Innovation, Competitiveness, and Geopolitics in the Digital Age

Does EU Regulation Embrace or Strangle Digital Change?

David Teece and Nicolas Petit (professor at the European University Institute, Florence) presented on topics including European champions, innovation, and market regulation and took part in a general policy discussion. View the presentation, “Dynamic Capabilities and Dynamic Competition: How the Digital Markets Will Strangle Europe’s Digital Transformation.”

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Last November, Dr. Teece and Mr. Petit (professor at the European University Institute, Florence) published an article in the Financial Times titled “Europe Should Embrace Digital Change, Not Strangle It.” They claim the European Union’s approach to innovation is outdated: it ignores the specificities of the digital sector, it is biased against big players, it chokes innovation, and it wrongly assumes that setting regulation standards provides is a source of comparative advantage in the global economy.

The EU needs European superstar firms to compete beyond “imitative competition,” and the Commission’s recent proposal for a Digital Market Strategy might not allow it. Yet, this vision raises questions: Does the EU really need European superstars? Does “European” mean “Franco-German” industrial champions or the promotion of innovative ecosystems capable to promote new firms creation, phase out poorly managed zombie firms, and allow the diffusion of dynamic capabilities? Will other member states find their own interest in an European approach? Would it be to the detriment of the internal market? Is the relevant market European or global? At the end of the day, is Europe really strangling the digital change or regulating it to its own benefit?

Beyond those questions, we should not lose sight of the geopolitical implications. Are European digital champions a must for Europe to play in the Big League? What political powers does it take to implement what the authors advocate, a more centralised Europe? And finally, in times when the big techs overstep their role, isn’t it simply dangerous for democracies to assume that “big is beautiful”?