Freedom and innovation are keys to Europe’s success

Unleashing free-market force and entrepreneurship are the keys to a successful Europe. Instead of mimicking China’s central planning, the West needs to return to the values that initially made it powerful and prosperous: innovation, freedom and entrepreneurship.

A cartoon showing the devil of central planning fighting off the angels of entrepreneurship and competition over Europe, while China watches
Returning to liberal state principles – in the classic sense – is the best strategy for Europe as it gropes for ways to restore its economic vigor and face with confidence the looming Asian power. © GIS – This cartoon is available for sale in our shop.

Technology is neither good nor bad. It can be used in ways either beneficial or detrimental to society. 

The innovation process, however, creates fears as many do not sufficiently understand the new products and systems and the advantages they bring. People fear that efficiency- and productivity-boosting technologies will take away their jobs and that no alternative employment will be available. Such anxieties ran very high after electric power, the steam engine and motor cars first appeared.  Yet these industrial revolutions had the opposite effect: the unleashing of new forms of energy and machine power ramped up productivity, income and overall prosperity grew. New kinds of economic demand led to new jobs and professions – often in sectors that did not exist before. 

Dramatic improvement

Today, a vast majority of the developed world’s population can afford products and services that in the past were reserved only for the superrich. People from all walks of life enjoy manufactured goods that not so long ago did not even exist – be they dishwashers or coffee machines or home movies. The nutritional quality, variety and affordability of foodstuffs have improved dramatically. Medical services have been upgraded far beyond what was even imaginable two generations ago.

Information technology brought on radical efficiency increases in the white-collar sector of the economy.

All this material wealth was increasing in Europe and the United States – until recently. This growth was driven by free markets, which allowed room for competition and forced businesses to innovate and improve efficiency. The free Western societies rewarded creativity, invention and hard work. The notion of personal responsibility sustained an effective social ecosystem. 

In the 19th century and early 20th century, manual work became assisted (and partially substituted) by technical means. Later in the 19th century, communication technologies started with the telegraph and telephone. Broadcasting began soon after. From the 1960s onward, information technology began to develop at an exponential speed. This brought on radical efficiency increases in the white-collar sector of the economy, especially in research and development.

New dawn

We are now witnessing the dawn of another revolutionary technology of the information era: artificial intelligence and quantum computing. Both will significantly disrupt the way humans work – and, at the same time, open up tremendous new opportunities. 


Facts & figures

Nascent technological revolutions

Artificial intelligence

(AI) projects simulate human intelligence in machines. They are created to rationalize and take actions that have the best chance of achieving a defined goal. A subset of AI is machine learning, which refers to the concept that computer programs can automatically learn from and adapt to new data without human assistance. Deep learning techniques enable this automatic learning by absorbing huge amounts of unstructured data such as text, images, or video.

The goals of AI include learning, reasoning, and perception. Weak AI tends to be simple and single-task oriented, while strong AI carries on more complex and humanlike tasks. The technology is used across different industries, including finance and healthcare. AI powers autonomous (self-driving) cars. Its applications are endless.

Quantum computers

represent a new kind of computing technology to tackle problems above a certain size and complexity that all existing traditional computational power on Earth would be insufficient to crack. 

In contrast to today’s digital machines that manipulate individual bits (which store information as binary 0 and 1 states), quantum computers leverage quantum mechanical phenomena to manipulate information. To do this, they rely on quantum bits or qubits.

Quantum computers could spur the development of breakthroughs in science, medications to save lives, machine learning methods to diagnose illnesses sooner, materials to make more efficient devices and structures, better financial strategies and algorithms to quickly direct resources.

Source: Investopedia, IBM

Together with other applications such as blockchain, these two discoveries will help make our institutions, production facilities, tools and procedures more efficient. Today’s robotics, for example, will improve radically. Even more importantly, scientific research will be enhanced by exponentially enhancing data processing, which is certain to lead to breakthroughs in biotech and healthcare. The new technologies will spawn new applications and change business models in many key sectors by, for example, allowing more suitable processes and dedicated agents in the financial sector.

Presumably, such empowerment of humans with technology offers new opportunities to the individual, as it makes room for a variety of new businesses, often with low entry-level capital requirements. When this happens, bursts of innovation lead to more overall prosperity. The Western world, particularly Europe and the U.S., became rich and powerful by creating innovations in free societies. Competition and entrepreneurship propelled the process, birthing ever-more revolutionary technologies.

