INNOVATION-DRIVEN MECHANISMS FOR REBUILDING EUROPE’S COMPETITIVENESS

Abstract

This article examines the growing gap between the United States and Europe in innovation, as reflected in indicators such as venture investment, market capitalization, and the number and value of unicorns. Using data from the World Intellectual Property Organization (WIPO) Global Innovation Index, it focuses on indicators of countries’ ability to commercialize innovations (for example, late-stage venture capital deals and business-financed R&D expenditure) and highlights the weak innovation performance of the European Union (EU). Most scholars attribute this to three main factors: the absence of a Single Capital Market (the fragmented market limits demand and creates a scale-up gap between the EU and the United States, which systematically drives successful European start-ups abroad and fuels brain drain); insufficient private capital investment; and a lack of infrastructure – such as innovation clusters – that could link universities, start-ups, venture capitalists, large technology companies, and private investors. The article shows that while there is little difference between the EU and the United States in the number and value of early-stage start-ups, the gap widens as companies grow. As a result, none of today’s global “Big Tech” firms is European, and the technological revolution has largely been led by the United States and China. The ongoing AI revolution appears to follow the same pattern. One critical consequence of this is the EU’s increasing dependence on U.S. technological infrastructure, which could undermine European sovereignty. The article emphasizes the urgent need to foster innovation and support local companies in building an EU-based digital infrastructure covering the entire value chain – from hardware to cloud technologies. It argues for a shift in the approach to public–private partnerships in financing and supporting start-ups: public funding should complement rather than replace private capital, enabling market forces to determine the business value of each investment. Finally, a Granger causality analysis confirms a cause-and-effect relationship between market capitalization and a country’s economic growth.