Regulation, competitiveness and innovation

Europe’s regulatory state has become a substitute for political confidence. The challenge is to remove rules that protect incumbents, suppress experimentation and make ordinary life harder, while recovering a culture of enterprise, risk-taking, innovation and responsibility.

Almost no European leader makes a speech without mentioning the buzzword “competitiveness”. Yet for Brussels, this mantra is less about reckoning with the root causes of Europe’s’ economic malaise than providing an excuse for ever-deeper European integration. Very few people are prepared to ask hard questions about the reasons for the stagnation that is visible everywhere to ordinary people.

Brussels loves to champion the fact that it is a “regulatory superpower”, and this is supposed to allow the EU to compete with countries and blocs across the world. The size of the single market is a prize that the EU has repeatedly used to extract trade concessions. But even mainstream voices now recognise that the sheer weight and volume of EU regulation is hampering the ability of European firms to compete. But while Brussels struggles to undo the regulatory burden – which, under the guise of environmental sustainability has ballooned in recent years – even this is not enough to address the core of the economic doom-loop that Europe finds itself in.

Others point the finger at high energy costs, blaming Russia’s invasion of Ukraine and other external shocks like the Iran War. Of course, these have materially worsened the situation of European companies. But those very keen to point the finger at energy prices often forget that, for decades, Europe has been creating high energy prices as a matter of deliberate policy. The regulatory and moral crusade against fossil fuels and nuclear power has systematically driven energy prices ever higher and given Europe greater exposure to external shocks. The single-minded pursuit of renewable energy – often without any attempt to solve basic issues such as intermittency – has made Europe less secure and more vulnerable.

Yet the fundamental problem of productivity has repeatedly been overlooked. Instead, European countries have pursued strategies of ‘buying time’. The euro and monetary union, reinforced by quantitative easing and cheap money, weakened incentives for difficult reforms and productive investment. Rising debt postponed adjustment, while cheap credit kept poorly performing companies alive. Protectionism and population growth through low-skill migration further sustained economic activity without improving underlying productivity. Together, these mechanisms allowed European leaders to postpone the fundamental challenge: investing, innovating and producing more efficiently.

Europe is now saddled with extraordinary debt, poor productivity, and a culture that penalises the risk-taking necessary for generating wealth. Some even attempt to make a European virtue out of poverty: the morality of ‘degrowth’ becomes a cover for stalled economies.

To grasp the root of the economic malaise will take serious courage and a willingness to ask uncomfortable questions. FSI Europe wishes to start this debate. We will champion those who wish to address not just disastrous environmental policies, but also the outlook and ideology which underpins them: hostility to industry and dynamism, suspicion of man’s ability to transform the world, and the weakness of those who wish to merely protect what we have rather than expand and grow our horizons. Europe has a proud history of industry and risk-taking, and a population which, whilst currently accustomed to the politics of low horizons, has a great many skills and talents. It is time to unleash them.