A bad alternative

Unfortunately, many Europeans have become risk-averse and fearful of disruptive changes – perhaps because of saturation. People allowed governments to become larger and assume more power. Individual freedom was gradually surrendered in exchange for an illusion of security provided by oversized administrations.

The alternative to the Western system is the Chinese model, where the state is a strong driver of change. It allows private businesses to operate, but only within the parameters set by the communist party. Deng Xiaoping’s modernization and opening up in the 1980s, after the dark decades of Mao Zedong,  allowed the country’s economy to start rebuilding. The government has maintained a sizeable, if less efficient state-owned company sector. Research and development projects have been launched, and foreign scientists purchased, to make China a new technology leader.  

Seeing Beijing’s quick ascent, Europe and the U.S. are now afraid of losing to China in the global contest.

An authoritarian regime can force progress through focus and mobilization of resources, but this strategy is not sustainable, as the corrective impulses from markets are eliminated. For the time being, however, the West is being challenged by China’s rise.

Reforms and expanding trade allowed Beijing to make technological advances, develop a huge war machine and challenge the U.S. as the world’s leading power. In parallel under President Xi Jinping’s rule, the country has ramped up its authoritarian controls of the citizens, using cutting-edge surveillance technologies. Its “social credit” rating system serves to steer individual behavior and punish any form of nonconformity. Those found to be less than fully loyal to the system see promotions blocked, travel possibilities restricted (even inside the country), and other forms of repression used against them. 

Dead end

Seeing Beijing’s quick ascent to military and technological leadership, Europe and the U.S. are now afraid  of losing to China in the global contest. Countermeasures are discussed, but little gets done. In earlier times, there was the hope that rising prosperity would bring democracy, freedom and the rule of law to China. But this will not take place in the foreseeable future. As part of their response, Western countries have started to curb China’s ability to invest in their strategic businesses. Unfortunately, such protectionist measures tend to work in the short term only. In most cases, there are unwanted consequences. 

Alarmingly, Europe and the new administration in the U.S. are starting to respond to economic challenges by developing strategic government projects and development programs. Economies are now stimulated through political planning,  despite evidence that this usually leads to misallocated resources and false signals to market players. A good example of such a failed government policy is Germany’s troubled energy industry. After years of misguided regulation, the sector is neither ecological nor economically sound nor dependable. 

On top of that, EU bureaucracy and many national leaders apparently perceive regulatory trade barriers as a sure way to make Europe a global player. They naively believe that other regions will embrace European values to gain access to the European market. While that mechanism partially worked in the past, its effectiveness has declined. This sort of short-term thinking will lead to Europe’s decline, as it eliminates competition and change from its policy toolbox.

There is no good rationale for discarding the golden principles of sustainable economic success.

Not so long ago, free market and competition were in Europe’s DNA and among the drivers of its unification. In the 1980s and 1990s, Brussels used to limit state involvement in the economy. Unfortunately, the 2008 crisis and now the pandemic have over-empowered the administration and put businesses into an ever-tightening straightjacket of regulations and restrictions. The economy is becoming more planned and micromanaged; citizens, too, are increasingly finding themselves under surveillance. 

Back to basics

The principles of liberal democracy have made the West powerful, but now the rules of entrepreneurship, self-responsibility, freedom of choice and individual fundamental rights are falling out of fashion. The justifications offered, such as solidarity, may sound good but are vague. However you slice it, there is no good rationale for discarding the golden principles of sustainable economic success.

Not all is lost, fortunately, and the trend can be reversed. Europe now faces a historic opportunity to grab these fantastic emerging new technologies to strengthen its economic, ecological and political resilience and confront Asia’s authoritarian challenge with self-confidence. The continent is showing signs of returning vigor. The quality of life in Europe, envied by most of the world, has been improving further due to breathtaking advances in medicine, nutrition, communication and information technologies. Businesses on the continent are very attentive to the matters of ecology. Much more can be achieved if the economic sphere is given the freedom it needs to rev up its engine.

Unleashing markets and entrepreneurship is the only way forward. Europe should use its capital and brainpower as keys to success. All it needs is to trust that limiting government is the best way of achieving a liberal state – in the best, classic sense of the term. Modern markets are focused on sustainability in its economic, ecological and social sense. This model shows there is an alternative to the Chinese system. It is the best way to give the Western world the confidence and strength it needs to face the assertive Asian colossus.

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