The False Choice Between Digital Regulation and Innovation

Key Question Being Explored in This Insight:

Are we sacrificing innovation for digital regulation, or is there a more nuanced relationship between the two? Anu Bradorrd provides a balanced perspective that challenges the conventional wisdom and emphasizes a complex interplay between regulation, technological progress, and foundational economic structures.

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Institution: Columbia University

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This video discusses the ongoing debate about the impact of regulation on technological innovation, particularly contrasting the regulatory approaches between Europe and the United States. The conventional belief posits that stringent regulations in Europe hinder innovation, while a more relaxed regulatory environment in the U.S. fosters it. This video idea is being challenged by the paper, which suggests that the lack of successful tech companies in Europe cannot be solely attributed to regulations like the GDPR.

The author argues that multiple factors contribute to the disparity in tech innovation between the two regions. For instance, Europe lacks a cohesive digital single market, hindering scalability for tech companies. Additionally, Europe's capital markets are less integrated, making it difficult for startups to secure funding, forcing them to rely on U.S. venture capital. Strict bankruptcy laws in Europe also deter risk-taking among entrepreneurs, contrasting with the more forgiving U.S. system.

Moreover, the U.S. attracts global talent more effectively, evidenced by the proportion of immigrant founders among billion-dollar startups. The author emphasizes that while European regulations target large tech companies, they do not inhibit innovation altogether. Instead, they may even incentivize the development of more privacy-focused technologies.

The paper concludes with policy prescriptions for Europe to enhance its tech ecosystem and generate more technologies, suggesting the need to complete the digital single market, improve capital market conditions, reform bankruptcy laws to encourage risk-taking, and develop strategies to attract global talent. For the U.S., the message is clear: adopting regulations like a federal privacy law would not impede innovation as long as the country continues to strengthen its existing advantages.

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Here are five key points from the video:

1. **Regulatory Impact on Innovation**: The video discusses the prevailing belief that stringent regulation negatively affects technological innovation, particularly highlighting the contrast between the regulatory environments in Europe (characterized by the General Data Protection Regulation, or GDPR) and the United States, where a lighter regulatory touch is often credited with fostering technological success.

2. **European vs. American Tech Landscape**: It points out the dominance of U.S. tech companies such as Google, Meta, and Microsoft compared to the relative scarcity of successful tech companies in Europe, emphasizing that Europe is more recognized for its regulatory frameworks than for its technological innovations.

3. **Regulatory Models**: The author contrasts the U.S. market-driven regulatory model, which emphasizes minimal government intervention and promotes innovation through a free market, with the European rights-driven regulatory model, which prioritizes the protection of individual rights and a fair digital economy, arguing that different approaches to regulation shape innovation paths differently.

4. **Barriers to Innovation in Europe**: The video identifies several key factors that hinder innovation in Europe, including the lack of a digital single market, insufficiently integrated capital markets, punitive bankruptcy laws, and challenges in attracting global talent, which collectively contribute to fewer successful tech startups emerging from Europe.

5. **Policy Recommendations**: The author advocates for European policymakers to strengthen their digital ecosystem by completing the digital single market, enhancing capital market integration, reforming bankruptcy laws to encourage risk-taking, and developing proactive immigration strategies to attract global talent, while also calling for the United States to establish a federal privacy law that balances innovation with the protection of individual rights.

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Here are some key quotes extracted from the video :

1. "**There is a really persistent view that stringent regulation normally has an adverse effect on innovation.**"

2. "**This has then nurtured this view that maybe because the Europeans are they cannot develop those technologies.**"

3. "**The Europeans are really more famous for regulating than for generating technologies.**"

4. "**If you believe the conventional wisdom, maybe Europeans should take a step back and stop regulating.**"

5. "**I argue that regulation does not explain whether the country is capable of innovating.**"

6. "**The Americans follow what I call a market-driven regulatory model, prioritizing free market innovation, free internet, free speech.**"

7. "**The Europeans have deployed the antitrust laws, so competition laws, data privacy laws.**"

8. "**The GDPR is the flagship regulation from Europe.**"

9. "**The US tech companies are more heavily regulated by the Europeans than the Americans.**"

10. "**I don't think anybody takes the view that because the Europeans have been vigilant, we don't have tech innovation.**"

11. "**There are other factors that are explaining the gap in technological innovation between the US and the EU.**"

