In recent years, Western European leaders have convened to identify ways to strengthen the region’s global influence. Their proposals to enhance its competitiveness and economic growth range from leveraging financial markets to accelerating investment in clean energy infrastructure. Yet one priority remains more important than the rest: technological innovation. Despite ongoing discussions about improving its technological capabilities by increasing investment in advanced technologies and improving supercomputing infrastructure, Western Europe’s policymakers have not done enough to facilitate technological growth. If Western Europe seeks to remain an important global power, it must prioritize innovation in artificial intelligence and other advanced technologies.
For more than three decades, Western Europe has lagged behind the United States and China in the development and commercialization of technology. As the onset of the first digital revolution changed the global political landscape in the mid-1990s, the United States and China capitalized on the economic opportunity the internet offered, forming numerous technological companies and applying innovative ways to incorporate digital technology into their economies. Western Europe, by contrast, proved to be less effective at leveraging these opportunities, choosing to prioritize growth in mid-technology industries. While it retained dominance in the automotive, telecommunications, machinery, and transport equipment industries, it did not achieve comparable performance in the innovative and high-technology sectors that are integral to the world economy, such as artificial intelligence, industrial and communication technologies, biotechnology, and cloud computing.
By shifting attention away from technological growth, Western European leaders helped to generate a power shift in which China has substantial influence on the global economy and Europe is struggling to compete with it in various sectors, including sectors it used to dominate, such as the automobile industry. As a result, Western Europe’s highly talented workforce struggles to compete with the United States and China in technology. They also created a situation in which many of its nations, such as Italy, have difficulty defending themselves and their American allies against Russian subversion. Without the ability to effectively innovate and commercialize advanced technologies in the military sector, Western Europe will continue to have difficulty shaping the world order to promote democracy, ensure security, and maintain global stability.
The consequences of this decision have become increasingly visible. Today, Western Europe’s political influence has declined in recent decades and its role in the world economy has become less significant. In today’s globalized, technologically-driven world, economic growth in innovative and high-technology sectors is paramount for political influence. Without a political structure that supports innovation in AI, cloud computing, biotechnology, and information and commercial technologies, Western Europe risks losing its relevance as a global power.
What the Evidence Reveals: Technological Decline and its Adverse Effects On Western European Entrepreneurs
Western Europe’s inability to be on par in technology with dominant powers is not due to a lack of talent or initiative: it’s the direct result of a combination of policies that have harmed business growth. Many have attributed this shortcoming to its politicians’ application of social-market capitalism. According to Eurreporter, “The EU’s commitment to social-market capitalism, which blends free-market policies with social protections, has led to rising taxes, more regulation, and fewer incentives for businesses to innovate or expand” (para. 5). Therefore, social-market capitalism hinders Western Europe’s ability to strengthen the enforcement of social policies while supporting business expansion and innovation.
Current EU regulations on European technology companies is arguably the most significant contributing factor to Western Europe’s lack of global dominance in technology. These regulations have made it more difficult for entrepreneurs to turn their business ideas into technological products and services after filing patents. Western Europe’s primary challenge is not its capacity to generate innovation, but to scale it. While the region generates high-quality research and has a skilled workforce, it consistently struggles to translate these advantages into globally competitive technology companies. As Mario Draghi noted, “innovation is blocked at the next stage; we are failing to translate innovation into commercialization, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations”.
Recent legislation has failed to mitigate this issue. Some attribute these policies’ shortcomings to the European Union’s prohibitive approach to innovation, which enables the government to manage and preempt entrepreneurs’ problems related to business expansion and innovation rather than let them figure out the methods that will work for their businesses. The Digital Markets Act is an excellent example of how the EU regulates technological innovation in a restrictive manner. As Schneider explains, "Initiatives like the Digital Markets Act illustrate the EU’s intent to dictate technology companies’ behavior, imposing extensive rules to forestall potential problems rather than letting these problems be resolved as they emerge”. This enhanced bureaucracy has created a situation in which many Western European-owned technology companies are not given the opportunity to resolve their business problems related to expansion and innovation. Therefore, strategies for enhancing Western Europe’s technological growth must prioritize reducing regulatory barriers on businesses over enforcing the current regulations on technology companies.
Western Europe’s current political priorities have also contributed to its technological decline. Throughout much of the 21st century, its leaders have focused on creating and enforcing social and environmental policies, oftentimes at the expense of European business growth. As they prioritized the implementation of social welfare, climate change and green agendas, and policies aimed at facilitating migrant integration into European society, they paid insufficient attention to helping its workforce drive economic growth through the creation of breakthrough technologies. These policies have generated negative impacts on European technology companies, such as increased compliance costs and a struggle to meet the EU’s environmental and human rights supply chain standards, and have delayed business growth and innovation in several nations.
From Lagging Behind to Thriving: How Western Europe Can Support Future Technological Innovation
Politicians, scholars, and other professionals in policy circles have highlighted a wide range of solutions that could enhance Western Europe’s technological development. Many emphasized the importance of restructuring how the European Union operates to facilitate technological innovation and help Western Europe’s entrepreneurs commercialize their products and services. In their working paper for the European Central Bank, Jonathan Bothner, Paloma Lopez-Garcia, Daphne Momferatou, and Ralph Setzer argued that improving the quality of Europe’s institutions and reducing regulatory barriers on technological businesses are paramount for strengthening Western Europe’s technological growth, arguing that less bureaucratic governmental organizations and less barriers to technological growth in innovative and high-tech sectors can generate technological influence.
European institutions are beginning to recognize the adverse consequences of recent legislation on Western European-owned businesses, including technological companies. For example, the European Parliament’s Commission has created proposals in favor of dismantling red tape on businesses and making legislation less complex for businesses to reduce bureaucracy in the European Union. Additionally, the European Central Bank emphasized the creation of policies that increase business entry into product and services markets and facilitate companies’ ability to use certain technologies and data, explaining that creating policies that do the opposite “can hinder the adoption of new technologies by increasing costs for new high-technology firms, therefore reducing competition and constraining technology spillovers”. Others have discussed the importance of increased business engagement in Europe’s research and development sector. According to the German IFO Institute, the European Union is behind in research and development because business engagement in this sector has decreased. As Schitzer explains, “This is also reflected in the data illustrated by Eurostat. In 2020, the business expenditure on R&D accounted for 1.2% of the EU’s GDP, while US expenditure was double that” (para. 4). Western Europe still provides insufficient funding to its research and development sector, continuing a cycle in which its entrepreneurs struggle to help Western Europe become a global technological power.
The Time For Western European Technological Leadership Has Arrived
Western Europe’s technological challenges stem from a combination of policy choices, including a focus on growth in mid-technology industries, regulatory complexity, and reduced government support for technological companies. Addressing these issues will require a variety of targeted reforms that reduce barriers to business expansion, strengthen private-sector investment in research and development, and prioritize leadership in innovative and high-technology sectors, such as artificial intelligence. Without such changes, Western Europe risks losing its geopolitical influence in an increasingly technology-driven global economy.
