Why is Europe lagging the USA and China in Artificial Intelligence, Cloud, Semiconductors? To what risks on competitiveness, on unemployment, on security does it expose Europe?
What can be done?
Pierre-André Chiappori, Professor of Economics, Columbia University, Member of the French Académie des Sciences Morales et Politiques
In the field of digital technology, Europe stands out for the astonishing modesty of its contribution. No European Alphabet, Microsoft or Huawei; whether we consider research and development budgets or the number and importance of start-ups and other unicorns, the mediocrity of European performance (excluding Great Britain) is glaring. How to explain this weakness, which is particularly worrying in the current context?
Unlike the many authors who have studied the issue, Oliver Coste has a triple experience – senior civil servant, senior executive of a large group and founder of start-ups; suffice to say that he has, in the overall game, successively held all the roles, which makes his analysis unavoidable. And the main conclusion is clear: in France as in Germany, the cost of possible failures – which, like it or not, are the fate of four out of five attempts at best – is a total deterrent.
The European failure is not the product of any cultural bias. It is the outcome of social systems which, by favoring prudence, even risk aversion, generate so many obstacles to a 'creative destruction' more than ever at the heart of any innovation.
May this lucid work, uncompromising and remarkably well documented receive the audience it deserves!
Marc Onetto, ex-Senior Vice President Operations and Customer Service at Amazon.com
Oliver Coste combines three experiences that explain the strength of his conclusions: executive in the French administration, executive in a large company and founder of a start-up. Yes, it is the cost of failure, generated by the social cost of restructuring, that severely handicaps the creation of great hi-tech successes in Europe and particularly in France. And this problem, while it has a limited impact on a start-up, has on the other hand a substantial impact on new technology risky investments by large companies in the acquisition of start-ups or in internal development of new technologies.
To illustrate this point, Oliver describes very well what I personally experienced at Amazon. Internal risk-taking has been at the heart of Amazon's development of new technology, from cloud computing (AWS) to the digital book reader (Kindle). Of course, Amazon also made technological bets that failed (Fire phone, auctions like Ebay) but the cost of failure was limited to the amounts invested and contained no social costs associated with the dismissal of engineers and other developers who quickly found new positions outside the company or in other technological developments within the company.
Gilles Babinet, co-chairman of the French National Digital Council
Despite significant efforts made in recent years, Europe and France are not on reassuring dynamics in terms of digital technologies. Between 2005 and 2019, the share of French digital R&D in the world fell from 6 to 2%, Germany does even worse, from 8 to 2%. Whether you count Unicorns or invested venture capital, the figures, even in strong growth, are on a similar trend: they fall in proportion to the international environment. This is even more worrying since both China and the United States have perfectly understood that economic, military and geopolitical domination would necessarily go through digital technology in a time scale that can be described as short: a few years, one or two decades at most.
Oliver Coste, a former member of the French Prime Minister’s office in charge of industrial issues and now an entrepreneur based in New York, publishes an uncompromising analysis of the French and European situation, and sets out a list of recommendations of what to do to get back in the race.
MR P., on amazon
Having had the chance to experience a good part of the events recounted in the work up close, I devoured this book. All the facts are very real, and these paradigm shifts and a certain European apathy in addressing them deserve real reflection. The author's position initially seemed a little provocative to me, but ultimately gave me a lot to think about and recognize a real subject to address. I highly recommend this book.
Bertrand Mabille, on amazon
The analysis of European delay is precisely documented: the figures are abysmal. This should serve as an electric shock and raise awareness of the strategic and economic dependence that this delay generates. Europe is preserving its achievements to the detriment of new technologies and it is not a few unicorns that will change anything: the engines of the industrial revolution of the 21st century are elsewhere. This observation must now be the subject of an in-depth economic analysis so that the necessary transformations are initiated at the political level. A “must read” for anyone willing to open their eyes!
Michel A. Perez, on amazon
An intersting and thoughtful analysis of why the EU is lagging behind the US in AI development.
Summary
The world is experiencing a third industrial revolution, that of Information and Communication Technologies, Tech. The first industrial revolution, which emerged from coal around 1800, gave the European powers a major technological lead and the colonization of the world. The second industrial revolution, stemming from oil and electricity around 1900, was at the heart of both world wars and saw the United States and Japan join Europe in the race for innovation.
