A review of European dynamism
A review of European dynamism
An exploration through cultural lens
Context
Last month, Mario Draghi published report The future of European competitiveness, compiling concerns and strategies for solutions. Select stark highlights that stand out:
In the last 50 years, no company with market cap of $100B+ was started in Europe, while all 6, $1T+ companies in the US were founded within this period.
During 2008-21, 30% of the unicorns from EU left the continent, primarily for US.
EU has only 4/50 of the world’s top tech companies; imports 80% of digital tech.
For the past 50 years, there has been a general trend of broad technological stagnation across the Western world, but the US was able to make immense progress in the narrow realm of digital technologies on the back of Bits despite missing out on Atoms (although that too is catching up with Tesla, SpaceX, etc).
But across the EU, 0 → 1 type vertical innovation has disappeared in contrast to 1 → N type horizontal globalization across the board in science, technology, and business.
Most analyses exclusively focus on the structural EU regulatory+policy+capital environment to explain this - which is true to an extent. A deeper undercurrent can be felt in culture such that spending time anywhere in EU, it’s hard to sense dynamism.
Factors
I first visited Europe in 2016 and in the last 8 years have split time as worker and entrepreneur, primarily in Finance and Technology industry while interfacing with a range of people, companies, and industries from around the EU. Although primarily based in Netherlands, traveled to each EU country to host/meet folks across spectrum.
This has offered a broad sense of macro and micro realities at play in the ecosystem. Factors mentioned below primarily have sparks in the Dutch ecosystem, but broadly they seem to generalize across the continent bound within reasonable deviations.
Civilizational fatigue
Modern world can entirely trace its systems - economy, science, technology, politics, legal etc - to European roots. A series of goldilocks conditions led to Renaissance, seeding a culture that made Europe epicenter of the world for the past 500 years.
That spirit among states perpetually kept the continent warring for supremacy and by the mid-20th century racked death toll of 100M+ people and arrival of nuclear bomb.
First time in the history of humanity, a tool had arrived with capabilities to harness the power of destruction of planetary scale. The entire continent seems to have internalized that the next stage of progress might be staking civilizational existence.
This is visible in the scientific/technological epicenter shifting away from EU to US partly due to strategic US policy maneuvers, but also partly due to a shift in mindset.
This is also felt in media and literature with WW2 still being the dominant theme and the new technological invention a certainty to end up in dystopia rather than a utopia.
Suddenly, keeping eccentric geniuses occupied puttering around bureaucratic process compliance doesn’t sound that bad if it can make annihilation of planet less likely.
Forfeiture of global ambition
The risk appetite of colonial era Europe has to blow one away. Go across the ocean without knowing whether a ship will fall off earth’s edge in search of glory & legacy.
Empiriliasm wreaked havoc across the world ending up subjugating native populations and economies with leaving behind death and destruction on all sides.
It must’ve also taken immensely ambitious spirit for a handful of young men without communication methods to get back up from home, months on windy oceans in a stretch to takeover continents and build enterprises that’d shadow modern megacorps.
Europe suffers from its success and maybe that’s the inevitable nature of humanity that it’s driven by needs rather than wants beyond which only a tiny fraction of the populace would continue to drive society despite creating equality of opportunities.
As EU optimized a utilitarian system for average people of society, it didn’t turn into a stepping stone to excellence but a cultural acceptance of the average became the norm.
In almost every EU language, there’s an equivalent saying that suggests to be normal.
This shows up in mimetic behavior all around, morphing tolerance into target.
Doe Normaal — A dutch phrases saying be / act normal
Even young people don’t think of their pursuits in global terms - accepting the default boundaries of their native language or country - implicitly shrinking the size of canvas.
Absent visions of grandeur, society stops even imagining things that can’t be linearly modeled on a spreadsheet from the get-go; crushing that eccentricity or weirdness in its crib which is essential for making the world move forward.
Eg. Booking.com is largest travel company in the world, founded at right time of internet evolution (1996) in right place (Europe, epicenter of global travel, accounts for +50% share). In 2005, founders sold it to US ownership for $140M who went on to grow it into $140B entity; could’ve been 3rd largest company domiciled in EU.
