The lazy myth that Europe regulated itself into decline

It’s a neat argument, which is usually a warning sign. Europe clearly has problems. It has fragmented markets, less late-stage capital, weaker stock option culture, slower public procurement, fewer repeat scale-up operators, and a much smaller pool of people who have been through the journey of building genuinely huge technology companies. So yes, it is harder to build a Google-scale company in Europe than in the US. But “Europe is over-regulated” often feels like one of those phrases people reach for when they want to sound serious without doing the work.

Ask a simple follow-up and the argument often starts to wobble: which regulation, specifically? Not vibes. Not “red tape”. Not a general sense that Brussels is annoying. Which actual rule is stopping European founders from building great companies? The answers are often surprisingly vague. Some people mention labour laws. Some mention GDPR. Some point to environmental rules, food standards, packaging rules, employment protections, or the fact that it’s harder to fire people in Europe than it is in parts of the US. But then you look at the claim being made and it starts to feel odd. Is America’s advantage really that workers there get fewer holidays? Is Europe falling behind because we have stronger food safety standards? Is GDPR annoying? Absolutely. Does it explain Silicon Valley? I’m not convinced.

Markets are made of rules

One of the things I find strange about the deregulatory argument is that it seems to imagine some kind of natural state of capitalism: companies simply building, selling, hiring and growing, until governments came along and started throwing sand into the gears. But markets don’t exist before regulation. In many ways, they are regulation.

Contracts, courts, tax systems, corporate law, employment law, property rights, accounting rules, banking systems, liability, insurance, bankruptcy, competition law and product standards are not decorative extras. They are the scaffolding that allows markets to function in the first place. Every advanced economy is regulated. The interesting bit is who the rules serve.

This is where the simplistic critique of Europe starts to fall down. It treats regulation as arbitrary friction imposed on otherwise productive companies. But a lot of what gets called “bureaucracy” is actually worker protection, consumer protection, food safety, environmental standards, privacy rights or product safety. You can call those things burdens if you’re a company. From the perspective of a citizen, they’re often the things that make a market worth trusting.

Worker protections are not pointless bureaucracy

Take labour law. Many European countries have stronger worker protections than the US. Employees tend to get more holiday. There are often stronger rules around redundancy, sick leave, parental leave, minimum wage, notice periods and dismissal. It can also be harder to fire people once they’ve been with you for a while. I can see why some founders find that frustrating, especially if they’ve been exposed to a more American model, where it’s often much easier to hire quickly, fire quickly and restructure quickly.

Still, I struggle to believe this is the thing holding Europe back. An extra few weeks of annual leave is not the reason we don’t have more trillion-dollar technology companies. A more flexible labour market gives companies more room to move fast. A more protective labour market gives workers more security. You can argue about where the balance should sit. But it’s misleading to talk about worker protections as though they’re just pointless friction.

They exist because employers have power. They were hard won over generations. They stop people being discarded casually, arbitrarily or abusively. That may be less convenient for companies. It doesn’t make it irrational.

GDPR is annoying. That doesn’t make it the villain.

GDPR is probably the example people reach for most often. And yes, GDPR is a pain. Nobody enjoys cookie banners, consent flows, data-processing agreements, vendor reviews, subject-access requests or the general swamp of privacy compliance. But GDPR didn’t appear because European regulators were bored. It appeared because companies were collecting, sharing, profiling and exploiting personal data at industrial scale.

It is also worth getting the chronology right. Amazon was founded in 1994, Google in 1998, Facebook in 2004, and GDPR came into force in 2018. So it is hard to argue that GDPR stopped Europe producing its own Google, Amazon or Meta. Those companies were created long before GDPR existed. If anything, GDPR was partly a response to the world those companies helped create: a world in which a small number of platforms had accumulated vast amounts of personal data, extraordinary market power, and increasingly sophisticated ways to track, target and influence people at scale.

What founders often describe as “data-driven innovation” can, from another angle, look a lot like surveillance capitalism: collecting far too much information about people, combining it with data from other sources, and using it in ways most people would never meaningfully understand or agree to. Shadow profiles. A contact list being scraped to spam your friends without your permission. Apps quietly sharing location data. Street View cars collecting data from open Wi-Fi networks as they drove past people’s homes. Job sites using credit-history data to infer who might accept lower pay. Companies discovering that if they know enough about you, they can predict, target, influence, segment or exploit you in increasingly intimate ways.

Cambridge Analytica became the famous example, but it was hardly the only one. The broader issue was a massive transfer of power from citizens to platforms, advertisers, data brokers and political operators. Some of this may have looked like innovation from inside the company. From the outside, it often looked like exploitation dressed up as optimisation.

