Europe and Innovation, the ethernal oxymoron

 

“More soup”

Why Europe cannot stand innovation

• The EU is undergoing one of its periodical "belly button watching" periods, where it laments the lack of technological giants on the continent

• while the word “giant” fits well with the continent bias toward helping big companies, this is not the end result of a cruelly rational thinking process

• on the contrary, these periodical rites belay a lack of basic understanding of innovation processes

• my opinion is that no matter what the public utterances are, the current situation not conducive to any progress is in fact a rational response to the constraints within which the EU public beast has to operate, both in static and dynamic terms.

Europe has just undergone one of its periodic bouts of “we must promote an industrial policy !”

While this is a much needed distraction from the blooper reel that is the EU's foreignpolicy, the most recent utterances fell on me when I was in my most productive stage: I was bored and disgusted. So I started tinkering with the thought “What's with the idea that they can kickstart by fiat the very sense of accomplishment that they usually spend every waking hour condemning?”

As usual, the answer I gave myself was historically obvious, if slightly too complex to fit in a tweet (sorry for Elon Musk but it's still twitter to me).

What progress and growth we've seen in the past four generations and more has come out of increased productivity, mainly but not only labour productivity. That in turn has been made possible in large part by the increased availability of energy, and bear with me on the word “availability”.

It also went hand in hand with a sense of common ethics, loosely patterned in the most advanced societies on protestant “mos maiorum”, where getting rich was not a sin any more. Mind you, BEING rich was never an issue: most of the time when the official spiel was that getting rich was “bad”, there was an aristocracy in place, or even a Kingdom. Roman Senators couldn't engage in commerce or industry as per what the Censors verified, and Poland's Schlakta (I am due shortly for Warsaw) had similar rules.

Now, what's the effect of innovation? And how is the “bigger cake” assessed, or divided?

That's the rub, as I referenced in one earlier piece where I said that EU's spending plan was never going to work. “investment”, by my stricter definition, is an expense whose effects are either that I can produce more with the same inputs, or the same with LESS inputs, or a combination thereof.

What the entrepreneur can decide (up to a point) is supply. When Joe Soap invents a way to produce the whole yearly demand of Thingamaboobs for 10% less than existing producers, he already knows that at the current price he has demand for X pieces. Should he want to do simply that, he could pocket the additional profit (mind you, after taxes).

But... there is a big caveat. How is the increased productivity cake divided? Because it's in the basic understanding of this, or lack thereof, that lies the problem with Brussels and other assorted European capitals.

Contrary to what politicians and economists fond of state intervention in the economy think, the inventor does NOT get all the value of the productivity increase.

This should be intuitive but it's not so let's make an example. Let's use something very recent and that made some news recently, when DOGE made Elon Musk a great villain to European elites, to the point that various possible boycotts were aired.

Yet, he dominates space industry through Spacex by asking a price for launches that....

It's too low. According to public available sources, Falcon 9 costs about 60% of the CLOSEST competitor not produced by SpaceX. Now what's the problem with that?

Well, YOU'd know if you lived in a country block where the total tax take is about 50% (about 40% official, plus a couple of point of legal accounting tricks, plus budget deficits).

Yes, by pricing it “low”, Spacex has engineered a space economy boom, increasing access to organizations which couldn't afford it and/or increasing the “bang for the buck” for the pre existing satellite operators. BUT, every time something costs less, on that “costs less” our esteemed overlords immediately lose about 20% (namely the value added tax), plus they have to incur the wrath and political pressure of the losers. They are much more at home calling “investment” what in reality is current expenditure.

Worse still, they cannot get to decide or direct HOW that cake is divided before it exists, which in their Gosplan minds cannot be. They are perfectly content of having some of their failing project squeak along. After all, incentive do wonders, and even a blind squirrel finds a nut sometimes. But “creative destruction”? Absit omen.