Many of Europe’s economies are hampered by a waning number of innovations, partially attributable to the European financial system’s aversion to funding innovative enterprises and initiatives. Image by MPD01605.
Innovation doesn’t just fall from the sky. It’s not distributed proportionately or randomly around the world or within countries, or found disproportionately where there is the least regulation, or in exact linear correlation with the percentage of GDP spent on R&D. Innovation arises in cities and countries, and perhaps most importantly of all, in the greatest proportion in ecosystems or clusters. Many of Europe’s economies are hampered by a waning number of innovations, partially attributable to the European financial system’s aversion to funding innovative enterprises and initiatives. Specifically, Europe’s innovation finance ecosystem lacks the necessary scale, plurality, and appetite for risk to drive investments in long-term initiatives aiming to produce a disruptive new technology. Such long-term investments are taking place more in the rising economies of Asia than in Europe. While these problems could be addressed by new approaches and technologies for financing dynamism in Europe’s economies, financing of (potentially risky) innovation could also be held back by financial regulation that focuses on stability, avoiding forum shopping (i.e., looking for the most permissive regulatory environment), and preventing fraud, to the exclusion of other interests, particularly innovation and renewal. But the role of finance in enabling the development and implementation of new ideas is vital—an economy’s dynamism depends on innovative competitors challenging, and if successful, replacing complacent players in the markets. However, newcomers obviously need capital to grow. As a reaction to the markets having priced risk too low before the financial crisis, risk is now being priced too high in Europe, starving the innovation efforts of private financing at a time when much public funding has suffered from austerity measures. Of course, complementary (non-bank) sources of finance can also help fund entrepreneurship, and without that petrol of money, the engine of the new technology economy will likely stall. The Internet has made it possible to fund innovation in new ways like crowd funding—an innovation in finance itself—and there is no…