Kersti Kaljulaid, president of Estonia
Kersti Kaljulaid, president of Estonia © Charlie Bibby/FT

As a birthplace for global tech disrupters, Europe — home to the likes of Spotify and Skype — still lags behind the US and China and their juggernauts such as Apple, Alibaba, Google and Amazon.

The continent is also falling behind North America and east Asia in artificial intelligence, as measured by investment and patent activity.

A fragmented digital market, limited risk capital and onerous bureaucracy are several reasons cited for Europe playing catch up to Silicon Valley.

However, Europe’s more regulated, activist political culture has proved to be an asset, as highlighted by many of the region’s start-ups tackling social-services issues in the “tech for good” sector and working directly with central and local governments in “govtech”.

Europe’s start-ups reflect its public service traditions, says Paul Duan, founder of Bayes Impact, a non-profit group that built an AI­-powered job counsellor. “People [in France] understand why you need services to help those outside of the invisible hand of the market,” he says.

European social services such as healthcare are more integrated than in the US, creating opportunities for start-ups to apply innovations such as optimising information flows across the UK’s National Health Service. Others have built tools to help governments become more data-driven, such as digital dashboards that allow town halls to explore data and build visualisations.

“Companies in Europe co-operate more with the social market economy, and it is consolidating around govtech because we are all in it together,” says Kersti Kaljulaid, the president of Estonia, which has pioneered e-government. “It is not this alien thing called ‘the private sector’.”

Civic technology (or “civic tech”) is another prototypically European affair, with scalable chatbots gathering citizens’ views and opinions on everything from divorce law reform in Jersey to urban redevelopment plans in Lyon.

“For us in Europe, the state is ever present in our lives, mainly for good, and it is something citizens, entrepreneurs and investors have ongoing relationship with, not least because of the taxes we pay for these services, as opposed to the US where the state is more remote,” says Daniel Korski, chief executive of Public, an incubator and accelerator that connects start-ups to governments.

“There are more people in Europe thinking about issues that connect to, relate to or transform the state and its services,” Mr Korski says. The US also has a lively “tech for good” sector that includes Code for America, a non-profit group whose suite of tools includes a program that clears a person’s criminal record once it has expired — a support measure that is backed by law, but often fails to occur because of a lack of awareness, cost and complexity.

However, some experts say the “tech for good” ethos can run counter to the US mentality. School 42, a private, non-profit and tuition-free computer program created by French billionaire Xavier Niel “had trouble filling classes in the US because people were asking: what’s the catch?” says Roxanne Varza, head of Station F, the Paris-based start-up campus established by Mr Niel.

While School 42 is a non-profit, many of the European start-ups tackling public service challenges are still eyeing a commercial opportunity. The European govtech market is estimated by Public at €105bn a year.

Another factor setting the tone of European start-ups is the bloc’s strong regulatory stance towards the tech sector itself, from data privacy to antitrust laws. Companies born in Europe are aligned with the world’s toughest rules, while those from less regulated markets could struggle if their government follows Europe’s policy lead.

Brazil, China, India, Japan, South Korea and Thailand are among countries considering legislation to align privacy rules more closely with the EU’s General Data Protection Regulation.

European regulation can create new business openings. The EU-wide digital identity scheme launched in 2018 — which enables Europeans to open a bank account, enrol in a foreign university or access electronic health records across the bloc — could create an authentication and authorisation market worth €2.13bn by 2022 according to the European Commission.

In an interview for this report, Estonia’s president argues that, far from stemming innovation, strong regulation can unleash it.

She cites the Estonian Genome Centre, one of Europe’s largest biobanks that contains samples for more than 20 per cent of Estonia’s adult population. This provides a treasure trove for personalised medicine that researchers and companies can mine, while the government protects the data and ensures rigorous depersonalisation to encourage the public to participate.

Ms Kaljulaid acknowledges that large data sets are critical to emerging fields like artificial intelligence, where China and the US are pulling ahead, partly thanks to looser data privacy rules. Yet she goes on to argue: “Do we want China, which doesn’t have to respect human rights, to pull ahead in data mining just because we can’t tell our tech companies to look after our data and dispose of it safely?”

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