This is where the usual argument gets things backwards. The problem is not that privacy rules strangled a generation of would-be European tech giants. By the time those rules arrived, the big platform companies were already powerful enough to absorb the compliance burden. Regulation introduced late can end up protecting the very incumbents it was meant to discipline, because Google, Meta or Amazon can afford armies of lawyers, policy teams and compliance specialists. A smaller competitor cannot.

So yes, GDPR may create costs for startups. It may make some kinds of data-heavy experimentation harder. It may hit smaller companies disproportionately. But that is a different argument from saying GDPR caused Europe’s lack of tech giants. In many ways, GDPR arrived after the giants had already been built.

GDPR mostly makes it harder to casually misuse personal data. It forces companies to think about consent, retention, deletion, portability, security and legitimate use. Those don’t seem like insane things to care about. The European model is more willing to ask what harms might follow from giving companies effectively unlimited access to people’s personal lives. The aim is to balance commercial freedom against the rights of citizens not to be invisibly tracked, profiled, manipulated, discriminated against or exposed.

GDPR also applies to American companies operating in Europe. So it’s hard to argue that it uniquely explains why European companies underperform American ones. It may have been badly implemented in places. It may need simplifying in others. But as a grand explanation for why Europe doesn’t have as many technology giants as the US, it feels weak. And if the only way your business works is by quietly hoovering up dubiously acquired personal data, cross-referencing it with other datasets, and making it hard for people to understand or object, maybe the problem is the business model.

Europe isn’t America, because Europe isn’t a country

The much bigger issue is also the most obvious one. America is one country. Europe is not. The US has one huge domestic market, one dominant language, deep capital markets, a federal system, a mature venture ecosystem, and a relatively coherent commercial culture. Europe is a continent of different countries with different languages, tax systems, legal systems, employment norms, public institutions, buyer behaviours and commercial cultures.

Selling from California to New York is not the same as selling from France to Germany, or from Germany to Spain, or from the UK into the EU after Brexit. Of course that creates friction. But that isn’t Europe burdening itself with pointless regulation. That’s what happens when you trade across borders. There are frictions between the US and Canada. There are frictions between the US and Mexico. Different countries have different systems. That’s normal international trade.

If anything, one of the main reasons the EU exists is to reduce this friction: harmonising standards, recognising rules, removing barriers, creating common frameworks and making it easier to do business across the continent than it otherwise would be. So there’s something odd about blaming the EU for the complexity it was partly created to solve. Europe is harder to scale across because Europe is not a single nation-state. That’s a structural fact, not a morality tale about red tape.

The real comparison is not America versus Europe

There is another sleight of hand in the usual comparison. People talk as if America is a better place to start a company than Europe. But that is rarely what they really mean. The more honest version is that San Francisco, and maybe New York, are better places to scale certain kinds of technology company than Lisbon, Copenhagen, Berlin, Paris or London.

That is a narrower claim, and a much more plausible one. The American startup ecosystem is not evenly distributed across the whole country. A founder in Kansas or Ohio does not have the same access to capital, talent, networks, early adopters and repeat operators as a founder in San Francisco. The US advantage is real, but much of it is concentrated in a handful of places. In venture, especially, it can feel as though an absurd amount of the world’s risk capital is clustered around one hilly road and one small square in San Francisco, rather than spread across dozens of national capitals.

This is one reason so many European companies start here, then move some or all of their centre of gravity to the US. It is rarely because they were crushed by European regulation. More often, it is because the US is where the later-stage capital is, where the biggest software buyers are, where the acquirers are, where the category analysts are, where the talent has already scaled something similar, and where the next round of investors expect you to be.

There is also a cultural element. American companies are often more willing to try new software if the upside looks big enough. European buyers, especially in larger or more traditional organisations, can be more focused on downside risk: what might break, who might object, whether procurement will approve it, whether legal is comfortable, whether the vendor will still be around in three years. That caution is not irrational. Sometimes it is responsible governance. But it does make it harder for new products to break in quickly.

That same difference probably sits underneath a lot of regulation too. Europe does not create stronger protections because it has an abstract love of paperwork. It tends to regulate because it has a lower tolerance for companies privatising the upside while socialising the harm. That is a different moral and political settlement, not simply an administrative defect.

Some of this may come from the texture of European life. European cities are often denser. People are more likely to live near, walk past, sit beside, or share public services with the people affected by corporate behaviour. Harm is harder to abstract away when it happens on your street, in your hospital, on your train, in your school, or to someone your family might plausibly know.

In parts of the US, especially in wealthy technology suburbs, harm can feel more spatially distant. If you live in a nice house in Palo Alto, travel to campus on a private shuttle, work in a highly paid bubble, and mostly interact with other people in the same industry, it is probably easier to see your company’s externalities as abstractions. The gig worker, the warehouse worker, the person priced out of their neighbourhood, the user being profiled, the community dealing with pollution, the family navigating medical debt: they can all become edge cases in a dashboard.