12. "**The absence of a digital single market in Europe is a really important variable explaining why the European tech companies have struggled.**"

13. "**Europe has some of the most punitive bankruptcy laws that really deter the entrepreneurs from engaging into the kind of disruptive innovations that are absolutely key.**"

14. "**The Americans are really drawing on global talent to the success of the American tech sector.**"

15. "**Over 50% of those in the United States have an immigrant founder.**"

16. "**If the Europeans want to generate technologies... they need to get on the field and play the game.**"

17. "**Europeans need to finally complete the capital markets union.**"

18. "**There needs to be a proactive plan for immigration, how the Europeans can harness the global talent.**"

These quotes encompass the main arguments and reflections presented in the video regarding the differing approaches to tech regulation and innovation between Europe and the United States.

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Is a really persistent view that re stringent regulation

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normally then has an adverse effect on innovation.

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And nowhere is this conversation more heated

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and more consequential as in the tech sector right now.

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So if you look at then the success in the, in the, the world

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of tech companies, the Americans really seem

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to be dominating it.

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So the US is the place alongside with China,

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where the big is most successful tech

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giants are coming from.

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So this is the home of the Googles and the Metas

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and the Apples and the Amazons

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and the Microsofts of the world.

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At the same time, there are very few tech

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companies coming from Europe.

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So you can probably, consumers can name Spotify,

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but that's about it.

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But then the consumers don't take a long time

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to name the GDPR, the General Data Protection Regulation.

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So the Europeans are really more famous for regulating than

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for generating technologies.

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This has then nurtured this view that maybe

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because the Europeans are

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so adamant in regulating technologies, they cannot innovate,

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they cannot develop those technologies.

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And because the United States, is known

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for its very light touch to technology regulation, maybe

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that explains why the US has been so successful.

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So this is the conventional wisdom out there

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that the paper is looking to challenge.

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I think it has deep policy implications.

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So it is important for the scholarly conversation,

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but also for policy makers,

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because if you believe the conventional wisdom,

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then the outcome is

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that the maybe Europeans should take a step back

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and stop, regulating

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and the Americans

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who are now really having a very active conversation

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or whether they should be also getting in this game

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and regulating alongside with the Europeans, then, you know,

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maybe they would end up like the Europeans

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and not generating tech companies.

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So this was the conversation

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or the, the kind of policy implication

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that I was very conscious of

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and wanted to make sure that we have a sort

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of proper analytical basis for having that conversation.

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And the paper argues that, look, it's not

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that all tech regulation is beneficial,

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but it's not also quite right

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that it's the tech regulation

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that would explain whether the country is

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capable of innovating.

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So the Europeans are not generating leading tech companies

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because of the regulations like the GDPR, the same way

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that the Europeans now recently adopted

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a comprehensive ambitious AI act.

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So our regulation

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or artificial intelligence, again, I argue

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that even if the Europeans now decided just as scrap

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that regulation and not implement that, it's not

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that suddenly all those AI companies would be

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emanating from Europe.

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So there must be other factors

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that are explaining the gap in technological innovation

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between the US and the eu.

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The Americans follow what I call a market driven regulatory

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Model. So

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that's premised on this idea of prioritizing free market

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innovation, free internet free speech, really incentives

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to innovate that requires under this American model

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for the government to play a very trivial role.

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So in practice, the governance of technology is handed over

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to the tech companies themselves.

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So it is a very techno optimist, techno libertarian view

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of the world, and that is reflected in the actual law.

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So there is no federal data privacy law in the United States

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and the US is globally an outlier in not having such a law

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the same way the US has antitrust laws,

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but up until recently,

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they have very rarely been leveraged against tech companies.

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So this is another big difference to the Europeans.

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The same with the content moderation.

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There's a very famous, section, two 30

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of the Communications Decency Act

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that basically protects the tech companies,

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gives them this kind of liability shield, whether they want

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to remove certain content or fail to remove

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or decide not to remove certain content.

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So these are all areas where the Europeans have been adamant

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that the government needs to step in.

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So the Europeans follow what follow

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what I call a rights driven regulatory model.

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So that model is premised on the idea that

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what is key is the protection of the fundamental rights

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of individuals, the preservation of democratic structures

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of the society, and then a pursuit,

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of a more fair digital economy.

