Europe should focus on spurring European tech growth

The European Parliament is expected to vote on Thursday on whether Google should be required to spin off its search engine. But that vote — and any subsequent legal action by the European Commission against Google — misses the real questions: Why isn’t Europe able to produce the sort of leading-edge tech companies which seem to routinely come out of the United States, and now, Asia? Where is the European Amazon, Twitter, Samsung or even Alibaba, the Chinese e-commerce company that recently had the biggest global initial public offering ever?

Rather than going after American companies, the European Commission and Parliament should focus on policy changes that would spur European technology growth. In particular, Europe would benefit from boosting spending on research and development; improving the climate for entrepreneurship; and encouraging consumers and businesses to use more data.

{mosads}Let’s start with research and development spending, which provides essential long-term support for innovative companies. In 2012, Europe spent about 2 percent of gross domestic product (GPD) on research and development. Meanwhile, the United States spent almost 3 percent of GDP on research and development, an enormous gap that has persisted for years. European leaders, aware of the gap, have set a goal of reaching the 3 percent level by 2020. So far, though, there’s been little or no movement in that direction.

Or take support for entrepreneurship. The latest Global Entrepreneurship Index, just released this month, pegs the United States as the top country for entrepreneurship, based on such factors as cultural attitude and availability of risk capital. As the authors of the report note, “the U.S. not only remains the most entrepreneurial country in the world, it also is increasing its lead.” The U.S. has an index score of 85. By contrast, the countries in the European Union have an average index score of 60.1 (weighted by country gross domestic product), and a median index score of 54.5. Some major European countries, such as Italy, make business startups exceedingly difficult. Anything that can be done to make entrepreneurship easier, including relaxing a difficult regulatory environment in some countries, would increase the odds of producing a major tech startup.

Finally, Europe is way behind in the amount of data used per person. Based on a study by Cisco, the Progressive Policy Institute has calculated that European countries such as France and Germany use 22.6 and 18.9 gigabytes of data per person per month, respectively. Meanwhile the United States uses 58.3 gigabytes of data per person per month, triple that of Germany. Just look at data used by business, the differential narrows but is still enormous in relative terms. U.S. businesses use 8.5 gigabytes per capita per month, compared to 4.5 in Germany and 3.7 in France.

Why does data use matter? For Internet companies, data use is a good proxy measure for the size of the potential market. If you want to grow a profitable tech company, it’s easier to do so in the United States, where data consumption is higher. That suggests that if Europe’s leaders want to create the conditions for homegrown tech giants, they should encourage European consumers and businesses to use more data.

It’s easy for politicians to say that they want innovation and growth, and hard for them to take the steps necessary to foster such growth. Taking on Google is an easy shot for the European Parliament, without tackling Europe’s underlying issues.

Mandel is the chief economic strategist at Progressive Policy Institute.