Joeri de Wilde: Techno-capitalism, should the EU want it?

December 10, 2024

_{This column was originally written in Dutch. This is an English translation.}

By Joeri de Wilde, Investment Strategist at Triodos Investment Management

This year, US tech barons dominated the economy and financial markets. The danger is that the EU, blinded by this success, follows uncritically behind.

The EU's economic model is broken. It can no longer lean on globalization, American protection and cheap Russian gas. Meanwhile, the EU has largely lost the battle in high-tech. As a result, its competitive position against the U.S. and China, the two other economic superpowers, is deteriorating. So the European Commission turned to “Super Mario” Draghi for a comprehensive report. His solution can be briefly summarized: more economic growth of the kind in the US. But because of his single-minded focus on growth, Draghi fails to see how today's American robber barons are eroding democracy.

Productivity lags behind

Indeed, the EU economy grew slower than the U.S. economy this century. As a result, US GDP per capita was 34% higher last year. Of this difference, about 70% was explained by higher US productivity and 30% by Americans working more hours per person. Draghi, therefore, argues that the EU needs to boost productivity above all else, and it needs to do so by putting full effort into US-based technological innovation.

The productivity of U.S. tech companies has increased by nearly 40% since 2005, while European companies showed no improvement in productivity during that period. Draghi finely points out that only four of the world's 50 largest tech companies are European-based. This is a major reason why European stock markets have been losing out to their American counterparts for years. There is no denying that innovation in the European economic model is not stimulated in the same way. For example, there is no actual capital market union, making it more difficult for promising start-ups to raise money. There are also stricter rules on competition and privacy.

Technocapitalism as holy grail

So does Draghi see no drawbacks to American technocapitalism at all? Yet yes: among hundreds of pages of recommendations, Draghi writes on one page that we should not copy the U.S. in its entirety after all. We do copy-paste high-tech innovation and related productivity growth, but without the greater inequality that Draghi says accompanies it.

And here's where the shoe pinches. Because if the EU manages to create the same conditions for high-tech innovation as the U.S., why would you expect a different outcome in this area? More state aid and mergers will lead to bigger companies, for example, and less laws and regulations mean less protection of citizens' rights. So it is to be expected that, following the US, we will see more income and wealth inequality in the EU as well. Draghi's comment that the European welfare state is crucial to prevent this, by providing strong public services and social protection, feels hollow in this regard.

Don't let technology be hijacked

Economist Loretta Napoleoni, in her latest book Technocapitalism: The Rise of the New Robber Barons and the Fight for the Common Good, puts it much more clearly: contemporary robber barons such as Elon Musk, Jeff Bezos and Mark Zuckerberg have hijacked technology. As a result, technology does not serve the common good, but is used by the owners of these monopolistic companies to make a buck from capitalism, by further fueling consumption and encouraging polarization.

According to former Greek Finance Minister Yanis Varoufakis, unlike predecessors such as Henry Ford and John D. Rockefeller, these modern-day robber barons do indeed have a new kind of power because of the seemingly endless data they have collected on us. This is a different kind of capital than machines to produce cars, aimed at influencing our behavior. We need to stay on Instagram or X for as long as possible, and the best way to achieve this is through anger and bubbling. This undermines conversation, an essential building block for a functioning democracy.

Meanwhile, the market valuations of these tech companies exceed the size of national economies. And with Musk in an American ministry, lobbying power has morphed into direct power. He is now in charge of rules that should protect citizens from technology from companies like his.

The EU already has its hands full with these robber barons from the US. So is it really wise to loosen the reins and bet on a few more robber barons, this time homegrown? The EU should stick to its strength and look beyond the single-sided growth dimension. Draghi should know that several routes lead to Rome. In any case, the U.S. route is the least democratic.