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So the Europeans are prepared to also redistribute gains

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of digital transformation away from the large tech companies

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to smaller companies, to individual users

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and to the society at large.

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So that has been, given the foundation for the Europeans

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to say that, look, the government needs to step in.

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We cannot trust the tech companies

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to self govern in the public interest.

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So the Europeans have deployed the antitrust laws,

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so competition laws, data privacy laws.

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So the GDPR is the, the flagship regulation from Europe.

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And the Europeans are also

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very strict at regulating hate speeds and disinformation

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and other unlawful or harmful content online.

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So that is a big stark difference to the Americans,

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certainly is impacting the tech companies.

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So if you look at now

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that the US tech companies are more heavily regulated

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by the Europeans than the Americans.

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So where they pay attention is, is

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what are the rules coming out of Brussels?

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And they have been fighting multi-front regulatory battles

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with the Europeans.

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When the Europeans have gone

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after the US tech companies abusing

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that they have been violating the European antitrust laws

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or breach the data privacy laws

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and thereby compromising the fundamental right to privacy.

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And and then, they have also failed

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to moderate content on their platforms in ways that would be

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Consistent with European laws.

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So yes, the European laws are impacting the way technology

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companies are behaving, but I wouldn't say

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that these laws have prevented these

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companies from innovating.

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I don't think anybody takes the view that

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because the Europeans have been vigilant,

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we don't have tech innovation.

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So we do have tech innovation.

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And that's one way of looking that,

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that if there was such a correlation

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that Europeans cannot generate technologies

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because they regulate often their regulations are targeting

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also these American tech companies

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and very few of us are worried about their ability

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to innovate because they, for instance, would need

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to adhere to privacy laws.

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It's one way that the European laws can change

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the pathways of innovation.

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So the tech companies are now incentivized

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to develop more privacy protective products and services.

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And many consumers would say that is an innovation.

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We don't just think about innovation as a product

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that let's say lowers cost

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or bring some other benefits,

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that generates the most data possible,

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but that also has the kind of quality features

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that consumers values.

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The users are more conscious of their data privacy,

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and that way the regulation can change the incentives

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of these tech companies as to what kind

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of innovations they are pursuing.

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So the same way, if you think about

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that all tech regulation is not beneficial,

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but neither is all kind of innovation.

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That's why the Europeans are now steering with regulation,

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these tech companies away from innovations that create harms

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for individuals or society.

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So for instance, the eus AI Act is looking

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to direct the companies away from the kind of AI innovations

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that can be harmful towards the ones

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that really have the greatest potential

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to create massive gains for for the society.

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There are some fundamental differences

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between the United States

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and Europe that

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to me much better explain why we see a difference in

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technological innovations.

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So, and they have very little to do with digital regulation.

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So let me take first one,

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which is there is no digital single market in Europe.

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The market remains fragmented across the 27

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individual member states.

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There are different linguistic barriers,

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there are cultural differences,

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there are still legislative regulatory differences

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that make it very difficult for a European tech company

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to scale across the entire European marketplace.

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That is not the problem in the us it is not often

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that difficult to scale across selling your,

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products in Michigan and Virginia and the state of New York.

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So if you think about for instance, Amazon that launched

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as a bookseller, when there is a demand

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for English speaking books

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that covers the entire marketplace,

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it is much easier to do that

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In the United States than in Europe when you have

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multiple different languages.

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So this digital single market,

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or rather its absence in Europe,

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is a really important variable explaining why the European

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tech companies have struggled.

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Another one is that there is no deep integrated capital

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markets in Europe.

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There is no capital markets union.

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So it is very hard for the European tech companies

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to fund their innovations in Europe.

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They do very well in the first few funding rounds,

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but as soon as they need more money,

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when they need more capital, they need to turn

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to the US venture capital, which is a much more robust,

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dynamic market,

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or then they are acquired by the biggest tech giants.

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So that is another important variable.

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And third, I would point out the legal frameworks

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and attitudes towards risk taking.

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So Europe has some of the most punitive bankruptcy laws

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that really deter the entrepreneurs from engaging into the

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kind of disruptive innovations that are absolutely key

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for technological progress and innovations.

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So, those bankruptcy laws are much more

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lenient in the United States.

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They really start from this assumption

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that sometimes entrepreneurs fail

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and they need to be given a second chance.

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There's also no cultural stigma

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around failure in the us It's built into the Silicon Valley

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venture capital model that you try very hard.

