The unsolved dilemma in Henna Virkkunen's mission letter
The EU's tech opportunity lies in tech adoption by the millions of midsized-firms, not in a handful of firms building tech infrastructure.
WHEN Henna Virkkunen, the designated European Commissioner for “tech sovereignty” will be quizzed by the European Parliament tonight, she has little to fear; Members will not reject her nomination. The challenge for Virkkunen will only come afterwards, as her mission letter reveals a strategic dilemma.
In her political guidelines, Commission President Ursula von der Leyen wrote that the “insufficient diffusion of digital technologies” is one reason for the lack of competitiveness of the European economy (a finding that is widely echoed by economists such as Isabel Schnabel and Mario Draghi). But the EU also wants to increase its “strategic autonomy” by building European infrastructure.
What’s first: diffusion or development of digital technologies?
The order of things is important: Do we want to spend the next decade building tech infrastructure or accelerate growth by increasing the uptake of cloud and AI across the economy?
Both are important obviously, but Europe’s opportunity lies with the latter.
Today more than ever, speed is essential and growth does not necessarily come from the invention of the best AI model but from a smart adoption of this technology in research and development and in business. Just like retailers who ignored e-commerce in the early 2000s are today challenged by direct-to-consumer brands, companies that do not embrace AI now will be replaced by AI in the future. The new superstar firms will be built on AI.
In her response to the European Parliament, Virkkunen wrote:
Our goal is to develop technologies that empower and enhance human capabilities and deliver on European values. This can be a competitive advantage for “Made in EU” digital products and services.
No one can possibly be against “safe, trustworthy and human-centric technologies”, but it is hard to believe that digital products and services “Made in EU” have a competitive advantage, especially because it is unclear what “European values” actually mean in the context of emerging technologies.
The excruciating debate about EUCS, the EU’s cybersecurity certification for cloud services is a case in point: the ongoing uncertainty poses a risk especially to smaller firms who may not have the expertise to accurately assess the cybersecurity posture of their vendors.
Will the EU merely “survive digitally” or embrace the opportunity?
The United Kingdom has a more pragmatic approach: The government of UK Prime Minister Keir Starmer believes that the biggest AI opportunity for Britain is to focus on the application layer with regulation that encourages the uptake of AI across the economy. British entrepreneur Matt Clifford, who led the review of AI opportunities for the British government, is due to present his “AI Opportunities Action Plan” later this month.
This approach is what the European People’s Party’s Axel Voss seems to favour as well: Speaking to POLITICO, he said: “Tech sovereignty doesn’t mean digital revolution”. After a mandate full of new tech regulations, Europe now has to think about how it can “survive digitally” in a fast-moving world, he added.
Re-defining Europe’s digital policy mission
Instead of building regional tech barons such as a European search engine or a European large language model, Europe should have the aspiration to build global empires based on the application of emerging technologies.
Mariana Mazzucato shows a way to think about how this could be achieved. Visionary, energetic and unconventional, the Italian is one of Europe’s most admired economists who embodies what Europe aspires to be.
In her book “Mission Economy: A Moonshot Guide to Changing Capitalism”1, Mazzucato writes that government should not just be about fixing problems (with regulation), but about creating public value by launching “missions” that can be very specific (like sending a man to the moon) or centre around shifting attitudes.
The EU must decide: do we want to spend the next decade building tech infrastructure or accelerate growth by increasing the uptake of cloud and AI across the economy?
In terms of digital policy, Europe's mission should be to create frameworks to enable companies to scale successfully. While the EU is ‘good’ at reigning in on Big Tech and increasingly also on supporting small start-ups, it is a bad place for companies to scale due to a lack of finance and high costs of compliance.
For this reason, it is encouraging that von der Leyen has promised to introduce a new category of “small midcap” companies and to assess where existing regulation for large companies creates disproportionate burden for smaller firms.
Secondly, rather than putting money into some companies or sectors, hoping that they’ll succeed, the EU should think about the digital transformation in much broader terms than just IT and hardware or cloud infrastructure. A pharmaceutical company that develops a new drug using a large language model or a construction firm that discovers a lighter construction material with AI is as much a digital company as a cloud service provider.
Thirdly, there is evidence that the General Data Protection (and probably not so much the actual law but subsequent guidelines and court rulings) have a chilling effect on innovation and venture capital flowing into the EU. In the future, we will probably see similar effects from other laws such as the EU Data Act. Complexity and legal uncertainty reduce appetite for innovation, especially in the light of high financial risks. As the new Commission is aiming for a faster and simpler Union, it needs to review laws that need to be simplified, streamlined or abolished.
Without adoption, there is no innovation. To get to the technological frontier, every firm in Europe needs to become a digital company.
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Mariana Mazzucato (2022): Mission Economy: A Moonshot Guide to Changing Capitalism (Penguin).