain that is holding back European tech is well-known: the lack of investment. The venture capital firm G2 pointed out at the beginning of the year that this sphere was six times less developed on the Old Continent than in the United States, with an average of 44 billion dollars of assets under management compared to 270 billion.
Europe must succeed in better directing its citizens’ savings towards its local companies. In France, the Tibi 1 and 2 initiatives – 6 and 7 billion euros collected from bancassurers – are moving in this direction. But we are still a long way from what is happening in the United States. The Californian civil servants’ pension fund alone had $430 billion in assets in 2022! “If we did that at the European level, it would be great,” thinks Maya Noël, CEO of the start-up association France Digitale. Since these funds invest over the very long term, they can focus more on disruptive industries, whose profits sometimes take decades to arrive.
The Draghi report, which suggests developing collective pension funds, bluntly exposes the gap between the United States and the EU on this point: they represent 142% of GDP across the Atlantic, compared to only 32% in Europe. This forces European companies to “rely excessively on financing by banks, although they adapt less to the needs of innovative projects”.
While the barometer unveiled by France Digitale on September 11 shows that fundraising remains, overall, stable, French start-ups are not playing in the same league as their American competitors. In 2023, they raised $8.32 billion, compared to $144.3 billion on the other side of the Atlantic.
Another shadow on the European picture: relations between the public and private sectors, particularly in terms of orders. In China, the public sector plays a crucial role in the economy and the development of innovation. The central government places a huge number of orders and grants a large number of subsidies to key sectors of new technologies.
The two powers of course have very different political regimes, and it is not a question of reproducing everything identically. Especially since the Chinese domestic market – 1.4 billion inhabitants – is of a different size. But this strong involvement of the authorities in tech, which is lacking in Europe, is also found in the United States, thanks in particular to DARPA (Defense Advanced Research Projects Agency). The agency of the Department of Defense, responsible for research and development of new technologies, is a pioneer in the field. Disruptive technologies for military projects in which it has invested have often found their way to the general public sphere, in particular semiconductors or GPS.
“What is interesting with the model established by Darpa is that the State becomes the main client of start-ups, with funding and pre-orders. This allows significant resources to be allocated to R&D,” Maya Noël emphasizes. All while helping young shoots to fill their order books, a vital issue for them. Maya Noël cites as proof certain start-ups in the education sector that struggle to respond to calls for tender due to regulatory issues. “There must be a desire for innovation at EU level, with the ambition of creating and helping European champions.”
The establishment of a genuine common market
The size of the American market – 340 million inhabitants – should also inspire the EU. There are more Europeans: 449 million. The problem is that this appetizing internal market is fragmented. “It would be good for Europe to put in place solutions so that companies do not have to deal with 27 different internal markets, each with their own administrative constraints”, argues the DG of France Digitale. The Draghi report thus argues for unifying company law and creating a new status for innovative European companies, in order to promote the growth of start-ups.
European fragmentation also poses, according to the former Italian Prime Minister, a specific problem for the telecoms industry. “There are 34 groups of mobile network operators in the EU and only a handful in the United States or China, partly because the EU and the Member States have tended to look askance at mergers in the sector,” we can read in his conclusions. A fragmentation that makes investments in infrastructure more expensive, even though these constitute the backbone of technology. From floor to ceiling: the project that Mario Draghi is calling for is colossal.
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