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Sometimes your business goes under, then you go

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and raise more money and they give you more money

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because it seems like you're working on big things.

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It's almost like they fail fast,

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fail often, and then try again.

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Um, and I think that is missing in Europe

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and would need to change for the entrepreneurs

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to really put themselves out there

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and do really hard things.

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The fourth one, and this is really important, is

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that you cannot be the world's leading innovator

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unless you have access to the leading innovators.

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And this is where the US has done

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so much better than the Europeans.

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So the Americans are really drawing on global talent,

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and the diversity of the talent has really contributed

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to the success of the American tech sector.

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So the Europeans have not been even remotely close to as,

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as successful as the Americans in attracting

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through universities and other channels.

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They're, they're immigrants into the marketplace.

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So if you look at for instance,

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over $1 billion startups, over 50%

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of those in the United States have an immigrant founder.

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And if we think about just the household names,

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the biggest tech companies and they founders.

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So Steve Jobs of Apple is a son of a Syrian immigrant.

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Jeff Bezos of Amazon is a second generation Cuban.

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Elon Musk of Tesla is South African.

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Sergei Brin, the co-founder of goco. Um, he's Russian.

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Eduardo Severin, the co-founder of Facebook.

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He's Brazilian. And I could go on.

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This is again, not the story that

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because the Europeans had the GDPR, they are not innovating.

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They don't have all this global talent

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that the Americans have been able to harness for the benefit

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of the country's technological innovations.

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The main policy implication is

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that the paper gives a normative defense to the digital

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regulatory agenda of the Europeans.

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So if the Europeans want to generate technologies,

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and I think that absolutely ought to be their goal.

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They don't just want to be the referee.

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They need to get on the field

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and play the game, play offense and defense and play well.

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But that doesn't mean that they would need

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to be moving away from protecting digital

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rights of individuals.

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Instead, in parallel, they should be equally committed

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to building these other pillars of the tech ecosystem.

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So really completing the digital single market,

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removing those obstacles that are there for scaling,

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you cannot get rid of all the linguistic differences,

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but there are many regulatory differences

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that can be removed the same way the Europeans need

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to finally complete the capital markets union.

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And they need to rethink the laws that really would allow,

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for instance, pension funds

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to invest in these risk risky technologies and, and,

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and do sort of other reforms that replicate

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what the Americans have done.

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What explains the success of the capital markets?

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The Europeans really need to rethink the, the,

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the bankruptcy laws and how can we encourage risk taking

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and there needs to be a proactive plan for immigration,

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how the Europeans can, harness the global talent.

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So that's my policy prescription that

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that stems from the paper for the Europeans

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and for the Americans.

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The, the policy message is clear.

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Even if the Americans decided to, for instance,

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enact a federal privacy law

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that would not prevent the Americans from innovating going

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forward, that would not abolish the country's vibrant

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capital markets that wouldn't rewrite the bankruptcy laws,

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that wouldn't prevent the immigrants from coming to the us.

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So as long as the US continues to play to its strengths and,

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and make sure that it protects

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and continues to build on those successes

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and keep those other pillars of the tech ecosystem strong,

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the Americans will continue to innovate.

Regulation vs. Innovation: A Comparative Analysis of the US and Europe in Tech

00:00:00 - Is a really persistent view that re stringent regulation normally then has an adverse effect on innovation. And nowhere is this conversation more heated and more consequential as in the tech sector right now. So if you look at then the success in the, in the, the world of tech companies, the Americans really seem to be dominating it. So the US is the place alongside with China, where the big is most successful tech giants are coming from. So this is the home of the Googles and the Metas

00:00:33 - and the Microsofts of the world. At the same time, there are very few tech companies coming from Europe. So you can probably, consumers can name Spotify, but that's about it. But then the consumers don't take a long time to name the GDPR, the General Data Protection Regulation. So the Europeans are really more famous for regulating than for generating technologies. This has then nurtured this view that maybe because the Europeans are

00:01:06 - they cannot develop those technologies. And because the United States, is known for its very light touch to technology regulation, maybe that explains why the US has been so successful. So this is the conventional wisdom out there that the paper is looking to challenge. I think it has deep policy implications. So it is important for the scholarly conversation, but also for policy makers, because if you believe the conventional wisdom,

Debating Tech Regulation's Impact on Innovation

00:01:34 - that the maybe Europeans should take a step back and stop, regulating and the Americans who are now really having a very active conversation or whether they should be also getting in this game and regulating alongside with the Europeans, then, you know, maybe they would end up like the Europeans and not generating tech companies. So this was the conversation or the, the kind of policy implication that I was very conscious of and wanted to make sure that we have a sort of proper analytical basis for having that conversation.

