Nick Clegg: Europe is no longer producing innovative world-class companies

The people of Europe have voted. A new parliament has been elected. The runners and riders for the European Commission President and the new slate of commissioners are jockeying for position. But this is not business as usual for Brussels.

No matter who ends up in the seats when the music stops, the task they will inherit is existential. Thirty years ago, Europe represented roughly a quarter of global GDP. Now it has fallen behind. GDP per capita in the EU is half of that in the US, at about $40,000 (€37,400) per European compared to $80,000 per American. None of the world’s top 10 companies are European. None of the dozen most valuable unicorns – start-ups valued at $1 billion or more – are European. Of the Top 50 companies in Europe none of them were founded within the past 30 years.

European companies are growing more slowly, reporting lower returns and lagging behind their peers in research and development, even in industries that were traditionally Europe’s strength like automotive and manufacturing. Just one of the top 10 electric vehicle brands in the US past year was European. There are four times more semiconductor plants planned in China than in Europe.

The sad fact is the EU is no longer a fertile ground for innovation and world-class companies. As Emmanuel Macron and Olaf Scholz have stated starkly: “Our Europe is mortal”. In their words, Europe is experiencing its “Zeitenwende” – a historic turning point.

The era of generative AI presents an opportunity to change the story. These powerful technologies could provide a massive boost when we need it most. Goldman Sachs estimates that generative AI could increase global GDP by seven per cent over the next decade.

Europe is a pioneer of tech regulation – as GDPR, the DMA, DSA and AI Act demonstrate – but not yet at pioneering and deploying the tech at scale itself. Europe’s regulatory complexity and the patchwork of laws across different member states often makes companies hesitant to roll out new products here. Meta, Google and others have delayed rolling out their AI assistants here, and even European success stories like Volkswagen are increasingly leaving to build and launch their AI products in the US. With the rapid adoption of AI in the US and China, the gap between these superpowers and the EU is widening.

How can Europe change its course?

The underlying infrastructure for foundational AI models is hugely expensive and energy-intensive. But deploying and customising AI models, especially open source ones, will give European businesses, start-ups and researchers access to tools they wouldn’t otherwise be able to develop on their own.

With Europe’s high quality university sector producing top talent, and our deep capacity for research and development, we could become a world leader in the application layer of AI – creating the apps and services through which people experience this powerful new technology.

Europe isn’t playing to its biggest strength – its single market of 450 million consumers. European leaders have stated repeatedly that one of their main goals is for Europe to compete with the US and China in tech. They long for the next Silicon Valley to emerge on European soil. As a proud European, I would love to see the next Meta, Alibaba or Google emerge on the Continent. And we have all the necessary ingredients: a vast consumer market, great universities, top talent, and a history of experimentation and innovation.

But for all the regulatory activism – a staggering 77 new pieces of EU digital legislation have been adopted since 2019 – we have been held back by our failure to properly complete the digital single market. It is striking, for instance, that a digital start-up in Amsterdam would still have to navigate 27 different intellectual property laws, various rules for the licensing of content, data protection authorities and other obstacles before it could go live across the Continent.

During my years in Brussels in the 1990s, the single market was cause for huge optimism. I studied at the College of Europe – where I met my wife Miriam – and became an official in the Commission during the heyday of globalisation and European integration. The Berlin Wall had fallen, the Single European Act was bedding in, the Maastricht Treaty was hot off the presses and the World Trade Organisaton was up and running.

I was then an MEP in the late 1990s and early 2000s, when it felt like the world was growing closer together and the EU – this remarkable experiment in co-operation, openness and strength in numbers – was the symbol of that optimism.

The 2008 financial crisis broke the back of globalisation. A cloud of introspection fell over Europe as governments, loaded with huge deficits and enraptured by anti-establishment populists on the left and right, prioritised issues of national sovereignty over shared endeavour.

No country turned its back on the European project more emphatically than my own, the UK.

The EU is increasingly disputatious and fragmented, with regulators and policymakers pulling in different directions. It’s little wonder so many voters, especially young people, are supporting insurgent populists promising to shake up the status quo.

Our new parliamentarians and commissioners face a huge task to reverse Europe’s economic decline. It won’t be easy but it is possible. We just need to play to our strengths. The single market is Europe’s biggest asset but it isn’t complete. Finish the job. Avoid fragmented regulation. Embrace an open approach to AI development. Then let European creativity, ingenuity and entrepreneurialism bring back the optimism we all crave.

Nick Clegg is president, global affairs at Meta