China's absence from the first Industrial Revolution in the 19th century led to colonization, civil war, and famine. Similarly, Europe's current absence from the tech revolution is having severe consequences. Historical cartoons depicted China on the world's dinner table in 1898; today's illustrations place Europe in a similar position (Financial Times, 10 Feb 2025).
Our in-depth research in 2022 and 2023 concluded that Employment Protection Laws in Europe had been stifling the profitability of tech investments for decades and had become a first order contributor to Europe's lag in tech, hurting growth and security.
In early 2024, I quit my job in the U.S. tech industry, and together with Yann Coatanlem, we decided to share this new perspective with political leaders, economists, administrations, think tanks, investors, and thought leaders in Europe.
In Brussels, we met many interested Directorates-General (DGs), former Prime Minister Enrico Letta, the Draghi mission, the staff of several European Commissioners, and Commissioner Zaharieva, in charge of Research and Innovation.
Our findings were incorporated in the Draghi Report in September 2024, and in von der Leyen's Competitiveness Compass in January 2025:
"EU companies face higher restructuring costs compared to their US peers, which places them in a position of huge disadvantage in highly innovative sectors characterised by the winner-takes-most dynamics."
"These two factors reinforce each other: lower growth prospects for EU start-ups and higher costs of failure weaken their attractiveness in the eyes of investors. [...] The Commission will thus propose a 28th legal regime, which will simplify applicable rules and reduce the cost of failure, including any relevant aspects of corporate law, insolvency, labour and tax law."
This is great news for Europe. For the first time, European authorities have recognized the impact of restructuring costs on Europe's innovation gap. The issue of failure costs has now been incorporated into the European Commission's five-year agenda. It proposes Europe-wide legislation to reform employment protection laws.
In parallel, we have promoted our findings in both Germany and France. All stakeholders considered the analysis to be novel, robust, and insightful. However, snap elections in both countries have slowed down the preparation for the next steps.
This is just the beginning. Reforming labor laws across all Member States will take years. Trade unions and political parties, both left and right, are likely to initially resist changes to employment protection laws, even those limited to high earners. The journey ahead is long and challenging. Although the innovation gap and its effects on growth and security are now widely recognized, public opinion is not yet prepared for such changes.
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