In September, the European Commission labeled Apple, Amazon, Alphabet, Meta, ByteDance, and Microsoft digital “gatekeepers” under the Digital Markets Act (DMA). The Digital Markets Act (DMA) and the Digital Services Act (DSA) form a new set of regulations that tackle counterfeit goods, marketplaces, social networks, app stores, and online travel platforms. As positive as that may seem at first, the laws actually represent a gaggle of regulations crafted by the European Commission to crack down on tech giants in the European internal market.
These regulations impose significant limitations, including restricting tech firms from monetizing user data and forbidding them from coordinating consumer behaviors—practices which are labeled as “dark patterns” and considered to be unethical for enhancing user experience and customization. Social media platforms will also face sanctions for publishing disinformation and misinformation. European commissioner Thierry Breton has called the laws, “D-day for the large players,” stating that they will “have to play by our rules—European rules.” Penalties for violations could result in fines as high as 6% of “global revenue,” or even a ban on operating within the EU market. Google’s global revenue in 2022 was $279.8 billion U.S. dollars, which would translate to a nearly unimaginable fine of $16.78 billion.
Contrary to the EU’s approach, the United States prioritizes personal liberty and free speech, which has led to its success in terms of economic gigantism. A notable example may be seen within the current legal battle over social media censorship and free speech, which is now headed to the United States Supreme Court (Missouri, et al., v. Joseph R. Biden, et al.). This case provides a firsthand example of why American capitalism excels: by fighting to keep the market as free as possible, with battles at the state level. The EU could do the same.
Silicon Valley, the global headquarters of all things tech, enjoys a global monopoly over startups and tech financing. Wall Street holds a monopoly on technology’s public market growth. Tech founders and technology talent flock to the U.S. to seize these opportunities and reap the rewards from the explosive growth of technological juggernauts, fueled in part by country-wide dedicated networks, regional hubs, and startup labs.
Google, Amazon, Tesla, and Meta (formerly Facebook) were all founded in America within the last 30 years, and they have all surpassed the $1 trillion valuation mark. Compare this to Europe, where only three companies have a market valuation of more than $300 billion: Nestlé, Novo Nordisk, and LVMH, none of which qualify as big tech.
The most valuable tech companies in Europe are SAP (with a valuation of around $150 billion) and ASML (with a valuation of around $235 billion), but they are overshadowed by Microsoft’s valuation of $2.43 trillion and Apple’s valuation of $2.67 trillion. Even Europe’s cutting-edge startups suffer from a lack of explosive growth. Spotify, for instance, is only worth around $33 billion. For a company often accused of disrupting the global music industry, one would expect a higher valuation.
Another European music startup, SoundCloud, founded by Swedes in Berlin, is valued at $800 million. With those numbers, SoundCloud doesn’t even meet the criteria for being a unicorn—which is a privately held startup with an enterprise value of $1 billion or more—by venture capital standards.
Ironically, one of Commissioner Breton’s responsibilities is to help “start-ups grow, expand, and employ more people, including through improved access to finance.” Yet it is challenging to find anything other than web links to banks that offer EU loan guarantees. One can only imagine the labyrinth of bureaucracy a startup must navigate in order to qualify for EU-sponsored equity investment.
There is a straightforward solution to this monumental problem: reverse the regulatory red tape, establish more free entrepreneurial zones and special economic zones that cater to technology, and improve capital markets for startups. Such a move would enable member countries to create favorable conditions for entrepreneurs and corporations, thereby capturing technology investments in Europe instead of missing out on the opportunity altogether.
Europe’s population and infrastructure can easily support a significant tech-focused venture capital network. Europe also has well-established financial capitals, some of which boast robust venture capital and startup funding networks. The market could even play into the EU’s heavy-handed appetite by retooling state-affiliated public-private funding initiatives across the continent, giving the EU a forward-thinking capitalist vision with ownership perspectives.
If the European Commission doesn’t come around, member countries should act on their own accord, establishing favorable entrepreneurial zones, and ignoring the EU’s 2007 ban on special economic zones. In response to Samsung’s investment to make batteries for electric cars, Hungary has done just that, resulting in thousands of added jobs.
There is no reason why Europe cannot create an environment conducive to highly relevant technology firms. While American innovation remains the envy of the world, America is also grappling with its own issues, with far less equality of opportunity and economic mobility than most of the entire European Union. When the land of opportunity stumbles, the EU should seize the moment.
Europe should redirect its efforts, switching from the role of a heavy-handed regulator to that of a funder and developer of big tech. Unfortunately, if European regulation continues to trend toward technocratic dominance, there will be no room for tech founders and investor innovation inside the EU’s 27-country block. Entrepreneurs will have to look elsewhere, perhaps even to other non-EU countries in Europe.
It is obvious that the EU is more focused on developing cutting-edge tax and regulatory strategies than on creating technological empires. The bureaucrats seem to be captivated by their own power, without realizing that the litany of regulations they have developed will stifle future innovation and investment. The commission needs to cut the obsessive regulations and redirect its focus toward building a robust tech ecosystem in Europe. Europe desperately needs its own version of Big Tech. A failure to do so would represent the EU’s loss of a historic opportunity.
