How Europe can compete with the US’s tech entrepreneurial spirit

Why hasn’t Europe created some social media giants – and what does that say about the future of our continent’s economy?

It is a question we don’t ask ourselves often enough, for we accept – and I think this applies to continental Europeans as well as Britons – that it should be normal for us to go on Facebook, Google things we want to check, watch YouTube clips on our iPhones, and soon be catching up on Phoebe Waller-Bridge’s next adventures on Amazon Prime. Six out of the top 10 social networks are American – and the other four are Chinese.

Now it is true that the titans are under pressure. There is a move in the US to break them up, and in Europe to make them pay more tax. But it is hard to see their role being displaced, for there are no significant European challengers. This failure continues. Look at how TikTok has shot up the global league table. That shows that new entrants can break into the market and is ranked number nine by Statista with 500 million users. But, of course, it is Chinese. It may have started to lose a bit of ground now, but it does raise the question: if the Chinese can create new social networks that attract our young, why on earth can’t we do so?

There is a one-word answer: culture. But that is an unsatisfactory one because it begs so many questions. Is there a lack of enterprise in Europe? Or an unwillingness to take on risk? Why is European culture different anyway?

This matters because Europe is much worse than the rest of the world in creating new high-tech companies. If you look at the 400-plus “unicorns”, new quoted companies with a market value of more than $1bn (£780m), the list is dominated by the US and China. Only a handful are European and of those most are British.

Trying to unpack this, I can pick out five areas that Europe should tackle. The UK is interesting in that along with Scandinavia it is a sort of halfway house between the US and the rest of the continent, and that gives some pointers.

Start with education. Many universities in the UK have got much better at trying to monetise their research, though they lag behind the US, and some continental European ones are learning this game. But the idea that a university should also be a business is alien to a lot of academics. You don’t have to scratch very deep in academia to hear a disdain for commerce, and that inhibits the ability of universities to help create new companies.

Next there is money. Funds do exist in Europe for new ventures but it clearly is not as easy as it is in the US to gather together risk capital. Anecdotally, very early-stage funding is easy, but carrying that forward to second- and third-stage investment is much tougher. In one sense Europe is more efficient at creating unicorns, as it does so with less investment. But that comes at the cost of creating far fewer than the US or indeed China. Funding needs to be improved.

Third, there is the brain drain. There is a net loss every year of European graduates to the US. Within that loss, there is a move within Europe in that continental Europeans come to the UK, so the UK manages all right, but Europe as a whole loses out. I am not sure how you tackle this except by seeking to attract European “intellectual refugees” back from America, and that probably comes down to money.

That in turn leads to the thorny issue of taxation. In reality, US personal tax levels are not that much lower than European ones once state taxes and healthcare costs are factored in, but if would-be entrepreneurs think this is an issue, then it is an issue. I don’t think politicians in Europe (and this is not just a comment on Labour policy in the UK) realise that every time they attack wealthy people, they send a message to a budding entrepreneur that he or she would be better off going across the Atlantic.

Finally, there is that awkward concept of culture. The private banking arm of HSBC did some work on this a couple of years ago talking to 2,834 private bank clients around the world who had owned or been part owners in businesses.

They found that US entrepreneurs tended to be serial investors, creating several businesses and using their own wealth to start them. They were relatively old, for the average age in the US for starting a business was 55, compared with 30 in France or Germany. That suggests that the culture of entrepreneurship is much more embedded in America than Europe. If that is right, it is a positive. Young Europeans are more like Americans than their parents were.

None of this is conclusive. There is, however, a general message here, and that is that if Europe wants to create more new businesses it has to become more American, as China has done – at least in this regard. It is a difficult message for some but I was struck by the comment of Phoebe Waller-Bridge about her Amazon deal.

She said she was “insanely delighted” with it. She was utterly right to be. And if that positive attitude enables us to create more unicorns we should be insanely delighted by that too.