Europe fell behind two tech revolutions because firing people costs too much
Garicano rejects cultural explanations: Europe's innovation lag stems from high firing costs, which prevent companies from pivoting overnight like Facebook and make them unwilling to make bold bets.
The video won't play here. Listen to the audio instead:
The argument · timestamps estimated from transcript position
Europe's corporate hierarchy hasn't shifted in three decades
Garicano notes that if you rank Europe's top companies by market cap or R&D intensity across decades, the same few German automakers appear repeatedly; meanwhile America's list has completely reshuffled—Facebook, Microsoft, IBM have risen and fallen, while automakers dropped out entirely. Mounk adds that even in autos, Europe's most invested sector, Chinese automakers have already surpassed it: ETH Zurich students report their school lacks the technology showcased at Beijing's robotics Olympics, while BAIC, a second-tier state-owned automaker, sells new vehicles more advanced than European ones at a fraction of the price.
What Europe lacks is expertise, not capital
When Mounk raises whether Europe has already lost the capital game, Garicano expresses skepticism about the capital-shortage explanation—it's more like talented Europeans took European capital with them to Silicon Valley. The real gap emerges in counterexamples like Sweden: when Spotify succeeded, its founders had both capital and experience—they knew how to become angel investors and how to mentor the next generation of entrepreneurs on which paths to pursue. Most of Europe lacks this ‘know-how’ ecosystem, not just funding itself.
— GaricanoHigh firing costs chill corporate transformation
Garicano cites research by two European scholars on Ericsson and Nokia: high firing costs make it difficult for companies to change direction. Facebook could go all-in on the metaverse because it was the future, then, discovering the bet had failed, dismantle the metaverse team overnight and pivot to hiring AI talent across the board. In Europe, firing employees requires union negotiations, committee approvals, and other processes that take months; this means companies think twice before betting heavily on a radical new direction, because once judgment errs, correction becomes nearly impossible.
— GaricanoA single tax law rewrote Swedish startup culture
Garicano rejects using cultural conservatism to explain Europe's entrepreneurship gap: culture is downstream of institutional arrangement and can be changed. Sweden changed the law in 2003 or 2005 to allow entrepreneurs to reinvest capital gains from one venture tax-free in the next, and a culture quickly emerged where everyone wanted to roll proceeds back into the startup ecosystem. Sweden has this culture; Norway and Denmark do not. The difference isn't national character—it's whether the law changed.
— GaricanoImmigration is the silent word in populism's rise
Mounk identifies a paradox: when discussing the causes of populism, technology, social media, economic stagnation, and inequality are brought up unprompted, but immigration is almost never mentioned unless directly asked. Yet Trump and Le Pen's most frequent talking point is immigration; in Saxony-Anhalt's parliamentary election, 91% of AfD voters cited immigration as their primary voting reason. The elite's avoidance of the topic is itself part of why liberal democracy faces risk.
— MounkThree pillars of Germany's postwar order crumble together
Mounk notes that Germany's ‘model that worked well since 1945’ is breaking down: security outsourced to the US, energy to Russia, growth to exports to China—all three now unreliable. US security guarantees are uncertain, Russian energy has been cut off, and China has transformed from a market for luxury vehicles like VW and Mercedes into a competitor capable of defeating them with its own cars. Germany faces a ‘second China shock’ more severe than America's. Adenauer's old campaign slogan ‘no experiments’ has become the root of German elites' inability to truly discuss reform.
— MounkOne invasive toad kept thousands of Berliners homeless
Garicano offers a reform checklist: first, Europe needs a real ‘interstate commerce clause’—if something sells in Madrid, it should sell directly in Brussels with no exceptions. He also attacks how environmental law has turned absurd: London's green belt can't be developed because a mouse appeared, triggering biodiversity law; in Berlin, a site zoned for thousands of apartments can't be built because an invasive toad brought by truck twenty years ago is deemed protected. Even the developer's offer to build a toad sanctuary was rejected, leaving thousands without homes while the toad isn't even native to the region.
— GaricanoNuclear exit was Germany's most anti-environmental decision
Garicano notes Europeans often substitute ‘luxury beliefs’ for environmental positions—they worry that AI uses too much water yet ignore the environmental cost of the almond milk they drink daily, because almond milk ‘feels green.’ His prime example: Germany's nuclear exit, which sent natural gas and coal consumption soaring, is the least environmental decision Germany has made, yet it's almost never discussed as an issue—only the far right brings it up. He notes that writing on Substack won't reach many—he himself has about 12,000 readers—the real work is finding ‘low-hanging fruit’ institutional reforms like Sweden's tax change.
— GaricanoIn their own words · checked verbatim
Basically, what has happened since 1990 is that nothing has happened.
Garicano4:00
if it’s all about continuing to do what you were doing before, we’re pretty good. If it’s about changing directions, we are terrible.
Garicano5:00
If Facebook decides that the metaverse is the future, invests in the metaverse, changes the name to the metaverse, then decides it’s a completely stupid idea and instead they should be doing AI—they just, one day, fire all the metaverse people, the next day hire all the AI people, and they’re gone.
Garicano10:30
So if you create a new startup, you can save yourself the capital gains. If you do that, then suddenly everybody wants to reinvest, and then suddenly you have a culture.
Garicano13:30
If you ask my mom, or the mom of my wife, or somebody else in Europe, they don’t care so much about innovation and all these things, because they think life is good as it is and they want to just get their pensions and continue the way they are.
Garicano19:00
if liberals don’t enforce borders, fascists will
Mounk24:45
There’s a huge need for housing in London. There is this green belt, which is nothing but old industrial areas where you can’t build, because there’s one mouse that appeared, and then the whole biodiversity legislation kicks in. It’s insane.
Garicano36:10
Killing nuclear is the least environmentally friendly thing Germany has ever done. It’s driven up gas consumption and coal consumption through the roof.
Garicano37:50
Figures
| Year of Sweden's startup capital gains tax exemption reform | 2003 or 2005 | 13:30 |
| Saxony-Anhalt AfD voters citing immigration as primary voting reason | 91% | 24:45 |
| Typical European corporate incremental innovation cycle | About 3 years per round | 5:00 |
| Garicano's Substack subscriber count | Approximately 12,000 | 37:50 |
Glossary
- Cassis de Dijon
- An EU court ruling establishing that products legally sold in one EU country can be sold across the EU, though it left exceptions for cultural and environmental protections.
- Interstate Commerce Clause
- The provision in the US Constitution regulating inter-state trade; here, a metaphor for the unified market rules the EU urgently needs.
- Luxury belief
- A virtue-signaling belief that costs the holder almost nothing but demands payment from others.
- Keine Experimente
- Adenauer's campaign slogan meaning ‘no experiments,’ symbolizing postwar Germany's political refusal to change the status quo.
How to listen
Investors tracking European tech competitiveness and China-US-Europe institutional comparisons, policy researchers, and entrepreneurs.
The low-signal segment complaining about office windows and automatic air-conditioning.