Scholar offers alternative explanations on why the European Union falls behind in technological progress.
In his first week in office, President Donald J. Trump signed an executive order, titled “Removing Barriers to American Leadership in Artificial Intelligence,” emphasizing the crucial role of free markets in driving technological innovation. A few weeks later, Vice President JD Vance, speaking at an international artificial intelligence (AI) summit, warned the European Union that it is “late to the race” in AI because its far-reaching digital regulations have stymied technological progress. He urged the EU to follow the U.S. free-market approach instead.
At least one scholar, however, challenges the causal relationship between stringent digital regulation and the weak performance of a tech industry.
In a recent article, Anu Bradford, a professor at Columbia Law School, argues that although the United States does have a competitive advantage over the EU in the digital industry, the technological gap is not due to the EU’s stringent digital regulations. Bradford offers alternative explanations and explores how policymakers should reassess the relationship between digital regulations and innovation.
Describing the regulatory approach in the United States as the “market-driven regulatory model,” Bradford notes that the U.S. model reflects a cultural commitment to free markets and skepticism of government regulation. Section 230(c) of the Communications Decency Act, for example, immunizes online platforms from liability for their content moderation decisions. It favors market solution over legal intervention by allowing online platforms to decide whether to remove user-generated content based on customers’ demands.
In contrast, the EU has adopted the “rights-driven regulatory model” under which protection of fundamental rights shapes its regulatory design, Bradford explains. Its Digital Services Act, which requires online platforms to follow extensive procedural requirements when moderating user-generated content, exemplifies how the EU prioritizes individual users’ free speech rights over digital platforms’ business interests.
Observing that most leading digital companies—including Google, Meta, and Amazon—were established in the United States, commentators attribute the EU’s limited success in the tech industry to its regulatory approach. They contend that extensive regulations raise compliance costs and divert resources from innovative activities.
Bradford, however, rejects this contention and argues that regulations can foster innovation. For example, in response to the EU’s General Data Protection Regulation, which limits tech companies’ ability to collect and process users’ data, Apple launched a feature allowing users to control whether apps—such as Instagram and TikTok—can track their online activities. Bradford observes that this innovative move generates significant economic benefits for Apple, because the data users restrict from apps remain accessible to Apple, giving the company a competitive edge in personalized online advertising.
Bradford outlines four factors contributing to the existing technological gap between the United States and the EU.
First, because of legal, political, and cultural differences across the EU member states, EU digital companies, unlike their U.S. counterparts, do not benefit from a fully integrated digital single market. Bradford notes that even when regulations are harmonized at the EU level, implementation often varies across member states, resulting in a fragmentated market that increases costs and complexity for digital companies’ business operations.
Second, unlike U.S. startups, which rely on venture capital financing, EU startups depend heavily on bank loans because of the EU’s underdeveloped and fragmented capital markets. Banks, however, are more risk-averse than venture capital investors, limiting digital startups’ access to the resources necessary for engaging in innovative activities, argues Bradford.
Third, the EU’s legal and cultural barriers to risk-taking and entrepreneurship have stifled innovation. Bradford explains that, as opposed to the debtor-friendly bankruptcy laws in the United States, creditor-friendly bankruptcy laws across the EU have made failure costly, discouraging entrepreneurs from pursuing technological ventures. In addition, Bradford observes that the EU’s strong risk-averse culture deters individuals from entering entrepreneurial activities in the first place.
Finally, the EU struggles to attract global talent given the lack of a proactive immigration policy. Bradford notes that immigration boosts innovation by diversifying the talent pool and increasing the number of skilled workers. Strict immigration laws and the absence of a unified visa scheme for non-EU nationals to work and move freely in the EU member states, however, hinder the EU’s ability to recruit foreign talent, contends Bradford.
Bradford acknowledges that sometimes digital regulations may impede innovation and that the four factors she provides are not exhaustive. The point, however, is that policymakers do not face an inevitable trade-off between protecting digital rights and facilitating technological progress, underscores Bradford.
Having dispelled the misperception that digital regulation is inherently detrimental to innovation, Bradford proposes regulatory reforms for policymakers in the EU and the United States.
On the one hand, Bradford suggests that instead of repealing its right-protective regulations, policymakers in the EU channel their regulatory reform toward the EU’s investment and immigration regulations to boost the EU’s competitiveness in the tech industry. This includes building the digital single market and devising more immigrant-friendly visa programs that would attract skilled foreigners, Bradford notes.
On the other hand, Bradford recommends that policymakers in the United States embrace more right-protective regulations. Because protecting internet users’ data privacy and free speech rights would not dismantle the dynamic capital markets in the United States or discourage global tech talent from migrating to the country, this policy turn would not compromise innovation, argues Bradford.