Contrast this to a culture where 20yo Zuckerberg can decline Yahoo’s offer for purchase still 2yo unproven Facebook for $1B despite every expert pushing to take the deal because of conviction in it’s potential. Today its worrth $1.5T.
Loss of risk appetite
European countries have built probably the best social security nets for their population in the post-war world in pursuit of making each life equally valuable.
This has created a dynamic where no one should suffer at any point which unfortunately might eventually result in everyone suffering at the same time.
From an individual perspective, this is an ideal society to strive for, but causes conflict with human behavior that prioritizes loss aversion vs potential gain at 2x odds; hence turning into a society that needs way more incentive to sacrifice today for probable future gain when existential risk is off the table & median life is already good enough.
In practice, this makes Carpe Diem the zeitgeist where people prioritize present over promise of a better future; trickling into talent, capital, organizations in myriad ways.
You start a company that copies a proven business model.
You’d rather tinker at failed edges of string theory than radical physics.
You’d receive -ve interest on your capital than invest in high potential startup.
You’d rather get extra cash than 10x potential of equity stake in growth company.
You negotiate for additional vacation days over promotion for higher potential role.
You cut down workweek to 3-days a week to work remotely, chilling by the beach.
This isn’t exclusive to native population, but finds its way to immigrant population too. Even at high skill end, despite the context of immense work ethic, higher merit and risk taking atitude that brings them to continent gets normalized down to mean.
Meaning of life
Essence of European charm is the way of life from the old world. The same essence makes the core values of life very lindy against change as it could afford to not act with a sense of urgency when it has had huge relative success for many centuries.
A core purpose of technology is to do more with less. This tends to disrupt the status quo via process of creative destruction causing rise of new adopter & decline of old.
This conflicts with the culture with a long history that aims to preserve continuity.
Immigration: assimilation, non-native upward mobility
On one hand, EU nations have a clear history of ethno-linguistic unified states with 1000+ year histories but on the other hand, the modern liberal democratic setup has enshrined tolerance towards multiculturalism in respective constitutions.
Although the result of this core conflict has only started to bubble up recently when paired with a massive spike in refugee crises, it is also inherent in skilled immigration.
Europeans are tolerant of immigrants but beyond language and bare etiquette of society, distinct communities stay disconnected even after multiple generations.
It’s not uncommon to see people from those communities living in respective zones, following their original customs & primarily identifying with their ethnic country.
A similar phenomenon occurs at the skilled migration end. Whereas 55% of US unicorn startups have an immigrant founder (majority of them 1st generation), it’s extremely rare to see non-natives find massive success in EU countries, and maybe a root cause of lack of dynamism; an often cited explanation for the US ecosystem.
This may be self-sorting at play where immigrants who choose an EU country over US have a lower risk appetite or entrepreneurial spirit - given exploration of frontiers tends to happen in the leading nation of the era, Anglo world for the past 100+ years. Or, there is a glass ceiling to start/run key positions within these cultures for people coming from different ethno-linguistic backgrounds, squandering that potential.
Fragmentation: Culture, Jurisdictions, Markets
A major go-to-market advantage for companies originating in the US is they directly get to tap 500M+ people in 5 countries originating as forks of parent Anglo culture.
Even though there are subtle differences across them - a common thread in English as lingua franca and English common law as the basis of the legal operating system allows things to permeate smoothly.
By the time they start expanding beyond, the product has sufficient momentum and network effect to break through the barriers in the rest of the world and get adopted.
European Union’s core purpose is to defragment constituents and enable a unified front. It did so first with people followed by currency but hasn’t made further progress.
As of now, there is lots of diversity across member states containing their respective 1000+ years of history showing up in legal structures and culture followed in academic and corporate institutions essentially blocking nodes from interacting across the borders in the scientific, technological, and business avenues.
This essentially means every product/company has to start from scratch in each country, all sub 100M population, making it tricky for ideas to permeate organically.
However, the existence of distinct states is the essential charm of continental life and has enabled heterodox experiments to take place in respective sandboxes historically.
