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Principal research scientist at the MIT Sloan School of Management, co-founder of MIT’s Initiative on the Digital Economy and co-founder of the AI startup Workhelix, Andrew McAfee is the author of The Geek Way and a co-author of The Second Machine Age. He suggests that the EU shall pursue deeper and complex reforms to reverse the excessive regulatory course and “rethink its onerous technology regulations”.
Background
According to the US researcher and author, “the European economy is falling behind”: e.g. at the turn of the century, the European labor productivity was on a steady upward trajectory and had reached almost 95 percent of the US levels. Then the trend reversed: presently, the EU productivity is about 20 percent lower than that of the United States.
One important cause of this decline is European failure to participate in the digital revolution: e.g. of the world’s 100 most valuable high-tech companies, only two are headquartered within the EU. The EU-27 has no global-scale companies in cloud computing, in online advertising, mobile devices or chip designs; and it has only one digital competitor—France’s Mistral—remaining in the race to build the large language models powering the current AI surge.
Andrew McAfee notes that “the problem is not that the EU and its national governments are not doing enough to spur competitiveness”; on the contrary – “they are doing too much to impede it”. Through the slow accretion of layers of labor and tax policy, red tape and technology regulation, they have erected barriers to the creation of larger and vibrant startups currently thriving in the United States; the latter’s political-economy has been the cradle of many major innovative high-tech companies, as well as those sparking innovation and growth in other sectors. Then, Andrew McAfee concludes: “if the EU does not create the conditions for such companies to develop, then the bloc’s decline may become irreversible”.
Source and citations from McAfee A. “Europe Can’t Get Out of Its Own Way. The Real Barriers to Competitiveness and Innovation Are Still in Place”. September, 2026. Foreign Affairs, in: https://www.foreignaffairs.com/europe/europe-cant-get-out-its-own-way#
Sectoral examples
The auto industry is the source of approximately ten percent of EU manufacturing employment, or more than three million jobs, according to the European Automobile Manufacturers’ Association. That number seems likely to fall further, unless there is an increase in foreign-owned production, or a huge reversal in fortunes among legacy European automakers. The valuation trajectories of these companies indicate that investors do not anticipate such a turnaround.
A quarter century ago, European companies accounted for 36 percent of the total market capitalization of the world’s 100 most valuable companies. By the end of 2025, this figure had fallen below ten percent.
For example, Mario Draghi has made clear recently the negative consequences if these trends are not reversed; he says: “this is a future in which Europe risks becoming subordinated, divided and deindustrialized at once; and Europe that cannot defend its interests will not preserve its values for long”.
Note. Mario Draghi delivered his address at the International Charlemagne Prize ceremony in Aachen in May 2026, warning that Europe faces deep and mounting geopolitical, economic, and military pressures. Reference to: https://federalists.eu/federalist-library/mario-draghis-speech-in-aachen-14-05-2026/
The “Silicon Valley’s” effect
The, McAfee used the notion “Silicon Valley” is a convenient shorthand for the successful innovative system: i.e. originally, the area’s entrepreneurs and investors concentrated on the computer hardware, software and network industries.
In recent years, the Silicon Valley’s ambitions have grown; and it has brought its innovations to many other economic sectors: e.g. a notable example is Tesla, which, since its founding in 2003, has designed, produced and sold over ten million EVs. It has created a network of around 40,000 charging stalls in the United States and 20,000 in Europe; since 2020; the company has made $45 billion in profit, according to Tesla’s annual reports. The company is currently operating robotic taxis in six US cities: in Austin, Dallas, Houston, Miami, Orlando and Tampa, which accommodates two passengers, and has no steering wheel or pedals.
More in: https://www.tesla.com/robotaxi
McAfee suggests that it is essential for Europe to “develop its own productive crucible: recent high valuations for some continental startups have sparked optimism that the region’s entrepreneurial ecosystem has turned a corner.
But the fundamentals remain poor and there have been other false dawns: e.g. in 2023 and 2024, overall EU venture capital investment jumped to more than 20 percent of the US total. In 2025, however, this figure dropped back to about 12 percent, near its average of 12 percent since 2010. For the past 12 years, the total valuation of EU unicorns (private, high-growth companies worth at least $1 billion) has hovered around ten percent of the US total; in 2025 and in 2026, the figure has dropped to approximately 8 percent.
Recommendation
The author suggests that the EU should reevaluate the bloc’s approaches to the digital technology regulation. It seems at times as though EU officials believe that regulation imposes few, if any, meaningful constraints on innovators and entrepreneurs. Sometimes the EU officials acknowledged that the “greater regulation might even unleash innovation and entrepreneurship”.
For example, in 2023, Margrethe Vestager, the then executive vice president of the European Commission, maintained that the EU’s AI Act (which was adopted in 2024) would “not harm innovation and research, but actually enhance it.” The AI Act came on top of the Digital Services Act and Digital Markets Act, both passed in 2022, and the General Data Protection Regulation (GDPR) done already in 2016.
However, Andrew McAfee notes that “as evidence has accumulated about the effects of these regulations, it has become harder to sustain a belief in the harmonious relationship between competitiveness and EU red tape”. The GDPR, for example, has decreased venture capital investment into the EU, increased the market share of already dominant US technological companies, hurt the financial results of companies targeting the European market, and inconvenienced consumers. Mc Affe refers to a study by Rebecca Janßen, Reinhold Kesler, Michael E. Kummer and Joel Waldfogel who found that GDPR led to the disappearance of about a third of the apps available on the Google Play Store and a 50 percent reduction in the number of new apps added over time. GDPR accomplished these outcomes by imposing substantial compliance costs and limiting companies’ ability to collect efficiency-enhancing data.
Reference to: Rebecca Janßen, Reinhold Kesler, Michael E. Kummer, and Joel Waldfogel, “GDPR and the Lost Generation of Innovative Apps”. – NBER Working Paper 30028 (2022), https://doi.org/10.3386/w30028
General conclusions
Unless those barriers are dismantled, the EU will fall farther behind, concludes McAfee; and the EU “does not have the luxury of time” – the European industries are going to come under stringent challenges in the coming years. Near-term policy choices will determine if the new growth engines that rise to this challenge will be European.
The EU cannot close the competitiveness gap without deeper and different reforms than those currently under consideration. Brussels needs to reverse course and rethink its onerous technology regulations. At the same time, national governments need to follow established best practices and create attractive environments for top innovators, entrepreneurs, and venture capitalists. It is true that Europe has great strengths: i.e. it is a populous and prosperous region with strong institutions, excellent educational systems and no shortage of talented developers. But it is also true that, at present, entrepreneurs face many barriers that impede their ability to scale their businesses, attract the world’s best sources of risk capital, and make an impact at a global level.
Additional information on the issue in the following links: https://www.foreignaffairs.com/united-states/europe-stuck-america and https://www.foreignaffairs.com/europe/europes-hidden-trade-advantage.
As well as in: https://www.foreignaffairs.com/united-states/trump-has-got-europe-all-wrong; and https://www.foreignaffairs.com/europe/europe-missing-its-moment