What if the economic salvation of the “Old Continent” depended on institutional streamlining rather than a new investment plan?
In an essay published on constitutionofinnovation.eu, three leading figures in academia—Luis Garicano (LSE), Bengt Holmström (MIT, 2016 Nobel Prize winner), and Nicolas Petit (EUI)—offer a profound analysis of the barriers to innovation in Europe. Their conclusion: the European Union has drifted from a project of economic integration toward a model centered on regulation. Their solution: establishing a “constitution of innovation” to restore the continent’s capacity for growth and innovation.
A continent that has lost its growth momentum
Between 1950 and 1980, Europe experienced unprecedented expansion. Average per capita income tripled, productivity soared, and hours worked declined. But since 1995, the pace has slowed: average annual growth has plateaued at 1%, compared to nearly 2% in the United States.
For the authors, this slowdown is no accident. Europe has gradually become trapped in a bureaucratic mindset, multiplying regulations at the expense of experimentation and risk-taking. What they call “regulatory intuition” has replaced the logic of integration and innovation that guided the founding fathers of the common market.
When regulation becomes counterproductive
The article highlights the hidden cost of the “Brussels effect”: the EU’s ability to set global standards often comes with a heavy regulatory burden. The General Data Protection Regulation (GDPR) is said to have led to a 26% drop in venture capital investment compared to the United States.
Added to this is legal fragmentation: each member state adapts or adds national rules, creating a patchwork of constraints that deter investment and slow the spread of innovation.
An “innovation constitution” as an institutional compass
Rather than calling for new public spending, the authors propose a simplified and clear institutional framework:
- Refocus the Union on its primary mission: prosperity through the single market and the free movement of goods, services, capital, and people
- Limit the use of directives, which are sources of divergent interpretation, in favor of directly applicable regulations.
- Create a “28th European regime,” a single optional legal status for companies operating in multiple Member States.
- Introduce “sunset” clauses, requiring periodic reassessment of the relevance of laws.
- Strengthen economic impact assessments prior to any new legislation.
This project does not advocate deregulation, but rather the reconstruction of an ecosystem conducive to innovation: predictable law, open competition, and measured bureaucracy.
“Do less, but do it better”
The three researchers advocate a return to the fundamentals: an integrated market, stable institutions, and renewed confidence in the capacity for entrepreneurship. Their message is crystal clear: without growth, Europe will be unable to finance its social model, guarantee its technological sovereignty, or carry weight in the new global economic order.
At a time when the issue of competitiveness is returning to the forefront of political and economic agendas, this analysis has the merit of combining clarity, pragmatism, and ambition.
The authors:
- Luis Garicano: professor at the London School of Economics, former Member of the European Parliament (Renew Europe), specialist in public policy and productivity.
- Bengt Holmström: Professor Emeritus at MIT, winner of the 2016 Nobel Prize in Economics for his work on incentive theory and contracts.
- Nicolas Petit: Professor at the European University Institute, a recognized expert in competition law and the digital economy.
