Regulation Begat Silicon Valley rather than “US Innovates, China Replicates, Europe Regulates”

Is it only me or has the phrase US innovates, China replicates, Europe regulates become increasingly popular? In any case, it smells like a myth. Let’s dissect it.

The narrative that only America can invent great tech companies is familiar. It’s convenient for anyone who wants to argue that things like competition, copyright, governance and responsibility stand in the way of innovation. For sure, that is a very one-sided view of innovation. Why worry about disruption of local economies? Democratic elections? Fair competition? If innovation equals techno-capitalism, the first part of the line is true.

China replicates – this one is probably true too. I’m no expert on China, but I have visited the country several times. On a shallow level, China copies a lot of brand fashion for example. On a deeper level, it puts a lot of renminbi into buzzword technologies like AI, quantum computing, future materials and such. But it’s TikTok that is China’s biggest tech hit, not necessarily a product of all that investment. Is TikTok replication of US social media? On some levels yes: it builds on user-created material and a compelling algorithm, just like YouTube or Twitch or Facebook Reels. The business model is based on harvesting user data, just like some of the Silicon Valley skyscrapers’ (except not only to share with advertisers and the NSA…). It is also fair to say that the success of TikTok is credit to re-interpretation and re-invention of this formula. Just like Snapchat or Instagram or Reddit or a long list of US tech hits. China replicates. And it re-invents. Just like the US.

Europe regulates – hehe… hard to argue with that one. The European legislator brags about having the world’s first ever AI regulation. And it is proud of its GDPR export. (Does GDPR export add to GDP? Sorry, pun intended.) But… as if China does not regulate? The Chinese government owns golden shares in the biggest tech companies. It has the Great Firewall and Sesame Social Credit. More regulation than any eurocrat would ever wish for. More importantly, US regulates too. In fact, Silicon Valley’s success relies on regulation, not least the notorious Article 230 of the Communications Decency Act – which has very little to do with decency, but grants technology providers immunity from liability for crime and violations by their users. That’s not all, where do the famous investment bankers on Palo Alto’s Sand Hill Road get the money from? Successful entrepreneurs? “High net-worths”? No, it’s public money. The federal loan guarantee programs going back to the 1950’s give four public dollars for every private. The investment bankers used this policy dating back to president Eisenhower to full effect.

So everybody regulates, but Europe creates. We may not have the huge consumer markets, internet platforms and public funding systems of the East and the West. But Europe has hundreds of thousands of creative business of all sizes building on what we like to think of as European fortés: pluralism, expression, quality.

In digital, if China is the child trying to find its way and US is the disruptive teen who wants to move fast and break things. Does that make Europe the parent?