As we speak, the biggest corporation in Europe is Novo Nordisk, the producer of obesity drugs, and LVMH, the luxury goods producer, comes second. The market capitalisation of both companies is six times smaller that of the US leaders – Apple and Microsoft. Does this mean that Europe is less innovative and less expansive, businesswise?
Europe has several advantages. But, it still lags behind on a number of issues compared to the US. The major success and the major advantage of the US, in my view, is basically that it’s using, it’s taking advantage of educated personnel, people from all over the world, and manages to integrate them in a very smart way and contribute towards a success of the economy. Alongside the institutional and regulatory framework, which supports the development of ecosystems like Silicon Valley and similar ecosystems and clusters, it creates the context which allows companies to grow. But, that is also not just that, there is also the culture – it’s a culture that “I have to fail in order to succeed,” “I have to learn from failure,” and it’s also a culture which, interestingly enough, it was encapsulated in the film you might have seen about Facebook called The Social Network – when the founder of Facebook was thinking about selling at the valuation of one million, one of his advisers, colleagues, friends, said “Not one million – one billion.”
It’s a different scale and it’s a different culture. In Europe and in Britain, we’re in a situation where successful owners, successful entrepreneurs feel quite happy once they have reached a valuation of ten million, twenty million, thirty million – enough money to have a very decent life for themselves and their children – to sell. And this is not, this is something which Europe can do a lot to improve. Of course, it is not just that. It’s several factors – it has to do with geopolitics, it has to do with integration, differences within Europe, also the fact that we are very near conflict areas unlike the US, which is very-well protected. But, from a purely economic point of view, I would think these are the main advantages.
So, does Europe need a better immigration policy, for example?
That is a very interesting point, and I think it does. It’s important to be able to integrate in a way that promotes multiculturalism, but in a way that integrates this multiculturalism, and this is the challenge – to actually feel European, and feel that you owe and you contribute to Europe.
But, there is no such state as the European Union. There is a state of the United States of America. That’s the difference, I think.
Well, this is a limitation and it will remain a limitation. And also, I mean, if we take it even a step further, there is even competition within European countries how to minimise what they consider bad immigration, and what to optimise, and what they consider good immigration. So, all of these issues need coordination and need a different perspective to this. We have to learn from the US.
But, you mentioned that Europe’s approach has also some advantages. Maybe it’s better from the social point of view, because the US economic model has some side effects such as creating digital monopolies. How dangerous is this phenomenon and how do we counteract it?
You are raising two issues – both of them are very important. I think one of the advantages for Europe is the social model and we must do as much as we can to protect it. As you know, in the US sometimes it feels like the winner takes it all and that may leave some people disenfranchised, and that can create phenomena like protectionism, populism and all of these issues. And then, as you very correctly pointed out, one of the huge advantage can become a disadvantage from a global perspective, and this has to do with global digital platform-based firms. Now, these firms, because of their power and because of their scale, and because of their rents, as we call it in economics, that they create and they transfer back to the country may actually turn their country of origin to be more lenient towards antitrust policy and towards taking steps to achieve workable competition which fosters innovation.
And, in fact now there are many leading scholars all over the world, in America, from top schools like the Chicago School, etc. who are claiming, who are referring to what they call the killing zone, whereby these very powerful companies sometimes can buy competitors before potential competitors before they become competitors, or even complementors to potential complementors to their competitors so that they don’t challenge them. And sometimes you see companies buying other companies with huge valuations which look extra-terrestrial, out of this world, but when you think in terms of this new game of competition – and basically they make sense. Now, consider the successful example Facebook had with buying companies like WhatsApp or Instagram. So, these are issues and it raises challenges for Europe, and Europe is responding well in terms of antitrust policies. It could do much better in terms of actually developing its own competitors and similar companies that can challenge. It happens to a certain extent, but not sufficiently.
And lastly, I want to ask you: which side of the transatlantic trade dispute are you on? Should investment in green technologies, for example, be encouraged by giving company tax breaks such as those in The Inflation Reduction Act in the US, or should it be like in the EU way – business bearing the costs itself only reduced with subsidies?
I think one of the challenges with subsidies is that what we observe is that subsidies towards green technologies have not led to a reduction of subsidies towards fossil fuels, and to a certain extent there seems to be a complementarity between the two. So, it’s a very challenging question. I’m not sure I have a full answer, or I could take sides between the two things. But, one thing for sure is that there is a perception that green technologies are to a certain extent being captured or taken over by non-green companies. So, this complementarity between, on the one hand, subsidies to fossil fuels and subsidies to renewable energy alongside the fact that some of the traditional fossil fuel players are actually rendering green technologies is creating a very interesting landscape which needs a lot of thinking and smart regulation.