{"id":1167946,"date":"2026-08-25T05:11:17","date_gmt":"2026-08-25T05:11:17","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/1167946\/"},"modified":"2026-08-25T05:11:17","modified_gmt":"2026-08-25T05:11:17","slug":"why-european-innovation-lags-behind-the-u-s-eli-kronenberg","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/1167946\/","title":{"rendered":"Why European Innovation Lags Behind the U.S. – Eli Kronenberg"},"content":{"rendered":"

In September 2024, former Italian Prime Minister and European Central Bank President Mario Draghi released a European Commission report<\/a> taking stock of the EU\u2019s slowing productivity and innovation. What he found was startling.<\/p>\n

Over the previous 50 years, Europe had produced zero companies created from scratch with a market capitalization above 100 billion euros ($116.7 billion), while in the same time span six American companies now valued at more than $1 trillion had launched. Since 2013, 137 venture capital funds larger than $1 billion had been created in the U.S., while only 11 such funds had emerged in the EU. And when it comes to cutting-edge technology, 61 percent of global funding for artificial intelligence startups went to American companies, compared with just 6 percent to companies in the EU. That\u2019s despite the EU having a larger population than the U.S. by over 100 million people<\/a>.\u00a0<\/p>\n

Taken together, these numbers paint a clear picture of a stagnating European economy<\/a> where the conditions needed for innovation and growth lag significantly behind the U.S. and China. Although Europe has had no trouble producing a substantial volume of startups, almost none have grown into globally dominant companies. In few areas is this phenomenon more pronounced than in technology-intensive sectors. The EU\u2019s share of global corporate research and development spending fell from 25 percent in 2004 to 17 percent in 2024, and that drop-off was especially steep in the electronic equipment and technology hardware sectors, according to calculations<\/a> by Italian economist Andrea Dugo. So how did Europe fall so far behind, so quickly?\u00a0<\/p>\n

\nEurope\u2019s costly fragmentation.<\/strong>\n<\/p>\n

One variable that some economists observing Europe\u2019s sluggish technology sector pinpoint is the continent\u2019s lack of a true single market and the regulatory fragmentation that occurs as a result. Differences in national regulations, taxes, and legal systems mean that a company attempting to expand across Europe often has to deal with multiple sets of rules.\u00a0<\/p>\n

\u201cEurope is like a very slow elephant,\u201d Adriana Hoyos, an adjunct economics professor at IE University in Spain, told The Dispatch. \u201cYou have European regulation, then you have the national regulations, then you have state regulations with all these completely different ways of behaving.\u201d<\/p>\n

The Draghi report found that the EU had roughly 100 tech-focused laws and more than 270 regulatory authorities who govern some facet of digital networks across the bloc, including telecommunications and data protection regulators. For example, the AI Act<\/a>\u2014the EU\u2019s comprehensive regulatory framework for AI passed in 2024\u2014imposes different compliance burdens on AI models depending on which category of risk level they fall into. Although these safety measures can be crucial to preventing abuses in areas like law enforcement, hiring, and education, some provisions may impose disproportionate costs on young technology companies.\u00a0<\/p>\n

Understanding Europe\u2019s market segmentation is especially crucial when analyzing its deficit in venture capital investment relative to the U.S. In a January article<\/a>, Harvard Business School investment banking professor Josh Lerner pointed out that Europe lags significantly behind the U.S. in both the total quantity of its venture capital spending and the return on that investment. While only a tiny percentage of total U.S. businesses are backed by venture capital, half of all American companies that have gone public in the last two decades relied on venture capital funding, and nearly 90 percent of corporate research and development spending by young publicly traded firms is undertaken by venture-backed companies. \u201cAll the innovation in the United States being done by dynamic, young, recently public companies is basically being done by venture-capital-backed firms,\u201d Lerner told The Dispatch.\u00a0<\/p>\n

While tech companies seeking to grow and raise capital in the U.S. have access to a large public market in Nasdaq\u2014a reliable aid for young entrepreneurial firms looking to go public\u2014European IPO markets are divided among smaller national exchanges. In the late 1990s, a group of venture investors launched<\/a> a Pan-European stock exchange called EASDAQ to serve as an EU-wide market, but a series of competing regional markets soon emerged and, by 2003, EASDAQ had failed to make a sufficient impact and was shut down.\u00a0<\/p>\n

The lack of a continent-wide exchange similar to Nasdaq means promising European firms looking to scale up may be more likely to move to the U.S. for better access to capital, to remain private, or to sell to a larger firm. Between 2008 and 2021, nearly 30 percent of European startups that eventually became valued at more than $1 billion moved their headquarters abroad, with the vast majority of those moving to the U.S, according to the Draghi report.<\/p>\n

