The AI Paradox: Why Europe's Tech Future Hinges on More Than Just AI

As Mario Draghi's landmark report on European competitiveness lands on desks across the continent, Europe's productivity gap with global competitors is catapulted to the top of the policy agenda. While the report rightly identifies the tech sector as the primary driver, we must ensure we don’t miss the forest for the trees. While public financing is important and regulation has a role, we must also address a more fundamental challenge: Europe needs significantly more scalable digital companies to truly capitalize on AI's potential.

The real value of AI emerges when integrated into services and products, not in standalone development. Europe's tech competitiveness hinges not on research projects or regulatory frameworks, but on our ability to build and scale digital companies that can effectively embed AI into their offerings. This requires an evolution in our approach to innovation and industrial policy.

Draghi's report highlights this challenge: only four of the world's top 50 tech companies are European, and our share of global tech revenues has plummeted from 22% to 18% in the past decade. Yet, we have significant strengths.  We boast world-class research institutions, a wealth of AI talent, and have made strides with initiatives like the EU’s AI factories. We have advantages in compute, data, and talent. However, we're failing to translate this potential into market-leading businesses at scale. We excel at inventing, but struggle to commercialize.

The crux of the issue lies in the development of robust ecosystems for tech companies within Europe. Unlike the US, where a dynamic ecosystem of scaleups and large digital companies provide powerful platforms for AI integration, European innovations often find themselves without similar launchpads. This isn't just about market access; it's about the environment that allows rapid iteration, scaling, and integration of AI into existing products and services. Paris exemplifies the potential: in a few short years, it has blossomed into a vibrant AI hub, driven by innovators like Mistral and Hugging Face, alongside established players such as Meta's FAIR research center. We need to replicate and scale this success across Europe.

In the US, top tech companies have shifted from traditional industries to software and digital over the past two decades. In Europe, our industrial structure remains largely static. Accelerating this shift will enhance our ability to create and capture value from AI and other emerging technologies.

Europe's lack of large digital platforms isn't just a statistic – it's a critical weakness. These companies aren't merely large employers or profit generators; they're the engines of AI adoption and value creation. They provide the infrastructure, data, and user base necessary for AI to evolve from research projects to real-world applications.

To seize this opportunity, we need to:

1. Encourage institutional investors to allocate more capital to European tech companies, addressing the funding gap at later stages of growth.
2. Simplify the regulatory landscape for tech scale-ups, making it easier for innovative companies to grow across the Single Market.
3. Encourage public and private funding towards ambitious moonshot projects that can catalyze entire new industries, rather than spreading resources thinly across many small initiatives.
4. Further foster links between academia and industry, ensuring that groundbreaking research translates into commercial applications more readily.

The EU has the talent and the ideas to lead in the AI era. We have laid a strong foundation with investment in AI research and infrastructure. What we need now is ambitious efforts to build self-sustaining digital ecosystems that can turn this potential into reality. Our future competitiveness depends on it.

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This article builds on an opinion piece in Finland's largest business newspaper Kauppalehti.