Mario Draghi published recently a report that resonated with me, as it revolves around many of the issues I’ve observed in Finland while working for the Finnish Startup Community. Finland faces similar productivity challenges compared to the EU: tech companies struggle to scale, investments in innovation are scarce, and regulatory barriers and incentives slow the commercialization of research. These are themes we continually advocate for at the national level in Finland. However, reading Draghi’s report made it clear that these aren’t just Finnish problems but also European problems.
Closing the productivity gap by cultivating new businesses
Technological change is accelerating at a rapid pace, changing the competitive landscape. In my view, it’s as if the deck of cards is being reshuffled more frequently — today’s winners could easily become tomorrow’s losers and vice versa. If players, like Finland or the EU, are prepared to adapt their tactics and play the new hand dealt by technological advancements, they can outmaneuver their competitors.
We can illustrate the acceleration of technological change by examining how quickly new products reach one million users (Fig 1). For instance, Chat GPT reached this milestone just five days after release, whereas Netflix took approximately 3.5 years. Notably, Chat GPT was launched in 2022, while Netflix debuted in 1999, highlighting the dramatic increase in adoption speed over time.
Fig 1: Time to reach one million users is declining (Statista, 2023)
The data from Fig 1 can also be represented by plotting the launch year on the x-axis and the time to reach one million users on the y-axis. This visualization, shown in Fig 2, clearly illustrates the accelerating pace of product and technology adoption over time.
Fig 2: Time to reach million users seems to be decreasing each year (Statista, 2023)
A similar trend of accelerated technological adoption is evident when examining long-term changes. As Kurzweil (2005) noted, the time it takes for a new technology to be adopted by a quarter of U.S. consumers has dramatically shortened. For instance, electricity took 41 years to reach this threshold, while the internet achieved it in just 7 years. Figures 3 and 4 further illustrate the rapid acceleration in the adoption speed of various technologies over time. Electricity and and internet are examples of transformative technologies that change not just how people live, but how whole industries, economies, and even societies operate.
Fig 3: Large technological advancements taking less and less time to be adopted (Kurzweil, 2005)
Fig 4: Technology adaptation is getting shorter each decade.
The accelerated pace of technological change and market adaptation presents opportunities for the EU to scale companies rapidly and close the labor productivity gap with the U.S. To capitalize on faster adoption cycles, the EU should prioritize emerging technologies and radical innovations. When a new scalable technology enters the market, it holds significant potential for large profits and productivity gains.
However, to fully harness this potential, the EU must commercialize innovations that it develops. As is noted in Draghi’s report, the EU does not have a lack of talent. At least not in a way that would hinder all productivity grwoth.
While the U.S. is already ahead in several transformative technologies, there are always upcoming technologies that the EU and Finland could take advantage of. For example, quantum computing, and food technology could see rapid adoption once they are ready for the larger consumer market. By strategically investing in these fields and fostering an innovation-friendly environment, the EU can position itself at the forefront of these industries.
During the past decades, it seems that we in Finland and also in Europe have things going for us pretty well, or at least well enough that we don’t see an urgency to change. In the political landscape and maybe in life in general we feel the need to change when it’s already too late.
Urgency in Commercializing Innovation
The EU must prioritize the rapid commercialization of innovations. According to Draghi, Europe missed out on the digital revolution and the productivity gains it made possible. The EU is also stuck in a static industrial structure with fewer startups that could disrupt existing markets. The innovation gap between the EU and the U.S. can mostly be attributed to the gap in new technologies, specifically the lack of startups that have the potential to grow into major tech companies.
However, it’s not about what was lost, but how we can seize the next wave of technological revolutions. Draghi points out that in the last 50 years, no European company founded from scratch has reached a valuation of 100 billion euros, while the U.S. has produced six companies with valuations exceeding one trillion euros, including Apple, Microsoft, Meta, and Google. These companies all began as startups with scalable and innovative business models. This is what the EU must strive for. We must understand better the needs of small tech companies to someday have large tech companies driving the economy.
