The European Union’s War on Innovation and Free Markets

by | Oct 9, 2019 | Europe

The response by the EU has been mind boggling: instead of relaxing its tight rules, it has doubled down, and in recent years expanded its War on Innovation ever more.

That the EU is not necessarily a great promoter of free markets, entrepreneurship, and innovation, but rather a machine spurting out masses of regulations and rules, is a widely-known fact. One just needs to look at the 109 regulations on pillows, 50 on duvets and sheets, or 31 laws on toothbrushes that Brussels has come up with. Or the immensely detailed explanation how a banana has to look like and that it has to be “free from malformation or abnormal curvature” (yes, this is an actual law).

It may be possible that all these crazy stories, which are regularly featured in tabloids for the amusement (or frustration) of the population, only come up because the politicians and unelected bureaucrats of the European Union are simply bored, not knowing what to do with their time. But a [2018] article here at the AIER by Veronique de Rugy once again reminded me that more is behind this path Europe has taken.

Indeed, it is an entire approach that Brussels (and, not to leave them out, European national governments) has adopted a long time ago. As de Rugy writes rather bluntly, “European governments are nothing but a bunch of protectionists.” In her excellent analysis, she echoes the crucial dichotomy which Adam Thierer put forth in his fascinating book Permissionless Innovation.

The gist is this: There are two ways that governments can respond to innovative efforts. Either they can follow the process of permissionless innovation, that is, as Thierer writes, “the notion that experimentation with new technologies and business models should generally speaking be permitted by default.” If any problems were to arise, they could still be addressed later on. But governments can also follow the precautionary principle, so “the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harm.”

While permissionless innovation is “about the creativity of the human mind to run wild,” the precautionary principle in its essence takes away what entrepreneurial endeavors are all about: looking for new opportunities that others have not identified yet, taking a risk, participating in a trial-and-error process, and either make the world a better place (and profit from it yourself), or, yes, fail.

The US, for the most part at least (and very much compared to Europe), has taken an approach more akin to permissionless innovation, where risks can be taken and where failure is tolerated, if not seen as a normal part of the process. In Europe meanwhile, the precautionary principle is dominating. To a certain extent, this might be a cultural component: failure is judged upon in many European cultures, and a business venture gone awry will quickly be seen as complete career failure – considering that never failing is an impossibility, this means that entrepreneurship is naturally less of a factor on the Old Continent. But governments, and especially the EU, have played a major part, too.

There are many, actually countless, examples of this. Just take the ongoing War on Uber, Airbnb, and all sorts of other sharing economy services, which governments in Europe have tried to regulate to death for many years. Or take the new data protection rules which have already resulted in companies leaving Europe since it’s impossible to adhere to them without spending immense amounts of money on compliance (see a more extensive analysis of mine on this disaster here). These regulatory shenanigans can have tragic consequences as well: take the pseudo-scientific anti-GMO stance, which, as Marian Tupy writes, might even be responsible for deaths through starvations in Africa.

It is little surprising under these circumstances that it is not Europe, the continent where free market capitalism and the industrialization took off, where major innovations are made today. Much has been talked about the supposed tech hubs in Stockholm and Berlin, but little has come out of it except Swedish Spotify – which is increasingly moving its endeavors to the US as well. As of 2016, Thierer reports in his book, “Airbnb’s market value alone exceeds the value of all Germany’s billion-dollar technology companies combined.”

The response by the EU has been mind boggling: instead of relaxing its tight rules, it has doubled down, and in recent years expanded its War on Innovation ever more. For their successes, companies – almost exclusively from the US by the way, have been heavily penalized. Microsoft has been hit with fines four times already, most recently in 2013 with 635 million dollars. The list also includes Intel ($1.2 billion, 2009), Facebook ($122 million, 2017), Amazon ($293 million, 2017), and Qualcomm ($1.2 billion, 2018).

But the most shocking verdicts were certainly the Apple fine of 14.6 billion dollars in 2016 (admittedly for “not paying their fair share” in Ireland, even though the Irish thought everything was just fine with that), a 2.7 billion dollar fine for Google in 2017 (while at the very same time bailing out Italian banks), and just last month, a new record fine again for Google at the impressive price tag of 5 billion dollars.

The EU is often shocked about how countries like the US have tech hubs like Silicon Valley, all those innovations, all those start-ups, and all this entrepreneurial spirit. Instead of penalizing those who prevail despite major obstacles put in their place, Europe should instead change its perspective, though. Indeed, as Thierer writes, “a liberal dose of permissionless innovation thinking can help spur the next great industrial revolution by unlocking amazing opportunities.”

This next industrial revolution could also happen on European land. But for that, governments need to let the miracles of the market go their own way.

Made available by the American Institute for Economic Research.

Kai Weiss is a Research Fellow at the Austrian Economics Center and a board member of the Hayek Institute. His main research interests are political philosophy, European politics, and technology, and his works have been published in various outlets, including CityAM, CapX, The American Conservative, and the Mises Institute. Follow him on Twitter.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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