Although union of capital and corporations across EU member states has been floated.
Circular ecosystem gap: Research, Capital, Commercial
Ever since the Silicon Valley success story became apparent, every country has attempted to kickstart their native version, only to meet with a limited success.
An essence of what created the Bay area ecosystem is a tight loop between Government (Defence funding), University (Scientific research), Capital (equity), and Entrepreneurs (commercialization) - all participants move freely between entities, enable cross-pollination at the frontier of their respective fields in a win-win setup.
Despite knowing this recipe kickstarting this boom loop is extremely hard because you need to build world-class institutions in every single vertical - where none of them would be effective until all of them are in place in a catch-22 scenario.
Contemporary EU orgs have declined in their global standings, being ceded by the ones in US / China, sending it to 3rd tier competition in each redspective vertical.
Work rules of engagement
Many effects can be explained by atypical rules of engagement in an EU workplace, which especially stand out if your original training is in a US-oriented environment.
› Work ethics
Almost at all levels of positions, people maintain work to live attitude vs making work their primary identity - which is often the 1st question you’d get asked in US setting.
This is apparent in meager workforce engagement (EU average is 14% vs 33% in US), and hours worked (Largest gap between German vs US employee at 57 days / year).
These can be subjectively observed in Friday sick leaves or 5 PM disconnects too.
Each of them may be an anomaly on their own, but together they don’t add up.
Despite the historically best entitlements in place, people choose to spend their time neither on things of interest to them personally, nor of value to others.
› Management culture
Despite decades of well-established management literature and experiments on top of them, management style across EU native organizations seems stuck in 20th century.
Top-down hierarchical orgs remain the norm with the executive class retaining most decision powers in practice even though superficially espousing modern proverbs.
In turn, this attracts employees self-selecting for roles without responsibilities for results and focus on the inputs as counter vs outcomes.
In tech thesis of Product vs Feature team , EU orgs predominantly fall in the latter.
People with core product skills (Research, Engineering, Design) are still part of cost center instead of entire reason for company’s existence and most orgs continue to be run by professional business managers (consultants, sales, marketing) - stark contrast from technical+founder+ceo model at the heart of storied Silicon Valley success thesis.
This is also apparent in compensation patterns of native companies of EU vs US.
I started a new team to tackle domains that wasn’t focus within a company. After a bit my team was ~3x productive than norm while crushing on the KPIs - acknowledged by others too. But, on asking my manager for more responsibilities and in turn bump in compensation - it was clarified that wasn’t needed (it very much was) and stick to the lane because it was disruptive - finally lead to exit.
In this setup quality of talent deteriorates with distance of layer from top opposite to the needs. It’s further enforced by broad ownership of employees in captable still not being the norm as management and employees maximize for themselves equity and cash respectively - misaligning the culture within company away from unified goal.
› Terms of employment
EU has strong employee rights to protect workers against all sorts of downsides, which is another case of good intent giving rise to unintended side effects.
Until I moved to EU, I assumed that besides company-specific clauses all employer-employee relations carried the same spirit in a free enterprise setup - negotiate terms, sign a contract, and continue until either doesn’t need or wants it anymore.
Such At-will employment is considered to favor employers, solution came as permanent contracts endowing employee rights to lifetime employment, where employer has to literally prove employee incompetene beyond pale to fire them.
This brews an entitlement where worst kind of employees expect to get paid from their employer even when employer might find the relation not useful for any specific reason; not too distant from a hostage situation and reflects in the general psyche.
I witnessed this when a person wasn’t performing competently with 7 months left in his contract, blocked the entire team’s progress and everyone wanted action.
Management responded this would only last for few short months left in his contract and he’d intervene by shadowing him to move things along instead.
Idea that in 6 months he’d waste dozen-man years of team; even paying off entire contract to fire him might be the better option was rejected; Played out as expected.
Temporary contracts were conjured with 3 maximum extensions possible with a mandate to convert into permanent afterward. Another unwritten practice to terminate employment after 2 temporary contracts became common to deal with it.
