Summary of Key Points
This article challenges the traditional argument that Europe's competitiveness is inferior to that of the United States due to widening gaps, pointing out that the real issue lies in the fundamental differences between the wealth creation mechanisms of the two regions. Europe operates an "existing assets economy"—relying on historically accumulated assets such as city reputations, classic brands, and institutional trust to generate stable returns, while the U.S. has an "incremental economy"—creating new wealth through continuous innovation, entrepreneurship, and rapid scaling. Europe is not in decline; rather, it experiences a slower pace of wealth renewal and needs to transform its existing assets into new sources of growth, rather than simply adopting the Silicon Valley model.
I. Wealth Creation in the U.S. vs. Europe: Relying on Existing Assets vs. Creating New Value
You can think of Europe as a family that manages a ancestral home and collects rent, while the U.S. is like entrepreneurs constantly thinking about starting new businesses:
- Europe's Existing Assets Economy: Wealth comes from long-term accumulated assets, such as Milan's fashion reputation (new brands benefit from being registered in Milan), the cultural heritage of Swiss watchmaking, and the credibility of EU institutions. These assets generate stable income without the need for frequent renewal.
- The U.S.'s Incremental Economy: Wealth is created through continuous innovation and the development of new products and services, such as in cutting-edge fields like software and AI, requiring constant innovation and rapid company growth.
A clear example is the difference between Europe's luxury industry (which values heritage and reputation) and the U.S. industry (which focuses on technological breakthroughs).
II. The Dual Nature of an Existing Assets Economy: Stability but Risk of Stagnation
While an existing assets economy is not entirely negative, it has a significant drawback: it can lead to complacency.
- Advantages: It provides stability and reliability. For instance, the Milan fashion ecosystem gives brands a premium value simply by being associated with the city; Swiss watchmaking relies on centuries of technical expertise to generate income without constant change.
- Disadvantages: It can create vested interests. Those who control these assets (such as landlords in prime locations or traditional brand companies) may earn "economic rent" without seeking change, making it difficult for new players to enter the market and hindering growth.
III. Why is it Hard for Europe to Achieve Incremental Growth?
Although Europe is not lacking in startups (with 35,000), it is particularly challenging for companies to scale:
- Lack of Capital Flow: Despite having ample funds, European investors are reluctant to invest in new businesses. Each year, approximately 300 billion euros flow to the U.S. to support American innovation, effectively using European capital for other countries' growth.
- Talent Lock-in: Top talents tend to stay with established companies rather than taking risks in startups.
- Fragmented Markets: The lack of a unified European market means that companies face different regulations and languages when trying to expand across the continent, increasing costs.
Former Italian Prime Minister Mario Draghi noted that Europe has good technology and high savings but struggles to develop rapidly growing companies.
IV. European Approaches to Transforming Existing Assets into New Growth
Europe does have strategies, though they differ from Silicon Valley's:
1. Splitting Established Companies: Dividing innovative departments from larger firms into independent entities. For example, ASML (a leader in lithography technology) originated as a joint venture with Philips and later became a global powerhouse; similar divisions have occurred with companies like NXP and Xilinx.
2. Collaborating to Create Giants: Integrating the capabilities of various European companies. Airbus is a collaboration among several nations, competing directly with Boeing; STMicroelectronics is a merger of French and Italian firms.
3. Patient Capital: Using funds generated from existing assets to invest in new initiatives. For instance, the Novo Nordisk Foundation in Denmark uses profits from its pharmaceutical business to fund research and startups.
V. Europe's Path Forward: Avoiding Silicon Valley's Approach
Europe should not try to copy Silicon Valley's venture capital model, as it does not suit its existing assets-based economy. Instead, it should:
- Encourage larger companies to spin off new businesses.
- Combine the strengths of different European firms to create more industry leaders like Airbus.
- Support startups with the help of foundations and family-owned capital.
In short, Europe's goal is not to abandon its existing assets but to leverage them as engines of new growth.
Conclusion
Europe is not "poor"; it simply has a different approach to wealth creation. The challenge is not about closing the gap with the U.S. but about transforming its existing resources into new sources of economic strength.