00:02:06 - that all tech regulation is beneficial, but it's not also quite right that it's the tech regulation that would explain whether the country is capable of innovating. So the Europeans are not generating leading tech companies because of the regulations like the GDPR, the same way that the Europeans now recently adopted a comprehensive ambitious AI act. So our regulation or artificial intelligence, again, I argue

00:02:40 - that regulation and not implement that, it's not that suddenly all those AI companies would be emanating from Europe. So there must be other factors that are explaining the gap in technological innovation between the US and the eu. The Americans follow what I call a market driven regulatory Model. So that's premised on this idea of prioritizing free market innovation, free internet free speech, really incentives

Contrasting Regulatory Approaches: U.S. Tech Governance vs. European Rights Framework

00:03:11 - for the government to play a very trivial role. So in practice, the governance of technology is handed over to the tech companies themselves. So it is a very techno optimist, techno libertarian view of the world, and that is reflected in the actual law. So there is no federal data privacy law in the United States and the US is globally an outlier in not having such a law the same way the US has antitrust laws, but up until recently,

00:03:44 - So this is another big difference to the Europeans. The same with the content moderation. There's a very famous, section, two 30 of the Communications Decency Act that basically protects the tech companies, gives them this kind of liability shield, whether they want to remove certain content or fail to remove or decide not to remove certain content. So these are all areas where the Europeans have been adamant that the government needs to step in.

00:04:13 - what I call a rights driven regulatory model. So that model is premised on the idea that what is key is the protection of the fundamental rights of individuals, the preservation of democratic structures of the society, and then a pursuit, of a more fair digital economy. So the Europeans are prepared to also redistribute gains of digital transformation away from the large tech companies to smaller companies, to individual users

European Regulatory Framework and Its Impact on Tech Innovation

00:04:45 - So that has been, given the foundation for the Europeans to say that, look, the government needs to step in. We cannot trust the tech companies to self govern in the public interest. So the Europeans have deployed the antitrust laws, so competition laws, data privacy laws. So the GDPR is the, the flagship regulation from Europe. And the Europeans are also very strict at regulating hate speeds and disinformation and other unlawful or harmful content online.

00:05:18 - certainly is impacting the tech companies. So if you look at now that the US tech companies are more heavily regulated by the Europeans than the Americans. So where they pay attention is, is what are the rules coming out of Brussels? And they have been fighting multi-front regulatory battles with the Europeans. When the Europeans have gone after the US tech companies abusing that they have been violating the European antitrust laws or breach the data privacy laws

00:05:50 - And and then, they have also failed to moderate content on their platforms in ways that would be Consistent with European laws. So yes, the European laws are impacting the way technology companies are behaving, but I wouldn't say that these laws have prevented these companies from innovating. I don't think anybody takes the view that because the Europeans have been vigilant, we don't have tech innovation. So we do have tech innovation.

European Regulation and Its Impact on Tech Innovation

00:06:19 - that if there was such a correlation that Europeans cannot generate technologies because they regulate often their regulations are targeting also these American tech companies and very few of us are worried about their ability to innovate because they, for instance, would need to adhere to privacy laws. It's one way that the European laws can change the pathways of innovation. So the tech companies are now incentivized to develop more privacy protective products and services.

00:06:54 - We don't just think about innovation as a product that let's say lowers cost or bring some other benefits, that generates the most data possible, but that also has the kind of quality features that consumers values. The users are more conscious of their data privacy, and that way the regulation can change the incentives of these tech companies as to what kind of innovations they are pursuing. So the same way, if you think about

00:07:24 - but neither is all kind of innovation. That's why the Europeans are now steering with regulation, these tech companies away from innovations that create harms for individuals or society. So for instance, the eus AI Act is looking to direct the companies away from the kind of AI innovations that can be harmful towards the ones that really have the greatest potential to create massive gains for for the society.

