1.1.3 Engines of prosperity: technological innovation and institutions
-30. In the previous sections I underscored the importance of institutions as determinants of prosperity and well-being and quoted numerous authors in support. Yet all these authors emphasize a second essential ingredient: science and technology.
-31. Thus, Acemoglu and Robinson write: “Inequality in the modern world largely results from the uneven dissemination and adoption of technology” and “Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education.”
-32. In a broader historical context, Y.N. Harari observes that “Until the Scientific Revolution most human cultures did not believe in progress. They thought the golden age was in the past, and that the world was stagnant, if not deteriorating.” Then philosophers stated that “knowledge is power” and science began solving difficult problems. From there on, “the feedback loop between science, empire and capital has arguably been history’s chief engine for the past 500 years”.
-33. Coming with an economical perspective, Douglass North writes: “Institutions […] together with the technology employed […] determine the transaction and transformation (production) costs that make up total costs.”
-34. Acemoglu and Robinson further detail the mechanism through which science and technology contribute to an increase in prosperity: “These improvements follow from science and from entrepreneurs […] who applied science to create profitable businesses. This process of innovation is made possible by economic institutions that encourage private property, uphold contracts, create a level playing field, and encourage and allow the entry of new businesses that can bring new technologies to life.”
-35. Despite its past economic success, “corporate Europe” has manifestly declined in the past four decades. As the well-regarded “The Economist” weekly magazine observes, in terms of large firms, as defined by market capitalization, revenue and other typical financial indicators, the share of Europe has continuously declined in the past decades.
Figure 2. The new geopolitics of global business (The Economist) source
-36. This is especially true in technology: “Tech firms comprise a quarter of the global stock market and the geographic mix has become strikingly lopsided. America and, increasingly, China are ascendant, accounting for 76 of the world’s 100 most valuable firms. Europe’s tally has fallen from 41 in 2000 to 15 today.”
-37. Hosting the headquarters, being the home of large firms becomes even more important as globalization, once on the march, seems to be unwinding: “As globalisation unwinds, rows are already erupting over where multinational firms produce vaccines, set digital rules and pay taxes.”
-38. There was a time when Europe was happy to swap its luxury bags for Chinese computer chips. In an era defined by advances in computer technology, such an arrangement leaves it dangerously dependent on a “strategic competitor” and a “systemic rival”.
-39. Yet “realizing” its decline is not the same as having a solution to reverse it. In a piece from 2018 The Economist called Europe “the digital desert” and proceeded to state: “Europe’s history explains why it will never produce a Google.” This is precisely the challenge the EU faces today: can its institutions respond to advances in technology with laws that would allow a “new Google” to spawn in the EU? In the case at hand: can the MiCA regulation pave the way for the “Google of crypto-assets” to appear in the EU? I’ll answer this question in Parts 2 and 3.
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[36] D. Acemoglu and J.A. Robinson, op. cit., p. 53,77
[37] Y.N. Harari, op. cit. p. 294
[38] Y.N. Harari, op. cit. p. 306
[39] D.C. North, op. cit., p. 5-6
[40] D. Acemoglu and J.A. Robinson, op. cit., p.77
[41] The Economist, 2021 June 5 issue, accessible at: https://www.economist.com/briefing/2021/06/05/once-a-corporate-heavyweight-europe-is-now-an-also-ran-can-it-recover-its-footing
[42] The Economist, 2021 June 5 issue, accessible at: https://www.economist.com/leaders/2021/06/05/the-new-geopolitics-of-global-business
[43] The Economist, 2018 Oct 13 issue, accessible at: https://www.economist.com/europe/2018/10/13/europes-history-explains-why-it-will-never-produce-a-google