Originally published here.
Founder of P Capital Partners, Vice Chair of the Open Society Foundation and a founding Council Member of the European Council on Foreign Relations, and patron of numerous foundations for business and political progress, Daniel Sachs is a leading voice promoting the business case for democracy and calling for a unified European growth agenda. Here, he outlines some of his thinking on a unified European innovation strategy.
“Europe remains competitive by most other measures. If we exclude Silicon Valley and Seattle, Europe is actually more productive than the US.”
Europe presents a plethora of exciting investment opportunities. What would you say are its major advantages?
We have some very strong local clusters in a range of industries: biotech, energy, software engineering, and more. And some extraordinary local talent. The heads of AI at Microsoft and Meta are from the UK and France, and innovation teams at many of the world’s largest companies are European.
We have cutting-edge knowledge in Europe, very innovative people, and a lot of groundbreaking technology. And then there’s the European economy itself. It’s more inclusive than the US, with a more generous welfare state and more focus on sustainability transition and the green economy. There are a number of things that are attractive about the European economy as a contrast. I’m not saying it’s better than the US model—it’s different. And there are real benefits for innovation and entrepreneurship.
Finally we’re used to dealing with regulations. Many business leaders see this as a crutch, but there are ways to use regulations to our advantage. We actually have a headstart in dealing with privacy laws, human rights, and climate legislation.
What do you think needs to change to maximise European investment in technology?
There are three things we lack. One is a broader European market or approach. We’re too fragmented. 27 different state policies won’t cut it. Europe must devise a joint competitiveness strategy and invest in the areas of the economy where we can have a real advantage.
The second piece is that we lack “guts”, for lack of a better word. Some of these American success stories came about because they took for granted that they would dominate the world with their tech and their strategy. That’s harder to come by in a European context.
And then we have a lack of growth funding. There’s lots of funding for mature businesses and we have a lot of seed funding. But most of the best ideas reach the growth stage and get funded by US investors. The kind of innovation we need is partially unicorn-level, and truly disruptive. But a lot is more capital intensive, and slower to develop. Hydrogen technology or hardware development – this can’t be 100% funded by equity.
There’s quite a lot of low-hanging fruit here. Institutions and the private sector can get more involved, but it can also be incentivized by government guarantees, the European Investment Fund, KfW in Germany, and so on. A lot of those systems have been focusing on seed funding, which is now a very well-functioning part of the market. But not enough is going towards scaling up promising technologies and companies.
How do you characterise the European ecosystem in comparison to the US and China?
The Draghi report was a huge wakeup call. In Draghi’s analysis, the comparative reduction of EU productivity stems directly from a lack of investment in technology; but Europe remains competitive by most other measures. If we exclude Silicon Valley and Seattle, Europe is actually more productive than the US. Silicon Valley has been there since the late 1930s and we can see the long-term cluster effects of academia, capital, tech innovation, and people gathering around the innovative economy.
We have clusters in Europe too, but they’re fragmented by country, and building these clusters is about the co-location of academia, innovation, capital, business leadership, lifestyle, and all of that acting together in the long term to attract talent and capital.
It’s how you share knowledge, who you invite to participate. And then these things become organic over time. A lot of clusters have come up through academia and innovation first, and then attracted the business people. We should be interested in deepening the clusters in Oxbridge, Paris, and so on, and making them beneficial at the broader European level.
Do you think a unified Europe is a realistic and necessary goal?
Yes, for Europe to compete with the US and China we need to make the most of our relevant advantages on a European level, not one nation at a time. Authoritarianism and protectionism are both on the rise. Some people in Europe are happy, but the air under the wings of authoritarians is something we should all be wary of. There’s the notion of an ideological battle, but I think it’s largely misunderstood. The meta issue is really the crisis of trust in institutions.
There’s no silver bullet to fix this, but it starts with political parties and institutions getting serious about radical renewal and connecting with people broadly. New faces, new voices, and new ways of interacting with people. Over time, that builds social cohesion, and less extreme, polarizing, and toxic outcomes.
The political forces in the center need to get their act together. They have to get radical about their approach to break through to people. We need a lot of institutional change in the democratic and political setup, and I see it starting to take shape.