Barriers to Tech Innovation in Europe

00:07:54 - between the United States and Europe that to me much better explain why we see a difference in technological innovations. So, and they have very little to do with digital regulation. So let me take first one, which is there is no digital single market in Europe. The market remains fragmented across the 27 individual member states. There are different linguistic barriers, there are cultural differences, there are still legislative regulatory differences

00:08:28 - to scale across the entire European marketplace. That is not the problem in the us it is not often that difficult to scale across selling your, products in Michigan and Virginia and the state of New York. So if you think about for instance, Amazon that launched as a bookseller, when there is a demand for English speaking books that covers the entire marketplace, it is much easier to do that In the United States than in Europe when you have

00:08:59 - So this digital single market, or rather its absence in Europe, is a really important variable explaining why the European tech companies have struggled. Another one is that there is no deep integrated capital markets in Europe. There is no capital markets union. So it is very hard for the European tech companies to fund their innovations in Europe. They do very well in the first few funding rounds, but as soon as they need more money, when they need more capital, they need to turn

Entrepreneurial Challenges: Bankruptcy Laws and Innovation Dynamics

00:09:33 - dynamic market, or then they are acquired by the biggest tech giants. So that is another important variable. And third, I would point out the legal frameworks and attitudes towards risk taking. So Europe has some of the most punitive bankruptcy laws that really deter the entrepreneurs from engaging into the kind of disruptive innovations that are absolutely key

00:10:02 - So, those bankruptcy laws are much more lenient in the United States. They really start from this assumption that sometimes entrepreneurs fail and they need to be given a second chance. There's also no cultural stigma around failure in the us It's built into the Silicon Valley venture capital model that you try very hard. Sometimes your business goes under, then you go and raise more money and they give you more money

00:10:31 - It's almost like they fail fast, fail often, and then try again. and I think that is missing in Europe and would need to change for the entrepreneurs to really put themselves out there and do really hard things. The fourth one, and this is really important, is that you cannot be the world's leading innovator unless you have access to the leading innovators. And this is where the US has done so much better than the Europeans. So the Americans are really drawing on global talent,

Immigrant Influence in American Tech Innovation

00:11:03 - to the success of the American tech sector. So the Europeans have not been even remotely close to as, as successful as the Americans in attracting through universities and other channels. They're, they're immigrants into the marketplace. So if you look at for instance, over $1 billion startups, over 50% of those in the United States have an immigrant founder. And if we think about just the household names,

00:11:34 - So Steve Jobs of Apple is a son of a Syrian immigrant. Jeff Bezos of Amazon is a second generation Cuban. Elon Musk of Tesla is South African. Sergei Brin, the co-founder of goco. he's Russian. Eduardo Severin, the co-founder of Facebook. He's Brazilian. And I could go on. This is again, not the story that because the Europeans had the GDPR, they are not innovating. They don't have all this global talent

00:12:05 - of the country's technological innovations. The main policy implication is that the paper gives a normative defense to the digital regulatory agenda of the Europeans. So if the Europeans want to generate technologies, and I think that absolutely ought to be their goal. They don't just want to be the referee. They need to get on the field and play the game, play offense and defense and play well. But that doesn't mean that they would need to be moving away from protecting digital rights of individuals.

Strengthening Europe's Tech Ecosystem

00:12:37 - to building these other pillars of the tech ecosystem. So really completing the digital single market, removing those obstacles that are there for scaling, you cannot get rid of all the linguistic differences, but there are many regulatory differences that can be removed the same way the Europeans need to finally complete the capital markets union. And they need to rethink the laws that really would allow, for instance, pension funds

00:13:07 - and do sort of other reforms that replicate what the Americans have done. What explains the success of the capital markets? The Europeans really need to rethink the, the, the bankruptcy laws and how can we encourage risk taking and there needs to be a proactive plan for immigration, how the Europeans can, harness the global talent. So that's my policy prescription that that stems from the paper for the Europeans and for the Americans. The, the policy message is clear.

00:13:39 - enact a federal privacy law that would not prevent the Americans from innovating going forward, that would not abolish the country's vibrant capital markets that wouldn't rewrite the bankruptcy laws, that wouldn't prevent the immigrants from coming to the us. So as long as the US continues to play to its strengths and, and make sure that it protects and continues to build on those successes and keep those other pillars of the tech ecosystem strong,

Regulatory Models and Tech Innovation: A Comparative Analysis

00:14:06 -

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