This does not mean people in tech are bad people. It means incentives and environments shape what we notice. If the system pays you well not to notice certain harms, and your daily life keeps you physically and socially distant from those harms, it becomes easier to believe that any constraint on your company is irrational bureaucracy.

Europe’s instinct, at its best, is different. It is more willing to ask who bears the downside when companies move fast. That can make it slower and more cautious. Sometimes it leads to clumsy rules. But it also reflects a society that is less comfortable letting private companies capture the benefits while leaving citizens to absorb the costs.

So when people say European regulation holds back innovation, it is worth asking what kind of innovation they mean, and whose risk tolerance they are talking about. Founders and investors may be happy to take risks. Workers, consumers, neighbours, patients and citizens may not have agreed to be part of the experiment.

Higher standards are not anti-business rules

A lot of European regulation concerns physical products: food, electronics, toys, cosmetics, medicines, chemicals, building materials, packaging and safety standards. Again, this often gets described as bureaucracy. But most people quite like knowing that the food they buy is safe, that children’s toys aren’t toxic, that electronics won’t burst into flames, that cosmetics have been tested, and that manufacturers can’t simply dump risk onto consumers.

This is one reason trade deals with America often make Europeans nervous. The debate around chlorinated chicken was never really just about chicken. It became a symbol of something larger: the fear that “market access” would become a polite way of saying, “please lower your food and safety standards so our companies can sell more easily into your market.” You can dismiss that as protectionism if you like. From a European perspective, it often looks like defending standards that citizens broadly trust.

And when Europeans look at some parts of the American system, the idea that the US has found a superior low-friction model isn’t always obvious.

America has plenty of friction. It just puts it somewhere else.

The US is not a frictionless business paradise. It has a wildly complex tax code. It has federal, state and local rules. It has state-by-state employment variation. It has sales tax complexity. It has immigration constraints. It has huge litigation risk. It has expensive lawyers. It has class actions, discovery processes, liability exposure, insurance complexity, securities law and an increasingly messy patchwork of state privacy rules. That doesn’t sound especially low-bureaucracy to me.

Healthcare is the obvious example. In the UK, if you hire someone, you hire them. The NHS exists in the background. You don’t need to design a healthcare benefits system, negotiate insurance plans, worry about networks and deductibles, manage brokers and renewals, or decide what level of medical coverage your employees and their families should receive. In the US, healthcare becomes an employer-side operational burden. Companies spend time, money and management attention on something that, in many European countries, is simply part of the social infrastructure.

That is friction. It just doesn’t always get counted as regulation because it’s administered through private systems. The same is true of litigation. If Europe has bureaucrats, America has lawyers. Europe often creates upfront rules to prevent harm. America often tolerates more risk, then deals with some of the consequences through lawsuits, insurance, private contracts, medical bills and individual exposure. Different systems. Different costs.

Low regulation can also mean regulatory capture

There’s another part of this that often gets missed. The US doesn’t necessarily have less regulation because it has discovered a more efficient form of capitalism. In some sectors, it has less protection because powerful industries have successfully lobbied to shape the rules in their favour. That can feel wonderfully low-friction if you’re the company benefiting from it. But low friction for whom?

A chemical company may prefer weaker environmental rules. An employer may prefer weaker labour protections. A food producer may prefer looser standards. A healthcare company may prefer a system so complex that patients, employers and sometimes even doctors struggle to understand what anything actually costs. A dominant tech platform may prefer privacy rules weak enough to allow near-limitless data extraction. From the company’s point of view, fewer constraints can look like efficiency. From everyone else’s point of view, it may simply mean the costs have been pushed somewhere else: onto workers, consumers, patients, communities, rivers, public health or future generations.

This is the bit of the “Europe is over-regulated” argument that often feels most suspect. It assumes that lighter rules are naturally better, without asking whether those lighter rules are the result of democratic wisdom or successful lobbying by wealthy vested interests. Regulatory capture can masquerade as dynamism. A sector can look lean and innovative because the public has quietly absorbed the downside. Pollution becomes a community problem. Medical complexity becomes an employer and household problem. Weak labour protection becomes a worker problem. Data extraction becomes a citizen problem. Unsafe products become a litigation problem. That isn’t the absence of bureaucracy. It’s the privatisation of harm.

Silicon Valley wasn’t created by low regulation alone

None of this means Europe is secretly outperforming America. It clearly isn’t, at least not in technology. But the reasons are much deeper than “too much regulation.” The US had extraordinary starting conditions: post-war industrial strength, defence spending, Cold War research funding, elite universities, immigration, deep capital markets, the rise of semiconductors, the emergence of Silicon Valley, strong links between government, academia and industry, a huge domestic market, an aggressive venture-capital ecosystem, stock options, public markets willing to reward growth, and a culture more comfortable with founder ambition and monopoly-scale outcomes.

