Libertax
THE NEW WORLD ORDER · THE NEW WORLD ORDERINS-20241212-01

Europe Regulated While America and China Built

Europe does have a scale, capital and fragmentation problem. But the claim that Europe only regulates while the United States and China innovate is too crude. The evidence supports a narrower and more useful diagnosis.

Carlos Barredo Lago · FROM THE LIBERTAX ARCHIVE6 min
Libertax editorial visualization for “Europe Regulated While America and China Built”
A Libertax editorial composition about Europe Regulated While America and China Built.

KEY TAKEAWAYS

KEY POINT 01The strongest evidence against Europe is about scale and fragmentation, not the absence of innovation. Financing gaps and internal barriers make growth harder even when research and technology are strong.
KEY POINT 02The United States and China do not operate laissez-faire innovation systems. Both use regulation, trade policy, security controls and industrial policy alongside private enterprise.
KEY POINT 03Europe's position is testable rather than predetermined. Capital-market depth, internal-market barriers, productivity, digital adoption and the growth of European scale-ups can show whether recent reforms change the trajectory.

“Europe regulated while America and China built” is a powerful line.

As a complete economic diagnosis, it is wrong.

Europe does have documented problems with market fragmentation, growth capital and the ability to scale companies. The United States has deeper capital markets and a stronger record of producing very large technology firms. China has built extraordinary industrial capacity and has entered the global top ten in WIPO’s innovation ranking.

But Europe also contains several of the world’s most innovative economies, strong industrial sectors and high adoption of advanced digital technologies.

The useful question is therefore not whether Europe builds.

It is why Europe converts its talent, savings, research and large market into global scale less efficiently in important sectors.

Key takeaways

  • The strongest evidence against Europe is about scale and fragmentation, not the absence of innovation. Financing gaps and internal barriers make growth harder even when research and technology are strong.
  • The United States and China do not operate laissez-faire innovation systems. Both use regulation, trade policy, security controls and industrial policy alongside private enterprise.
  • Europe’s position is testable rather than predetermined. Capital-market depth, internal-market barriers, productivity, digital adoption and the growth of European scale-ups can show whether recent reforms change the trajectory.

The evidence for the provocative thesis

The European Investment Bank has documented several structural frictions.

Its 2024/25 Investment Report found that 74% of innovative EU firms regarded regulatory inconsistencies as a barrier to expansion. The same research estimated regulatory compliance costs at around 1.8% of turnover overall and 2.5% for SMEs.

The EIB’s work on European scale-ups identifies a sharper capital problem.

By around ten years of age, European scale-ups had raised roughly half as much capital as comparable firms in the San Francisco ecosystem. EIB analysis also describes US venture-capital investment as several times larger than European VC and highlights the unusually large role of foreign investors in later European rounds.

Those findings support a real thesis:

European firms can invent successfully and still face a harder path from invention to global scale.

Internal fragmentation matters

The EU is legally a single market.

For companies, it is not always operationally seamless.

The EIB’s 2025/26 Investment Report found that 62% of EU firms reported difficulty exporting to other EU countries because of fragmented rules.

That is economically important.

A company in the United States can often grow across a huge domestic market before confronting a foreign legal system. A European company may encounter language, labour, tax, corporate, consumer and regulatory differences much earlier in its growth path.

The result is not that Europe lacks a market.

It is that parts of the market can be expensive to integrate operationally.

The evidence against the caricature

The sentence becomes misleading when it implies that Europe does not build or adopt technology.

WIPO’s 2025 Global Innovation Index placed several European economies in the world’s top ten. Switzerland and Sweden occupied the first two positions, while the United Kingdom, Finland, the Netherlands and Denmark were also in the top group.

China entered the global top ten, while the United States remained among the highest-ranked economies.

The EIB’s more recent firm-level evidence also complicates the idea that European companies simply lag in digital adoption.

Its 2025 survey reported advanced digital-technology adoption at broadly similar levels in EU and US firms, and GenAI use was likewise close in the two groups.

Europe’s problem is therefore not adequately described as technological refusal.

Interpretation: the conversion mechanism is weaker than the inputs

Europe has many of the inputs associated with innovation:

educated workers, research institutions, large pools of savings, sophisticated industrial capabilities and a large consumer market.

The weakness appears more strongly in conversion:

research → commercialisation → growth capital → cross-border scaling → global company.

If financing is shallower, internal expansion is administratively harder and firms seek larger foreign investors earlier, successful companies can migrate economically even when the original research and founders were European.

That produces the appearance that Europe “invented but somebody else built”.

America and China also regulate

The contrast should not be framed as:

Europe = regulation
America/China = freedom to build.

The United States uses export controls, outbound-investment restrictions, tariffs, subsidies and national-security screening.

China uses industrial policy, export controls, investment controls and extensive state direction in strategic sectors.

The difference is not the existence or absence of government intervention.

The relevant questions are what the intervention targets, how predictable it is, how large the domestic market is, how capital is mobilised and whether companies can still scale through the system.

The strongest countercase

Europe may already be correcting part of the problem.

Since the Draghi Report, the EU policy agenda has moved toward competitiveness, simplification, deeper capital markets and easier scaling.

Recent EIB data also show that European firms can adopt new technologies rapidly: the AI-adoption gap with US firms was much smaller in 2025 than earlier comparisons suggested.

It would therefore be lazy to freeze the analysis at the most pessimistic point and declare decline inevitable.

A serious thesis has to specify what evidence would prove it wrong.

Scenarios, not forecasts

Under European convergence, internal barriers fall, capital markets deepen and more successful firms finance later growth without relocating their economic centre.

Under persistent scale disadvantage, Europe remains strong in research and selected industries but continues losing a disproportionate share of high-growth firms, financing and exits to deeper foreign ecosystems.

Under sectoral divergence, Europe leads in particular industrial, energy, health or engineering niches while the United States and China retain stronger scale advantages in other strategic technologies.

Observable triggers include late-stage financing, VC-fund size, cross-border expansion costs, IPOs, acquisitions, productivity, energy costs and the number of European firms reaching global scale.

Practical consequences

For a founder, the question is not whether Europe is “good” or “bad”.

It is where the company needs to be for the next stage.

A research-heavy business may benefit from European talent or grants. A company preparing a large growth round may care more about capital depth. A manufacturer may care about energy, supply chains and subsidies. A regulated business may value legal predictability more highly than speed.

Corporate structure should reflect those economics.

A European founder does not need to reject Europe to build globally.

But they should not confuse the existence of the single market with the absence of scaling friction.

The useful jurisdictional question is always specific:

where can this particular company raise capital, hire, sell, govern and comply most effectively at its current stage?

Sources

Disclaimer

This Insight provides general economic, business and policy analysis. It is not investment, legal, tax or regulatory advice. Cross-region comparisons depend heavily on sector, company stage, measurement period and methodology, and the relevant data should be updated before major jurisdictional or investment decisions.

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