All these dynamics play out as defensive mechanisms when merit to deliver outcome stops being the primary metric and regulating the inputs to equalize is the only option.
More competent people in the ecosystem respond by finding ways to opt out of the burden of incompetence by shifting away from group risk to individual risk.
In practice, it is reflected in booming numbers of self-employment and 1-person companies, a vast set of which consult / contract for single clients and in their essence are maneuvers to maximize their net earnings by opting out of socialized risk.
Regulatory compliance state
In liberal democracies, governments used to contribute a tiny fraction to the national economy with a focus on the internal rule of law and geopolitical security.
WW1 sparked a desire for a strong administrative state to tackle stateworthy concerns and entrenched the need for it by the end of WW2. Additionally, central states were able to prove their competence by delivering on nuclear bomb and moon landing.
As with any successful entity, western governments started to expand in the post-war era. They did it by claiming an increasing set of concerns as the state being the optimal solution, despite a market-based solution would have worked fine or better.
This is reflected in government spending as a share of GDP across the countries in western countries, rising from historically under 10% to crossing above 50% now.
This outgrowth today is shackling the EU by involving itself in every facet of life, switching from the role of referee to an active player in the field and becoming a nanny state that’s determined to prevent anything wrong by tightly controlling the processes instead of ensuring delivery of its promised results.
It ends up incentivizing being a member of the consumer class over the producer class.
How does the regulatory state play out in practice if want to build on an idea?
Starting/Running a company means going through a series of lawyers/notaries, consultants, auditors/accountants even for the standard set of incorporation deeds, share issue, employment, fundraising, taxation, and reporting requirements - most of which can be done by automated software in the US at $500 while it would take weeks of paperwork hassle while costing €5000+ to just get things started.
In NL, If a startup wants to hire an immigrant, they need to become a recognized sponsor via establishing corporate health (revenue, capital, structure), employer compliance (hours, wages, conditions) - will take months in the processing period and still might not certify after rounds of back & forth due to minor divergence.
But, same startup can go to a shell payroll company without standalone revenue, and hire that employee because they can show compliance on paper; wrecking startup finances by bumping personnel cost by +50% in stacked service fees.
Centralizing more and more responsibilities also primes it for capture by vested interests or ideologues. Beneficiaries of the status quo will display luddite behavior that protects their class in the short term, damaging everyone in the long term.
This morphs the starting point of discussion from what’s possible to what’s allowed.
Recently, EU enacted directives with the hope of regulating its way to the top. Cases:
GDPR intends to ensure people’s digital privacy but resulted in no global internet product from the continent while everyone is left accepting cookies on the internet.
AI act intends to ensure AGI is developed responsibly while not having a single entry in the leading 50 companies in the domain active on the continent.
ESG ratings intend to incentivize green technology developments, resulting in just financialising carbon credits while China becomes the actual leader in R&D with climate change ideologues taking over with degrowth and anti-nuclear stance.
Conclusion
In 2000, EU got together and created Lisbon strategy to make EU leader in the upcoming digital economy, created reports, held meetings and signed agreements.
By 2010, EU acknowledged their plan had utterly failed to achieve objectives and wet ahead to Europe 2020 for next focus on “smart, sustainable, inclusive growth”.
As painfully obvious to clear-eyed observers - bureaucracies don’t fix themselves until an exogenous event, typically a crisis or war, resets the system. And even if it happens, it’d require cultural awakening among the masses, and political will to get back to the free enterprise roots of capitalism on top of which liberal democracies hinge upon.
When I first moved to Europe, I didn’t know anything about the continent, expected it to be America-lite and goodness of quality of regular life impresses me immensely.
Desipte my efforts to carve out a pocket to attempt things by gathering a set of people, learning was that doing things against broad cultural environment just doesn’t work.
EU citizens along with officials are at least acknowledging the current decline in relative prosperity, impending deterioration in the absolute quality of life amid an aging population, decreasing productivity, and shrinking workerforce.
Current ways of life won’t sustain without taking immediate radical action now.
Otherwise, Europe won’t go out of history with a bang but a whimper.