This year, US tech barons again dominated the economy and financial markets. The risk is that the EU, blinded by this success, tries to copy this American model of technocapitalism.
The EU's economic model is broken. It can no longer lean on globalisation, US protection and cheap Russian gas. Meanwhile, it has largely failed to develop a high-tech industry. As a result, its competitive position against the US and China, the two other economic superpowers, is deteriorating. The European Commission turned to ‘Super Mario’ Draghi for comprehensive advice. His solution: more economic growth of the kind seen in the US. But because of his single-minded focus on growth, Draghi fails to see how today's US robber barons are eroding democracy.
Productivity lags behind
Yes, the EU economy grew slower than that of the US 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 more than anything else, and that it needs to do so by focusing on US-style technological innovation.
Indeed, the productivity of US tech companies has increased by almost 40% since 2005, while European companies saw no improvement in productivity during that period. Draghi points out that only four of the world's 50 largest tech companies are Europe-based. This is a major reason why European stock markets have been losing out to their US counterparts for years. Indeed, there is no denying that the European economic model does not encourage innovation in the same way. For instance, there is no capital market union, making it harder for promising start-ups to raise money. There are also stricter rules on competition and privacy.
Technocapitalism as holy grail
Does Draghi see no drawbacks to US technocapitalism at all? He does. Among hundreds of pages of recommendations, Draghi devotes only one page to state that we should not copy the US in its entirety. We should copy-paste high-tech innovation and related productivity growth, but without the greater inequality that Draghi says comes with it.
And this is where the shoe pinches. If the EU manages to create the same conditions for high-tech innovation as the US, why would we expect a different outcome on the inequality front? More state aid and mergers will lead to bigger companies, for instance, and fewer laws and regulations mean less protection of citizens' rights. So when we target technocapitalism, it is safe to assume that we will also see more income and wealth inequality in the EU. In this respect, Draghi's comment that the European welfare state is crucial to prevent precisely this outcome by providing strong public services and social protection, contradicts his recommendations.
Don't let technology be hijacked
Economist Loretta Napoleoni puts it much more clearly in her latest book Technocapitalism: The Rise of the New Robber Barons and the Fight for the Common Good: contemporary robber barons like Musk, Bezos and Zuckerberg have hijacked technology. As a result, technology does not serve the common good but is used by the owners of these monopolies to profit from capitalism by further fuelling consumption and encouraging polarisation. According to former Greek finance minister Varoufakis, unlike predecessors such as Ford and Rockefeller, these modern-day robber barons do indeed have a new kind of power, due to the seemingly infinite data they have collected on us. Unlike machines to produce cars, this is a different kind of capital, aimed at influencing our behaviour. We need to stay on Instagram or X for as long as possible, and the best way to achieve this is through anger and keeping us in our social and cultural bubbles. This undermines conversation, an essential building block for a functioning democracy.
Meanwhile, the market valuations of these tech companies far exceed the size of national economies. And with Musk in a US ministry, lobbying power has morphed into direct power. He is now in charge of rules that should protect citizens from technology coming from companies like his.
The EU already has its hands full with these US robber barons. So is it really wise to strive for a few more of them, this time from our own soil? The EU should stick to its strength and look beyond the single-minded growth dimension. Draghi should know that there are several ways to skin a cat. In any case, the US way is the least democratic.
This is a translation of Joeri de Wilde's column published by Financial Investigator.
