The future of Europe is at stake. It's time for more Tech, less government.

Europe is at a crossroads. The challenges we face are unprecedented: Energy transition, mobility, housing, food security, healthcare and an aging population. What’s more, we’re seeing a worrying trend of people voting for extremes, whether on the left or right. This often translates into increased government interference, less liberalism and more state intervention, which undoubtedly hinders technological advancement. Europe must pivot towards encouraging private investment in technology to avoid falling further behind Asia and the United States in technology development. I’ll tell you why more tech and less government is the answer.

The Inefficiency of Government Intervention

It is the duty of governments to create a framework that fosters innovation and allows private investors to deploy capital effectively. However, when governments overreach by directly intervening or overregulating industries, they stifle innovation and efficiency.

The European Commission's approach to artificial intelligence (AI) is a prime example of this. While the intentions behind regulations like the AI Act are to ensure safety and ethical standards, it is clear that overregulation can kill an ecosystem before it takes off. The EU's imposition of stringent requirements and bureaucratic hurdles risks stifling AI innovation and driving talent and investment to more lenient jurisdictions.

Let's consider the case of the European Union's Energy Efficiency Directive. This initiative aimed to improve energy efficiency across member states, but it resulted in a complex web of regulations that many businesses found difficult to navigate. This led to significant compliance costs and, in some cases, deterred investment in innovative energy-saving technologies.

Private investors, driven by the need for returns, are inherently incentivised to allocate resources efficiently. They back projects with the greatest potential for success and innovation, driving technological advancements that can address our most pressing challenges.

Recent historical technological advancements funded by private capital

History is replete with examples of groundbreaking technological advancements funded by private capital that might have been stifled by government regulation.

1. The Internet: The government funded the initial development of the internet. However, it was the private sector that transformed this technology into the world-changing tool it is today. European companies like Spotify and Skype have revolutionised how we live, work and communicate. They did this by being funded by private investments.

2. Electric Vehicles: Tesla, an American company, has had a significant impact in Europe. It demonstrates how visionary private investment can drive innovation. Tesla overcame initial scepticism and significant regulatory hurdles thanks to private funding, allowing it to innovate rapidly and pioneer breakthroughs in battery technology and electric vehicles that are now popular across Europe. Tesla seized a significant market share in the EU because European car manufacturers, historically market leaders, were not incentivised or helped by governments to defend their position. European regulations imposed stringent emissions targets and deadlines without offering the industry adequate time to adapt. This blind imposition of legislation within too short a timeframe left traditional manufacturers struggling to catch up. Tesla, already positioned as a leader in electric vehicle technology, capitalised on the opportunity to expand its market share.

3. Biotech: The biotech industry in Europe has seen tremendous advancements, thanks to private capital. For example, BioNTech, a German biotechnology company, used private investment to develop the first mRNA-based COVID-19 vaccine in partnership with Pfizer. Despite early regulatory challenges, private investment enabled BioNTech to innovate and bring life-saving therapies to market, transforming healthcare.

Taxes: A cash out that hinders innovation

Taxes are essentially a cash out from the private sector. The money collected is often ineffectively redeployed by the government. This inefficiency represents a clear loss of funds that could have otherwise been invested in innovation. When capital is taxed heavily, it diminishes the resources available for private investment, which is crucial for technological advancement.

Governments must focus on creating tax incentives to stimulate large-scale technology investment. By reducing the tax burden and providing incentives for innovation, governments can encourage private investment in new technologies. This will create extra value over time and allow governments to operate on lower tax rates while remaining at the forefront of creating prosperity for their citizens at all levels.

Lower taxes lead to higher private investment, which in turn fosters technological innovation and wealth creation. When individuals and businesses keep more of their earnings, they have more capital to invest in new technologies and ventures. This creates a virtuous cycle of innovation, job creation and economic growth.

The United Kingdom's significant tax reforms during the 1980s, spearheaded by Prime Minister Margaret Thatcher, led to an era of substantial technological innovation and economic expansion. This led to a surge in investment in research and development, which in turn gave rise to the information technology sector and a plethora of other technological breakthroughs.

Europe must learn from these examples. By reducing the tax burden on businesses and investors, European countries can stimulate private investment in technology, driving innovation and economic growth.

AI Overregulation

The European Commission’s overregulation of AI serves as a cautionary tale. While the intention is to guarantee ethical AI development, the consequence may be the opposite – stifling innovation and driving talent away from Europe. The AI Act, with its complex requirements and heavy compliance burdens, will undoubtedly create an environment where startups and investors will hesitate to engage in AI development.

Europe must focus on creating a balanced regulatory framework that protects citizens without hampering innovation. Europe must encourage private investment in AI. This will not only lead to technological advancements but also position Europe as a leader in the global AI race.

The potential of robotics and the opposition from unions

Robotics is another frontier where technology promises transformative change. Robotics will revolutionise industries from manufacturing to healthcare. It will drive efficiency, precision and cost savings. However, the rise of robotics is facing significant opposition, particularly from labour unions concerned about job displacement.

This opposition is reminiscent of the 1886 strikes in the Borinage region of Belgium, where coal miners protested the mechanisation of the mines, fearing job losses and wage cuts. While their concerns were valid at the time, history shows that mechanisation ultimately led to increased productivity, economic growth, and improved working conditions. The initial resistance was misguided.

History is repeating itself with robotics. While concerns about job displacement are valid, it is clear that robotics can lead to the creation of new industries and job roles that we cannot yet envision. For example, the introduction of robotics in manufacturing will undoubtedly increase productivity, reduce costs, and improve safety. This will lead to higher economic output and the creation of new jobs in robotics maintenance, programming, and oversight.

Furthermore, robotics can and will address some of the critical challenges we face today. Robots can assist in surgeries with greater precision, perform repetitive tasks, and even provide companionship to the elderly, enhancing their quality of life. Robotic systems can increase yield and efficiency in agriculture, addressing food security concerns. 

The conclusion is clear: Empower private investment

As we look to address the grand challenges of our time, it is clear that the answer is not more government but a better framework that empowers private investment in technology. Governments must create stable, transparent, and conducive environments for private investors. This includes protecting intellectual property, reducing bureaucratic red tape, and ensuring fair competition.

By embracing a model that limits government intervention and maximises the potential of private capital, we will drive technological advancements that will create a more prosperous, sustainable, and equitable future for all Europeans. The solution to our challenges lies in the ingenuity and resourcefulness of the private sector. It's time we let it flourish.

written by Jeroen Maudens

Jeroen Maudens is an M&A advisor I Partner at ONEtoONE Corporate Finance an international mid-market investment banking group, and a mentor to the Silicon Valley based Founder Institute