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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is former vice-president Europe at Breakthrough Energy and a former director-general of the European Commission
No EU entrepreneur has been able to create a European listed start-up with a market cap of more than €100bn in over 50 years.
SAP, founded in 1972, was the last company to reach such commercial highs. Other recent success stories such as Spotify, which has a market cap of around €124bn, are listed across the Atlantic on the New York Stock Exchange. The story is no better for established companies. At the start of the 21st century, 41 of the world’s 100 most valuable companies were based in Europe (including Britain and Switzerland). Today only 18 are.
The starting point for the European Commission’s recently announced “Startup and Scaleup Strategy” is therefore weak. Young companies can’t scale and large ones are shrinking. This double whammy poses a threat to Europe in a world where sovereign power is often projected through the size and growth of homegrown companies.
While the measures announced in the strategy — better regulation, talent support and more finance — are welcome, they are not enough. The last thing Europe needs is more heavy-handed, top-down political interventionism for either start-ups or industry. The fact that both have traditionally been treated as distinct by the public sector demonstrates that most bureaucrats simply don’t understand innovation and commercialisation.
What Europe needs is a public sector-enabled, private sector-led approach with a heavy emphasis on fostering cross-fertilisation between start-ups and industry.
This is the most promising way to regain technology and innovation prowess in a world where the US and now China call the shots. According to the Australian Strategic Policy Institute, China led in just three of 64 technologies in the years from 2003 to 2007. Between 2019 and 2023 it led in 57.
It is high time Europe realises that true technology leadership doesn’t exist only in the lab or on a patent but must translate into corporate successes. This has been demonstrated by the slew of world-renowned companies that Chinese entrepreneurs were able to found and grow in past decades, including BYD (1995), Alibaba (1999), Longi Green Energy Technology (2000), CATL (2011) and Temu (2022).
In China, incumbent industry players receive tax and other incentives to collaborate with start-ups. Compare that with Europe, where politicians too often fail to address the problems start-up face when attempting to scale up: from a fragmented EU single market to excessive compliance costs and ageing infrastructure.
The answer is to this plethora of challenges must be systemic. No EU member state will be able to overcome the scaling problem on its own and no single policy domain — energy, industrial policy, digital, fiscal — will suffice. To overcome decades of slow-motion will require an unprecedented unleashing of entrepreneurial, innovation and technology acumen across the corporate sector. On both counts, Europe has a poor record.
Take clean tech as an example: despite best intentions and bold strategies like the “Green Deal”, the continent falls short in comparison with China — which has turned policy ambition into quasi-monopolies in key sectors that power the global energy transition: solar, EVs, batteries, critical minerals. Additionally, the country is in the process of building 10 new nuclear power plants and is steadily chipping away at Europe’s wind industry.
While it’s sensible that Europe does not want to follow in the footsteps of China’s autocratic capitalism, it nonetheless needs a forceful response to regain its corporate footing, technology leadership and innovation prowess. The rules may have changed but Europe must still be a player. That’s all the more important against the backdrop of acute security challenges and Russian aggression.
Europe simply cannot afford to stay stuck in endless policy activism, while trying to spend itself out of economic malaise. If digital and green tech performance provides any lessons, it is that pouring hundreds of billions into strategies that seek to micromanage the dynamism of the private sector does not drive scale and power commercial success.
While Europe’s underachievement in digital and green technology has been unfortunate and expensive, a similar trajectory in the next technology frontier — defence tech — would have far graver repercussions. An inability to scale may not only be costly but could be downright fatal. The stakes have never been higher.