Europe\u2019s difficulty holding on to its most entrepreneurial citizens and their companies is not just a matter of a segmented market, but also of a more difficult tax environment<\/a>. One example Lerner draws from is Norway, where, according to a recent paper<\/a> by doctoral candidate Christine Blandhol, an increase in the wealth tax rate preceded a rise in the out-migration rate from 0.2 percent to 2 percent for affected households\u2014and 40 percent of the departing households were active firm owners. And, between 2014 and 2024, the number of U.S. millionaires<\/a> rose 78 percent, while the number of millionaires in Germany and France grew only 10 and 7 percent, respectively, and the United Kingdom\u2019s share of resident millionaires declined 9 percent.<\/p>\n

\n

\u201cI think Europe is clearly lost [in the] technological world. They don\u2019t see the priority, they don\u2019t see how fast this is going, and they think it\u2019s something that\u2019s optional.\u201d<\/p>\n

Adriana Hoyos<\/p>\n<\/blockquote>\n

Further fueling its innovation advantage, the U.S. attracts a substantial number of foreign students to its university system, many of whom go on to become entrepreneurs. In an article<\/a> published in April, Hoyos noted that roughly 75 percent of European Ph.D. students at American universities remain in the U.S. at least five years after graduation. \u201cI have students I teach at IE, and I have students from all nationalities, and \u2026 the ones that are interested in technology, basically all of them want to go to the U.S. to work or to study\u201d for advanced degrees, Hoyos said.<\/p>\n

While tax and regulatory regimes can play a role in fostering or discouraging innovation, some have argued that differing notions of productivity also figure in. As Nicolai Tangen, the CEO of Norway\u2019s sovereign wealth fund, put it bluntly in a 2024 Financial Times interview<\/a>, \u201cWe are not very ambitious. I should be careful about talking about work-life balance, but the Americans just work harder.\u201d Indeed, labor is more strictly regulated in the EU, with the Working Time Directive guaranteeing<\/a> workers in all member states at least four weeks of paid time off per year, time that cannot be replaced by a monetary stipend. In the U.S., meanwhile, 31 percent<\/a> of workers have no paid time off, and the average American receives 11 days of paid vacation per year, just above half the European minimum.\u00a0<\/p>\n

\nCould the Trump administration provide an impetus for change?<\/strong>\n<\/p>\n

While the U.S. has historically drawn the best and brightest from around the globe to contribute to its innovation edge, whether that advantage will continue isn\u2019t entirely clear. President Donald Trump\u2019s restrictive immigration policies, combined with his \u201cAmerica First\u201d trade and foreign policy, could give Europe and the rest of the world an opportunity to close the gap.<\/p>\n

The Wall Street Journal recently reported<\/a> that the administration is weighing a $100,000 fee for all foreign students to work in the U.S. upon graduation, after a policy charging that same fee to companies seeking H-1B visas for workers was struck down<\/a> by a judge in June. In July, the Trump administration also issued a final rule<\/a> eliminating what it called the \u201cduration of status loophole,\u201d which allowed foreign students on F-1 visas to remain in the U.S. for the duration of their academic program, without setting an exact expiration date on their stay.<\/p>\n

Lerner recalled a joke he used to tell members of the Canadian government whom he advised. \u201cMy joke with them is that the first Trump administration did more for Canadian entrepreneurship and venture capital than 30 years of Canadian government policy ever accomplished,\u201d he said. \u201cWhich is to say that when you think about the great successes that the U.S. has had, a lot of that is driven by immigrants, who are just incredibly creative.\u201d<\/p>\n

Additionally, Trump\u2019s continued pressure on NATO allies to invest more in their own defense capabilities could boost European innovation, especially as the war in Ukraine rages on. The European Commission has acknowledged as much in its Readiness 2030 plan<\/a>, which could enable up to 800 billion euros ($935 billion) in additional defense spending over the next five years, including by mobilizing \u201cprivate capital.\u201d\u00a0<\/p>\n

However, according to Hoyos, European leaders will need to adopt a more fundamental mindset shift in how they approach artificial intelligence and other technological innovation before the continent can end its decades-long slide in economic influence. \u201cI think Europe is clearly lost [in the] technological world,\u201d Hoyos said. \u201cThey don\u2019t see the priority, they don\u2019t see how fast this is going, and they think it\u2019s something that\u2019s optional.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"In September 2024, former Italian Prime Minister and European Central Bank President Mario Draghi released a European Commission…\n","protected":false},"author":2,"featured_media":1167947,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[3090],"tags":[1942,51,1700,299,1699,3663,2443,1523,53,16,15],"class_list":["post-1167946","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-artificial-intelligence","tag-business","tag-economy","tag-europe","tag-european-union","tag-financial-markets","tag-regulation","tag-taxes","tag-technology","tag-uk","tag-united-kingdom"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/117154433391259604","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1167946","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=1167946"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1167946\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/1167947"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=1167946"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=1167946"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=1167946"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}