For the sake of complete transparency, before you start reading this article, you should know the following about me: I am a Swedish citizen. I have lived and worked in Stockholm, Berlin and California. I have also worked remotely for UK-based companies. So the problems I am going to talk about in this article do not stem from some hyped-media BS. They come from having lived and paid the bills in those countries while working in those scenes. And to be completely honest, if I ever get the chance to move back to the US again, I would jump on an airplane right this second.
And now that you know where I stand, let us talk now about the European Tech Scene.
Berlin, Paris, Stockholm as well as many other cities around Europe have been trying for the past decade to compete with Silicon Valley and New York in terms of both product output as well as the overall growth of their domestic tech-scenes. Yet somehow, no matter what, they always seem to lack talent, innovation and the ability to compete on a global level. Even if a company manage to somehow rise and get enough traction and traffic to be considered of a decent size, they are for some reason most often unable to scale globally as fast and as well as American companies can. Here are some stats: link1, link2.
In terms of tech, Silicon Valley alone, including its giants, creates on yearly basis more companies, new tech and profit than what more than half of the European countries combined are able to make in a decade. Which leads me to the question: What is it about the European tech scene that makes it so unable to compete? not only financially but also in terms of innovation and growth.
Let us investigate this further shall we?
I personally believe that this comes down to the cultural differences between the US and Europe. It is a sad thing to say but Europe in general foster a lifestyle that discourages risk-taking. Failure is a big no-no here. We look down on failure and tend to continuously tell our kids not to take too many big risks.
The European dream boils essentially down to having a comfortable lifestyle in an environment where you as a citizen do not need to “risk it all”. On the other hand the American dream is all about living large and taking enough risks in order to one day become more than just an average person.
I can go on and on about the different cultures these continents foster and how the political landscape reflect those dreams perfectly. We could talk for hours about Socialism (or socialistic ideas in general) and why that line of thinking tend to flourish in risk-averse societies. But that would just polarize this article and make things much harder to discuss due to the sheer complexity and the amount of variables that have to be accounted for and talked about.
For that reason, Instead of rendering this into a political argument, let us actually talk about a few practical things that Europe can do in order to better its tech scene:
- Fix the relatively low tech wages:
Take a look at these links: Germany, Sweden, France and the UK. These are all salaries for SENIOR engineers. People who should theoretically be at the top of their profession. Compare that to the salaries of their US counterpart and pretend not to be shocked. It gets even worse if we look at NY or SF – which are the two regions Europe is trying to compete with.
When talking about the low salaries, there are usually 2 counter arguments that are constantly being made. The first is about the validity of the data. Well, you don’t have to take my word for it, go ahead and google it on your own. Salaries in Europe, especially for seniors, are about 2-3x less than what they are in the US. I personally know of junior developers in the US that make more money than most of the seniors I have hired here in Europe.
The second counter argument is: salaries only matter in relation to the purchasing power. People tend to look at this and think that the difference in salaries is offset by the high cost of living. But is that really true? Let us see. Software Developer in Stockholm VS. San Fran. I think the answer is pretty clear here. In addition to that, what if we actually took taxes into account as well as the cost of having a family? at that point, there is no competition. San Fran wins 10 out of 10 times. But… If you are still not convinced, how about a different comparison. What if we compared say San Jose to Stockholm? or perhaps Paris to Seattle. It is simply the case that Europe cost too much to live in and pays too little. Even if you compare smaller European cities to smaller US cities you will find that same statement to be true.
The holy grail of the European problem-solving process. If it isn’t working the way we want it to, we TAX IT. I currently enjoy a whopping 40% tax rate while living in Berlin. In Sweden, your income gets taxed at roughly 30% but in addition to that, you have to actually pay an additional 30% for each employee you have. Even if that employee is YOU. Simply put, you have to pay 60% tax to be self-employed (dafuq?). Please keep in mind that this does not include the VAT tax that you have to pay when you consume. Even if you work for a company that pays that last 30% on your behalf, that money is basically taken out of your check.
Some would argue that this is the cost you have to pay for utilizing the “awesome public healthcare system” as well as many other social safety nets that we currently enjoy and celebrate here in Europe. And while that may or may not be the case (mostly isn’t), leaving the politics of the situation out of this, this system of high taxation actually produces three problems:
- All the salaries that were presented in section #1 above needs to be adjusted for these taxes. Which means that things just became far more expensive for Europeans than we previously thought. AOUCH!
- Countries like Sweden, Germany France and even the UK (IIRC) have different tax rates for individuals who are single or married/have children. Which for me begs the following question: why would a single (as in not-married) talented developer stay in any of these countries if he presented with the opportunity to leave? You want talented and smart people in the European tech scene? then stop pushing them away. This is a serious case of Brain Drain. I wonder what would happen in case the US ever decide to eliminate its H1B policy and open the doors for high skilled workers…
- In order to pay for all these taxes, you now have to charge your clients more money which in turn leads to more expensive services and less demand.
- The anti-startup culture:
Countries like Sweden, Finland and Denmark (Scandinavia in general) are more guilty of this than the rest of Europe. However, even in Germany there is a fair share of “don’t try because you might fail” attitude. Just think about it this way: how can a culture that celebrates this madness ever compete globally? the answer is, IT CAN’T! That culture is doomed to fail in the long run. Ironically enough, the culture of anti-failure is what will ultimately lead to the failure of that culture.
- Severe lack of capital:
There is a severe lack of capital in Europe. It’s not that the capital is not there, because it is. However, the flow of capital restricts the ways in which it might be invested. Taxes and regulations among other things prevent investment from taking place at the same scale as it is in the US. Investing across countries in Europe is much harder than investing across states in the US. Getting funding in Europe is a lot harder than getting funding in the US. Besides, even if you get funded, the expected ROI in relation to the actual capital that you get is not even close to the same.
A $100 000 investment is basically nothing in the US. The culture of finance is vastly different than in say… Sweden where that $100 000 would translate into 1 000 000 SEK. A million SEK is more than what most can save in total during LIFETIME. The middle class simply lacks the capital to invest while those with capital get to demand more in return because capital is now a scarce resource. The same cannot be said about the US. Not at all…
The sad truth about Europe in general is that we have continuously suppressed human curiosity with Jante Laws and institutionalized education that teaches you to conform to the system no mater how shitty it actually is. We also repeatedly punish failures and allow our successes to escape to better environments because of our lack of support mechanisms. We tax too much and encourage people not to dream big. And the saddest thing of all, we trick ourselves into believing that we can compete.
Huh… if German cars and Swedish furniture cannot compete globally, then we sure as shit not going to be able to compete tech wise.