Silicon Valley didn’t appear because California had fewer cookie banners. It emerged through generations of compounding advantage. The silicon part of Silicon Valley led to hardware. Hardware led to software. Software led to the internet. The internet led to mobile. Mobile led to cloud. Cloud led to AI. Each wave produced companies, capital, operators, angels, acquirers, infrastructure and ambition for the next wave.

Europe has strong companies. It has world-class research. It has excellent technical talent. It has produced important businesses. But it hasn’t had the same flywheel, at the same scale, for the same length of time. That’s largely a story about capital, institutions, market size, history and compounding.

Europe has real problems. They’re just not always the problems people point to.

If we want to talk seriously about Europe’s underperformance, there is plenty to discuss. Europe has less late-stage capital. Its pension funds and institutional investors have historically been less exposed to venture. Its public markets are less attractive for high-growth technology companies. Stock-option treatment is often worse. Founder upside can be weaker. Public procurement is less aggressive. Universities are not always connected to company formation in the same way. There are fewer giant domestic technology buyers. There are fewer repeat founders and scale-up executives who have been through the full journey.

Europe also suffers from fragmentation. Not just legal fragmentation, but cultural, linguistic, financial and commercial fragmentation. A startup in the US can often build for one large home market before expanding internationally. A European startup may have to think internationally much earlier, but without the same unified base from which to scale.

These are real issues. They deserve attention. Some bureaucracy really is pointless. Some permitting processes are too slow. Some compliance obligations are badly designed. Some public-sector procurement systems are painful. Some national rules create unnecessary duplication. Some European countries make company formation, equity compensation, hiring or administration more difficult than they need to be. But this is a much more specific argument than “Europe regulates too much.” Specificity matters. If you misdiagnose the problem, you reach for the wrong cure.

The danger of the lazy regulation story

The lazy story goes something like this: America builds. Europe regulates. It’s catchy. It’s just not very serious. It implies that Europe’s main problem is that it protects people too much. Too much privacy. Too much holiday. Too much food safety. Too much consumer protection. Too many limits on what employers can do.

But perhaps those things are features of the European model rather than bugs. Europe should make it easier to build ambitious companies while preserving the parts of that model that are worth defending. That means deeper capital markets, better founder incentives, more effective stock-option schemes, more pension-fund capital flowing into European venture rather than defaulting into the S&P 500, faster and smarter public procurement, stronger university spin-out pathways, better late-stage funding, more ambitious industrial strategy, a simpler route to forming and operating a genuinely pan-European company, easier cross-border scaling, less duplication, faster permitting for genuinely strategic infrastructure, and more willingness to back European champions. It does not need to mean weaker food standards, fewer holidays, worse privacy rights or making it easier to fire people on a whim.

Regulation needs maintenance, not bonfires

The goal should be regulatory maintenance, not deregulation for its own sake. Like code, regulation accumulates over time. Some of it is elegant and essential. Some of it is legacy cruft. Some of it was written for a world that no longer exists. Some of it solves a problem that has since changed shape. Some of it protects incumbents under the guise of protecting the public.

The answer to bad code is not to delete the whole system and hope for the best. It’s to refactor it. That means asking what each rule is for, whether it still works, who benefits from it, who bears the cost, and whether there is a simpler way to achieve the same public good.

A serious competitiveness agenda would distinguish between useful protections that improve life for workers, consumers and citizens; pointless bureaucracy that creates paperwork without meaningful public benefit; legacy complexity that made sense once but no longer fits the world we live in; and structural fragmentation that comes from Europe being a continent of different countries rather than one unified nation-state. Lumping all of these together under “too much regulation” is branding pretending to be analysis.

Europe needs reform. But not self-loathing.

Europe absolutely needs to get better at building. It needs more ambition, more capital, more urgency, more technical depth, more institutional competence, more comfort with scale, and more willingness to fund and buy from its own emerging technology companies. But it should be careful not to confuse reform with imitation.

The American model has produced extraordinary companies. It has also produced extreme inequality, fragile healthcare access, weaker worker power, high litigation costs, corporate capture, and business models that too often externalise harm onto users, workers and communities. That is not a free lunch.

Europe’s task is to build a better innovation machine on European terms. That means being honest about what is genuinely holding companies back, and equally honest about what is worth protecting. Pointless bureaucracy should go. Fragmented systems should be harmonised. Slow institutions should be fixed. Capital should move more easily. Founders should have better incentives. Public institutions should become better customers. Strategic infrastructure should not take decades to approve.

But worker rights, privacy, food safety, product standards and consumer protection are not the reason Europe lacks a Google. They are part of the society Europe has chosen to build. The hard problem is how to build world-class companies without pretending those protections are the enemy.