Today Europe is no more than a digital colony of the US and China

Lesen Sie die deutsche Version hier.

Europe has talent, groundbreaking ideas, and plenty of money. Indeed, many of the key innovations that are the foundations of the tech revolution originated in Europe, such as the World Wide Web which was invented at CERN in Geneva. So why has our continent failed to produce any globally significant tech giant on par with what we see in the US or China?

You often hear excuses about European bureaucracy or a deep cultural aversion to risk. But those are stereotypes that conceal the real reason. What Europe really lacks is a sustained demand for our own technology. When it comes to technology, we overwhelmingly prefer to buy from abroad rather than investing in our own capabilities, a tragic miscalculation which will have devastating consequences for the economic future of our continent.

Replicating colonial practices

The root cause of this dates back over 30 years ago to a fundamental misunderstanding by Europe’s political and economic leaders about the nature of technology. Technology was viewed as merely a cost, and when viewed through this lens, the rational thing to do is to optimize or minimize this cost, and hence massively outsource technology to the US and China. In reality, technology is not a cost, but a fundamental building block of the economy of the future, just like the 19th century steam engine was the fundamental building block for industrialization and economic growth. While Switzerland/Europe quickly learned the steam engine, we are not doing the same with technology. We buy 90 percent from abroad, and we have never developed the core competence and talent to scale it and develop it further since the majority of this R&D happens in the US and China. We don’t control the hardware, the datacenters, the chips, the software, the distribution, or any of the know-how. Also, unlike the steam engine that took decades to disseminate, tech is fundamentally different, it can be distributed globally instantly, and today faces zero barriers to market entry.

Today, Europe pays the price for the lack of technology investment. Since the turn of the century, the vast majority of economic growth in the US and China has been driven by the booming technology sector, supporting 4-5 percent annualized GDP growth, while Europe remains stuck at 0-1 percent growth. As entire industries become more technologically driven, even industries where Europe has traditionally been strong have fallen into decline. Once we realize that the modern automobile has more in common with an iPhone than the automobiles of 10 years ago, the displacement of the European automotive industry by the nascent Chinese one becomes easy to understand. This pattern will inevitably repeat across many other sectors as more and more traditional industries become disrupted by technology.

Unfortunately, today Europe is no more than a digital colony. One where American and Chinese companies come and extract the most valuable resource of the 21st century: Data. Converting that into high value services which Switzerland and Europe pay exorbitant prices for (due to the lack of any domestic options), while paying minimal taxes on their massive profits, replicating more or less the colonial practices of the 19th century, which did not turn out so well for the colonized. In this manner, our wealth flows directly to our geopolitical adversaries, while our public services and public finances move closer and closer to catastrophic collapse.

Europe’s suicidal economic policy

As bleak as this sounds, this is not Europe’s inevitable future and a different future is possible, if we have the courage to seize it. So how can we transform Europe into a tech superpower?The first thing that must happen is a mindset shift to realizing that technology is not a cost to be reduced, but an investment in the shared economic future of our home continent. If technology is an investment in future prosperity, the incentive is no longer to spend as little as possible, but invest as much as possible. For far too long, when it came to technology, Europe invested a little to lose a little, while the US and China invested big to win big. We must change the dynamic while we still have money, and before all our wealth has been shipped overseas.

Today, Europe collectively spends approximately 200 billion euros a year on foreign technology, and a large proportion of this is from public procurement. In other words, our tax revenue is directly subsidizing the development of foreign tech giants who come back to our continent and subsequently destroy European tech companies via anticompetitive practices. This is a suicidal economic policy which must come to an end.

While we can hardly dictate what private companies purchase, public procurement involves taxpayer money. Europe therefore needs a clear European preference when it comes to the public procurement of technology. At first glance, this may sound like a radical idea. In reality, it is anything but. The United States has long used targeted public procurement and defense-related spending to nurture its tech champions from their earliest stages. China, meanwhile, deploys enormous state-backed purchasing power to guarantee scale for its national priorities. In a world where both the US and China openly favor their own companies, what is truly radical is Europe’s refusal to do the same.

Does protectionism in tech work? Yes, it does. China is the clearest example. By largely locking out US tech companies, it created the conditions for the emergence of its own powerful technology ecosystem. The United States pursued a similar strategy in its own way, extending major government contracts and billions in funding to strategically important tech companies during their growth phase. Microsoft, Amazon, Palantir, Tesla, and SpaceX all benefited from this approach. Europe once did the same. Airbus is a prime example. But today, we no longer have a coherent industrial policy when it comes to technology. Instead, we simply hope to become successful by accident.

Some people posit that buying European will be more expensive, but in reality, it really is not (Proton Workspace is less expensive than Google Workspace or Microsoft 365 for instance, and there are many other examples). However, even if they were to be more expensive, top line cost is only one factor. European companies pay taxes here, and also employ people here, who then pay taxes and spend here, meaning that much of the spending flows back into our local economies, leading to real and sustainable GDP growth. Even more important are the aspects which we cannot put a price on, such as the defense of Europe’s sovereignty and strategic autonomy.

Leveling the playing field

Second, we need to crack down on the anticompetitive practices of US tech giants. Apple and Google, for example, effectively maintain a duopoly over the mobile ecosystem and currently charge European companies up to 30 percent of their revenue — not profit, but revenue — on sales made through mobile platforms. And today, mobile has become the dominant online platform, surpassing desktop traffic. In practice, this means that when Proton sells 100 Swiss francs worth of services on iOS, Apple takes 30 francs. Google does the same on Android. This is particularly damaging because an ever-growing share of online sales now takes place on mobile. It makes fair competition virtually impossible, as European companies are effectively forced to subsidize their main competitors.

Third, we need to overcome Europe’s obvious structural disadvantages. In the United States, a tech company can launch products into a market of 350 million people who share one language, one legal system, and one currency. Meanwhile European companies confront a patchwork of languages, regulations, taxes, and at least a dozen currencies that slow momentum and increase costs. For this reason, we must set aside nationalism, and focus on a shared European patriotism because we will either sink or swim together.

If instead of a European preference, we were to adopt a Swiss preference, France and Germany would likewise adopt a French or German preference and so on, with the end result of fragmenting the European market into smaller national markets, none of which are large enough on their own to enable the economies of scale which would allow globally competitive tech companies to emerge on our continent. It is only by putting the shared European interest first that we will have a chance to survive together, because unlike the economic models of the past, the economics of tech clearly favors scale.

Finally, we need to reinforce the human values which make Europe unique today, and this is an area where Switzerland can help lead the way. As technology becomes more relevant, our appreciation for privacy, security, and trust become a true competitive advantage. We must reject proposals such as the revised VUPF ordinance which would bring Chinese style indiscriminate mass surveillance to Switzerland as this destroys the global competitiveness of our tech companies. Success will not come by copying the Silicon Valley or Chinese playbook and discarding the notion of human rights and privacy, but by carrying our traditional strength of trust into the digital future.