An economy in dire need of a business model

Europe's motto is to be "united in diversity". Unfortunately, while our economy has a lot of diversity, it is nowhere from "united" but instead 27 markets with their different rules and regulations. Worse, our single market is neither border-less like the United States growing unicorns through sheer size, nor government-controlled like China nurturing state champions with public funding. Both have an economic agenda. Europe doesn't.

This shows, because, while the European Commission regulates at a record pace, laws put out often don't seem to fit into a coherent bigger picture. On the contrary: when surgical precision is needed, EU regulation is often the equivalent of a baseball bat increasing bureaucratic burdens for SMEs who constitute the backbone of our economy providing most of the employment and a significant chunk of social security budgets.

Other global blocks understand the importance of SMEs. The United States Small Business Act since 1953 reserves 23% of public contracts for SMEs to help commercialise their solutions and increase their competitiveness. The European Commission followed suit in 2008 by proposing our own Small Business Act. However, a far cry from something substantial, it only included non binding recommendations to validate regulation on national level to not have any adverse effects on SMEs. Such smokescreens are no longer enough.

Especially, since the Italian IEP and German IFO recently published a study showing that large industrial companies in every member state gobbled up the lion's share of EU research budgets without delivering significant innovations. SMEs received crumbs in comparison but were the true innovators. This means, EU R&D innovation funding doesn't pave the way for the industries of the future but rather is a subsidy for large industrials of the past. Think about it.

What can the EU do? For starters, put more emphasis on SMEs. Europe needs its own Small Business Act with similar mandatory public procurement quotas as in the US. This should however only be one of a range of measures aimed at strengthening the European SME landscape: we need not only a 28th regime (EU Inc.), but also harmonised paperwork across all 27 member states. We need an integrated capital market to allow startups to find funding in Europa instead of leaving for the US. We should ensure that no more legislation is passed that puts SMEs at a disadvantage compared to larger actors. And we should invert European R&D funding making SME calls no longer an exception but the norm.

My focus points

  • Innovation

    The EU prides itself in its project approach in research: at least 3 partners from 3 countries, work packages, tasks, milestones, deliverables. All reports written but no innovation? No problem. Breakthrough innovation but no follow-up project or financing to bring it to the market? Apply for a new project, wait one year if you get funding or go straight to the Silicon Valley. Compare this to the US Inflation Reduction Act, which allows to just deduct investments in green tech from payable taxes. Europe can do better and we need a model that facilitates innovation rather than pressing it in bureaucratic schemes - both for SMEs and academia.

  • Integration

    The idea of the EU was certainly not that there have to be 27 different ways to fill out tax filings, salary slips, VAT declarations and so on. We need our internal market to be robust to withstand external shocks like trumpish tariffs. This will only work if national governments support harmonisation rather than blocking it. The omnipresent reducing bureaucracy would already work wonders, if an SME could open a subsidiary in any member state and file the exact same declarations everywhere. Internal trade barriers are said to be equivalent for 44% tariffs in products and a whopping 110% for services. Low hanging fruits, provided there is the willingness to integrate.

  • Interoperability

    Pushing for openness, transparency and interoperability for SMEs over the introduction of standards. Standards are usually set by the most powerful actors. To provide an example: it may be beneficial to force everyone in Europe to speak a single language, but what would we loose if Catalan was no longer spoken? Or Spanish? Languages provide interoperability: grammar and vocabulary are freely accessible, so rather than force everyone to speak English, why not push for interoperability in the form of translation software accessible for everyone?

Related blog posts

  • Innovation or Bureaucracy?

    Innovation or Bureaucracy?

    (Sven Franck, )
    I recently submitted a dossier for the European Defence Fund. Our SME consortium passed the threshold with high grades for innovation. However, another project scored better and since only one project was funded, we found ourselves accepted but sans budget. Read the article.