Mario Draghi, president of the European Central Bank (ECB), speaks during a news conference at the … [+] International Monetary Fund (IMF) and World Bank Group Annual Meetings in Washington, D.C., U.S., on Saturday, Oct. 14, 2017. Near-term risks to world financial stability have declined since April amid improving macroeconomic conditions and the subsiding risk of emerging-market turmoil, the IMF said in its latest Global Financial Stability Report released yesterday. Photographer: Andrew Harrer/Bloomberg
© 2017 Bloomberg Finance LP
Europe’s troubling lack of economic growth has been a subject of concern in widely read articles and an influential European Commission report headed by Mario Draghi, former president of the European Central Bank. The slow economic growth, only 0.5% in 2023 across Europe, compared to 2.5% in the US, and low investment in new technologies, has created an “existential” threat to Europe, and threatens its “reason for being,” according to Draghi. GDP growth has lagged behind the US in 7 of the past 10 years, and overall productivity in Europe is only 75% of US productivity. Many companies within Europe are beginning to relocate to the US to enable faster growth. A recent McKinsey report reports how US companies are outcompeting European corporations, with 1.8 times more R&D spending, 1.6 times more investment and 2.5 times more market capitalization in the US compared to Europe in 2022.
Building a European Growth Strategy
Europe’s lagging behind the US and other dynamic economies arises from a slow recovery from the pandemic, lower emphasis on digital technologies, and a lack of investment in transformative technologies such as AI, according to a report by the European Central Bank. Europe’s industrial policy strategy stresses radical expansion of R&D expenditures, more expansive investment in new technologies, and regulatory reform. The new Strategic Technologies for Europe Platform (STEP) is intended to boost research and manufacturing in key areas such as digital technologies, AI, clean energy technologies, and biotechnology.
Europe’s Deliberate and Regulated Approach to AI
Europe’s approaches to technological advances differ substantially from those in the US. For example, AI development in Europe is regulated by the 2024 EU Artifical Intelligence Act, which includes an Intelligence Board, regulatory sandboxes, and AI monitoring to detect and reduce how AI might alter the behavior of people, exploit vulnerable populations, and cause other forms of harm. The EU Digital strategy for future development of AI is creating “AI Factories” within the EU, shared datasets to promote new startup companies, and a dedicated AI office for enforcement of EU policies. This approach is one that appears to balance growth with a concern for social impacts of new technologies.
Inclusive Growth and Sustainability in Europe
While the statistics show Europe’s economy as lagging in some measures, it is also leading in others that track sustainability and inclusion. Europe emits less than half of the CO2 emissions per capita as the US, has a much lower rate of income inequality and a smaller population below the poverty line, and a higher life expectancy than the US. Income inequality in Europe, as measured by the Gini index is only 29.6, compared to 41.2 for the United States and 35.7 for China. The per capita GDP in Europe was indeed 27 percent less than in the US in 2022, but half of the gap reflects a difference in productivity and another half due to individual choices to work fewer hours in a lifetime than in the US. In the EU, only 36% of national income goes to the top 10%, compared to 49% in the US in 2022, according to the World Inequality Database. The Draghi report acknowledges the need to account for Europe’s unique social fabric, and suggests avoiding “hyperglobalization” that can shift the balance of power between labor and employers.
European Education Policy and a Declining Workforce
Europe’s unique educational system also arises from planning and policy to promote larger societal goals. The EU has developed numerous exchange programs between universities and industry, building on the 1987 COMETT program, which builds cooperative programs between universities and companies for developing and applying new technologies, and the 1987 ERASMUS program for inter-university cooperation. The 2021 ERASMUS+ program further expanded student mobility, reaching nearly 16 million students in 2024. Additional strategic education policies are being developed to streamline differences between countries, increase graduation rates across the continent and build additional programs for employment within the EU. Despite these measures, job vacancy rates in the eurozone are at an all-time high of 3% in 2023, Europe produces 20 percent fewer STEM graduates per thousand than in the US, and faces a declining working age population. To develop new talent in emerging technologies and increase Europe’s shrinking workforce, new approaches will be needed.
Business and Education in the EU – the Case of Spain
Spain provides a specific case that illustrates the tensions between economic growth and traditional approaches in education and business. Spain’s growth rate of 2.1 percent in 2023 is much higher than the 0.7 percent rate in the Eurozone, and the country has added over a million jobs per year in 2023 and 2024. The Spanish entrepreneurial ecosystem has increased by a factor of 20 in the past decade, and is now valued at over 83 billion Euros, and a recent report by the Spanish group GEM cites that 13.5% of adults in Spain are involved in an entrepreneurial initiative. Spain features over 11,000 startups employing over 140,000 people, and is fourth-placed in Europe in terms of startups. Despite these promising statistics, difficulties in starting a business from regulatory barriers persists, and a new 2022 Startup Law within Spain is seeking to ease business creation by reducing regulations and taxes, easing access to finance. A recent report from the Spanish business school Esade notes that productivity is still low in Spain compared to the EU, as is private investment, and high public debt could limit future growth.
Disruptive Innovation from Synthesis
Ivan Bofarull, Chief Innovation Officer of Esade, described Spain’s “very unique entrepreneurial culture” as a “legacy” worth preserving in a recent interview. Bofarull distinguished between a negative legacy “mindset that makes you stick in the past” and a “positive legacy that a business can leave for the next generation.” Developing a positive legacy requires innovation that is “strategic with a long-term perspective.” Bofarull described the Esade education as one training students to “understand how things work, but also to understand the people.” Bofarull prefers disruptive innovation that “emerges from a synthesis” and that provides “continuity rooted in how humans behave” and knowledge beyond “hype and conventional wisdom.”
Transforming Europe’s Legacy into the Future
Bofarull also notes that Europe’s style of business and education is a “legacy that emerges from the Second World War” that “hedges ourselves against potential terrible downsides.” This approach differs dramatically from the typical US venture capitalist, which Bofarull describes as “assuming a risk to reach an unlimited upside.” Growth within Europe should arise from what Bofarull describes as “capabilities and capacities from your legacy that can be transformed into a force for the future.” It is hoped that as Spain and Europe build up their education system and economy, their growth will be rooted in a cultural legacy that will be a force for the future.
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Publish date : 2024-10-01 13:23:00
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