Europe's Dual Economic Future: Craftsmanship and Advanced Technology

It is no secret that Europe’s economy is suffering…

…or that it has lost its competitiveness:

In this context, we see some painful realities:

1. China becomes the exporter no. 1 cars , solar panels, batteries, drones, IT&C services, thus producing a number of global players: BYD, SAIC, Xiaomi, Shein, TikTok (Bytedance), Temu, etc.
2. European companies are losing market share or being eliminated from China.
3. Volkswagen Group, Europe’s largest car company, still fails to find solutions for the economically viable transition to electric cars.
4. META hired 1,000 people to ensure they wouldn’t run afoul of any provisions of the Digital Services Act, launching the Threads platform more than six months later than the rest of the world.
5. Investment in semiconductor manufacturing continues to grow, especially in the US .
6. Lack of defense capabilities to the current requirements, plus the war of the future.
7. …and many others, as in Figure 3.

“Companies founded after 1990 with a value of +100 billion USD: 11 are in the USA, 6 in China. Zero Elsewhere” – Peter Thiel (2024)

Europe is at a pivotal moment, where its economic future seems to diverge in two promising directions: (1) the enduring tradition of craftsmanship and (2) the rapid progress of advanced technology. These sectors, represented by companies such as LVMH, Kering Group, and L’Oréal in luxury and craft, and ASML, Novo Nordisk, and SAP in advanced technology (including biotech), present a solid foundation for Europe’s sustainability and economic growth.

Figure 4: Top 10 European companies by market value (source: Bloomberg)

This article explores the rationale behind this dual trajectory, the preparations required in various areas, and the steps Europe needs to take to effectively capitalize on these opportunities.

The luxury and craft sector, represented by world leaders such as LVMH, Kering Group, and L’Oréal, embodies Europe’s rich cultural heritage and commitment to quality. These companies use centuries-old craft traditions, combining them with modern marketing and global expansion to create high-value products. For example, LVMH, with its diverse portfolio of luxury brands, shows how meticulous craftsmanship and innovative design can generate substantial economic value that endures in the market, especially during periods of economic crisis. Similarly, the Kering Group’s commitment to sustainability and ethical manufacturing enhances its appeal to a socially conscious global market. Sustained demand for European luxury goods, particularly in emerging markets, underlines the potential for growth in this sector going forward.

Advanced technology, on the other hand, positions Europe at the forefront of innovation and industrial prowess. ASML, a key Dutch player in the semiconductor industry, exemplifies Europe’s technological advantage. As the sole supplier of extreme ultraviolet ( EUV ) lithography machines critical to high-end chip production, ASML underscores the continent’s critical role in the global technology ecosystem. The Danish company Novo Nordisk, a leader in the treatment of diabetes and losing weight, highlights Europe’s strengths in biotechnology and pharmaceuticals, especially with its new product – Ozempic . The company’s innovative therapies and commitment to addressing global health challenges illustrate the economic and social impact of advanced technology, making it the largest company by market capitalization in Europe today. SAP, with its advances in ERP systems, digitization, and intelligent infrastructure, further strengthens Europe’s reputation as a center of technological excellence.

To prepare for this bifurcated economic future, Europe needs to make strategic investments in the following sectors.

1. From an economic point of view, sustained research and development (R&D) funding is needed to drive innovation.
2. Energy investments – solar panels, batteries, nuclear technology (including mini-nuclear reactors), and gas (including liquefied natural gas). Without cheap energy, we will never be able to be competitive.
3. Developing and securing production chains – currently, almost all point two production chains are in China (or Southeast Asia), showing how vulnerable the continent is.
4. Investing in quality education – supporting STEM degree programs (including Business Analytics programs), business schools and dual education.
5. Investments in startups and small businesses in these sectors will be crucial. Banks can come with capital support for this and pension funds can supplement this. Obviously, when it will be desired and/or when the legislation will allow it.
6. Eliminating bureaucracy and allowing real access for European companies to all markets on the continent . Did someone in Brussels wonder why we don’t have any companies in Europe valued at over a trillion dollars today? The stock market valuation of Nvidia, Apple, or Microsoft is greater than the value of the entire German stock market (!).
7. Development of an industrial policy on the American model. Europe has lost automotive supremacy to China precisely because of these things (lacks): local supply chain, talent/people (e.g. software skills), bureaucracy, and industrial policy (e.g. Made in China 2025 ).

All these actions should be collected in an Industrial Policy (or whatever we want to call it), as the United States has done recently.

Europe needs to equip its workforce with the necessary skills for these diverse sectors. This involves a dual approach to education and training. On the one hand, universities and technical institutes should expand programs in the fields of STEM and business to prepare graduates for careers in high technology and biotechnology, but also know how to exploit it economically. On the other hand, vocational training centers and business schools should improve programs for these industries, ensuring the transmission of craft skills to future generations. Collaborative efforts between industry and educational institutions can provide internships, apprenticeships, and hands-on training opportunities, bridging the gap between academic knowledge and practical expertise.

Socially, fostering a culture that values both innovation and tradition is essential. Public awareness campaigns can highlight the importance of supporting local artisans and appreciating the quality and heritage of their products. At the same time, promoting the benefits of technological advances and their positive impact on society can help garner public support for innovation. Encouraging cross-sector collaborations, such as partnerships between technology firms and craft businesses, can lead to the development of new products and markets, blending tradition with modernity.

Politicians must create an environment favorable to the development of Europe because only in this way can we regain the lead over America and remain relevant.

N.B. This article was published on the 5^th of June 2024 in Republica.ro.