In the last 20 years, Europe has dropped out of the pack in Tech. The third industrial revolution is happening in the United States and China. Investing 5 times less than the United States in Tech, Europe is considered out of the game. Apart from certain niches, there are no European champions. Its startups do not disrupt industries. There is no European Google.
The main obstacle today is the European consensus on employment protection laws. Continental Europe punishes risk taking and failure. It stops investments in innovative and risky projects, which are the engine of this industrial revolution. It anesthetizes disruptive innovation and diverts economic actors from the third industrial revolution, which is inherently unpredictable and volatile.
Therefore, since the 1970s, Europe has specialized in mature industries, resulting from the second industrial revolution: automotive, chemistry, aeronautics, energy. Tech companies avoid Europe. Venture capital funds invest only secondary amounts.
This weakness in Tech is deeply damaging to Europe’s economy, its businesses, its jobs, its standard of living, its sovereignty, its collective security. The threats on Europe are increased by China’s ambition, its growing confrontation with the US on Tech, the risk of war, cold or hot, between these two dominating powers.
Europe has all the assets to get back in the race. Its democratic institutions guarantee political stability, unlike China or Russia. Regulatory frameworks ensure legal certainty for economic actors, unlike China. The infrastructure is excellent, unlike India. Governments and courts are not corrupt. The freedom of enterprise is real. The schools and universities are solid. Engineers are competent, teams work hard.
Eliminating this hurdle is not a challenge to the European social model: Europe must continue to compensate the unemployed, train young and old free of charge, and ensure the health of all. Europeans don't need to become Americans to innovate. But they must stop jeopardizing risk taking and punishing failure. The Danish flexicurity model is profoundly European and would be perfectly suited to the needs of industrial revolutions. In addition to Tech, Europe's presence in the energy transition may require this same reform.
Once this hurdle is eliminated, Europeans will be able to set ambitious goals, at the level of the United States and China: Europe will multiply by 5 private R&D in Tech, from 40 bn€ to 200 bn€ in 10 years; Germany will multiply by 8 private R&D in Tech, from 6 bn€ to 50 bn€; France will multiply by 8 private R&D in Tech, from 5 bn€ to 40 bn€.
Europeans achieved together the common market and the single currency, which were far more ambitious projects. Collectively, they can come back to the edge of Tech and innovation. It's possible. It is necessary. Let's do it.
Table of Contents
1. No European Google!
2. Tech and War
a. The US - China confrontation
b. Industrial revolutions and wars
c. The American dominance of tech
d. The future pillars of tech
e. Tech and power
3. China’s surge in tech
a. The “century of humiliation”
b. Telecoms
c. China’s ambitions
4. Europe, tech and R&D
a. Total R&D by continent
b. Company R&D, all sectors combined
c. Company R&D in tech
d. Tech champions
5. Startups in Europe
a. Unicorns
b. The amounts invested in startups
6. Launching projects: Europe or USA?
a. Mobile TV
b. A pan-European 4G operator
c. Video chat for e-commerce
d. Why does it start in the US?
7. The practice of restructuring
a. In the USA
b. In France
c. Restructuring costs in France
d. In Germany
e. In the rest of Europe and of the world
8. The industrial impact of restructuring costs
a. Hiring freeze
b. Alcatel
c. Atos
d. Siemens – Unify – Atos
9. Investment decisions
a. Incremental Innovation and Disruptive Innovation
b. The example of WiMAX
c. Investment decisions in tech
d. Innovation inside GAFAM...
e. Venture capital investment funds
f. Motor racing
g. Synthesis
10. The specializations of the continents
a. The French champions
b. The German champions
c. The American champions
d. European champions
e. Chinese champions
f. The Japanese champions
11. Other causes
a. Entrepreneurial culture
b. Market fragmentation
c. Regulation
d. Social contributions and taxes
e. Competition policy
f. Capital
g. Industrial policy
h. Synthesis
12. The geopolitical stakes of tech
a. Europe's uncomfortable situation
b. Political shifts underway
13. Reforms
a. The consensus for the European social model
b. Limited but necessary social reforms
c. Other topics to address
d. What objectives?
14. Conclusion
Attachment A – Semiconductors
Attachment B – Statistics of R&D investments
Attachment C – Statistics of investments into startups
Attachment D – Business Plan of an innovative project
Attachment E – Shifting innovations from Europe to the USA
Attachment F – The role of BPI in French Tech
Attachment G – Employment at Google
Attachment H – The surprising situation of the United Kingdom
Acknowledgement
About the author