Building Europe’s Next Tech Giants
The next generation of large tech companies can emerge quickly from Europe, thanks to faster global adoption of new technologies. By fostering an environment where small tech startups can scale, Europe can produce the major tech giants of tomorrow.
As these highly productive small tech companies grow and employ more and more people, they will contribute greater value to the economy, which will boost labor productivity. In short, the EU must create more space for scalable tech companies to thrive. With the rapid pace of technological adoption, the EU has a unique opportunity to close the productivity gap much faster than it could have 20 years ago.
The founder and CEO of Supercell, Ilkka Paananen noted in a panel discussion organized by the Finnish Startup Community that Finland needs to aim higher than just producing startup companies the sizes of Supercell and Wolt. At the European level, we must aim to build tech companies with a valuation of trillion euros.
Lower Regulatory Burden on SMEs and bring down barriers to market entry
New market entrants are crucial for economic growth because they drive competition, encouraging established companies to innovate or, in some cases, forcing low-productivity firms out of the market. A good example is the automotive industry. Legacy automakers, heavily invested in internal combustion engines, may hesitate to invest in electric vehicle technology because doing so could cannibalize their existing business. In contrast, startups are unburdened by these legacy business divisions and can focus entirely on cutting-edge technologies. Tesla, once a startup, is a perfect example of how new entrants can disrupt industries by fully committing to innovation and scaling rapidly.
However, this dynamic only works if the market remains accessible. If entry barriers, such as excessive regulation, are too high, we risk losing the very competition that drives innovation and productivity growth. Although it is difficult to precisely measure the impact of excessive regulation on productivity in the EU, Mario Draghi’s report notes that between 2019 and 2024, around 13,000 acts were passed in the EU, compared to just 3,500 in the U.S. This suggests the EU is regulating at 3.7 times the rate of the U.S., creating a more complex landscape for businesses to navigate.
For small companies, particularly young startups, the costs of complying with increasingly heavy regulations and reporting obligations can kill innovation before it even reaches the market. This situation often benefits large incumbent companies, which are better equipped to handle regulatory pressures, while startups are left struggling to compete.
The regulatory burden in the EU is also driving startups to look for a home elsewhere, particularly in the U.S. A recent example is the Finnish food tech company Onego Bio, which chose to build its first production plant in the U.S., citing the more favorable regulatory landscape as a key reason. Although the technology was developed in Finland, the company may now grow and scale in the U.S., contributing to labor productivity there rather than in Europe. The EU cannot afford to lose innovative companies due to an overly complex regulatory environment—we already face enough challenges without adding this to the mix.
According to the Transatlantic Insight report, the most pressing issue for European startups is the excessive regulatory burden, while in the U.S., regulatory pressure ranks only as the fourth most critical issue for startups. This difference highlights a severe problem: by imposing too many constraints, the EU is stifling innovation and making it more difficult for startups to scale and compete on the global stage. It is unacceptable that the EU kills innovation by creating more and more barriers for small companies to enter markets.
Figure 4 highlights the results of the Transatlantic Insight report. In this figure, the blue bars represent the percentage of EU startups identifying specific issues they fear the most, while the red bars show the same concerns among U.S. startups. Notably, 26 percent of EU startups cite increasing regulation as their primary concern, compared to only 13 percent of U.S. startups.
Fig 4: Ranking of key issues startups face in the EU vs. US.
The Role of Public Investment
Draghi proposes that the EU should increase private and public yearly investments by €800 billion to reach the needed productivity growth. Based on population shares, Finland would need to contribute approximately €10 billion towards this effort. A portion of this, likely around one-third or €3.3 billion would need to come from the public sector if the public vs private shares were comparable to R&D investments in Finland. This would place significant strain on Finland’s already stretched public finances, which are currently running a €12 billion deficit.
Unfortunately, the EU is competing against the United States and China in state aid policy. For example, Northvolt, a Swedish battery manufacturer, secured €900 million in aid from Germany by essentially holding a bidding contest to see which state would offer the most support before choosing where to build its plant.
The world is entering a new era of industrial policy and state-aid competition, where Europe will likely need to compete. This makes Draghi’s proposal both timely and sensible