EU’s Competitiveness Gap is Growing – The Single Market Flaws Must Be Addressed
Gare du Nord, Paris (2022)
On Sept 4th The Economist’s Charlemagne column stated that “Robotaxis will be the Sputnik Moment for a declining Europe”. When EU citizens are visiting the US or China they can hail a driverless taxi to move from place A to B, but in Europe these taxis neither exist nor are tested in traffic. The paper asks whether this is the moment when the Europeans a) finally realize how huge the gap in applying the latest technologies is and –more importantly– b) we start doing something about it.
The autonomous taxi experience is likely to be striking for the Europeans traveling overseas, yet too easily missed a milestone by the others who don’t. Mario Draghi’s report coldly points out that Europe largely missed the digital revolution and the productivity gains it brought. The long list continues with cloud computing, AI, EVs, photovoltaics and you name it. These are too slow events to be called “Sputnik-moments”. They just happened slowly, gradually leaving us behind with the competition.
For a good reason Europe is now focused on boosting its defence industry and hoping not to miss the train with this one. The tricky part is that the defence solutions are mainly powered by the same underlying technologies in which we are already behind. If the structural problems are not solved, again another boom will be missed.
The EU is now the 3rd economy in the world, but our competitiveness is waning. The potential exists and it’s not too late to turn the course.
Both the US and state controlled China benefit on the scale of their large domestic markets. Meanwhile the EU's single market is, politely saying, flawed. There is nothing more important than rigorously removing internal trade obstacles fragmenting the market. Furthermore, the EU has a large number of national champions in critical sectors like telecommunications, but the EU wide players are missing.
The ex-ante tech regulation has been hailed as the “European Model”, but from the growth perspective this seems to come with significant opportunity costs. A regulation trying to address every potential future risk in advance slows down innovation and growth. This is particularly harmful with the emerging technologies, when the direction of travel is still unclear. The balance between ex-ante and ex-post regulation must be reconsidered.
The original Sputnik-moment eventually took the man to the Moon and back in the spirit of “it not being easy, but it being hard”. The same spirit is needed to fix the single market to drive prosperity for the Europeans.
What will the EU do with its moment – reform for growth or carry on?