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Comment by PeterStuer | Hacker News Reader

No reserve currency status is what lies at the root imho. Hard to compete with free money.

Also, in this climate regulation and local market heterogenity create specific local niches in which many startups can initially thrive.

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That's a fairly weak excuse, IMO. Neither Singapore and Israel has a dominant currency, and yet both far, far outperform EU countries of similar size.

The problem is cultural and, as a result, the regulatory environment.

> Neither Singapore and Israel has a dominant currency, and yet both far, far outperform EU countries of similar siz

Can't really speak to Singapore, but Israel gets way more funding than basically any country in the EU. Now, a bunch of that is because it's had more successful startups and have been doing it longer, but some of it is extremely large investments in the country from US VCs.

It's part of a VC's job to go where investments pay off. Israeli startup investments have had an excellent ROI in aggregate, so of course foreign VCs go there.

In contrast, the EU's regulatory environment is extremely difficult for startups. I have multiple entrepreneurial French and German friends who have told me their businesses (which they started while living in here in E. Asia) would have been impossible to do in their home countries without significant starting capital.

In fact, three of them incorporated in Singapore, despite living elsewhere. Forming a US business via Stripe Atlas or Firstbase is also common and relatively painless, especially if it's an LLC.

Singapore is hardware focused, not easily transposed to the US. Israel's niche is defense and surveillance. Given Israel's extreme ties to the US, it is convenient to have these outside of the judiciary but basically under US agency.

I’d say brain drain is the root problem. It’s hard to build a competitive ecosystem when the most ambitious and skilled people move away. From Europe, they move to the US. From within the US, they move to one of a few cities, most notably San Francisco.

The brain is probably draining because there's more money available, though, linking your answer to the parent's.

There is a brain drain because there are little to no opportunities if you are skilled and less skilled people keep trying to push you down the ladder. If you stop people from moving, they will grow discontent and will probably not be working in tech anyway and prefer a more sane environment. I don't think most U.S. people realize how bad, inefficient and crooked the tech scene can be in some countries.

How do you explain Russia's success in tech?

Why would it be hard for an american investor with "free money" to invest it in European startups, if there were no other reasons for them to be a worse investment?

They do, and even more so they just outright buy the succesfull ones.

This kind of contradicts your original comment where you claimed that the free money is the reason for this discrepancy. But if american investors would be able to use this free money for american and european startups, then they would compete on common capital market and this difference wouldn't matter.

They are bought and transposed, turning them into succesfull US startups or absorbed into US corporations.

The Euro is a major global reserve currency.

> The Euro is a major global reserve currency.

It really, really isn't. Like, how many Euro bonds can I buy today? Compare to the size of the treasury market. The Euro could certainly be a reserve currency, but a majority of eurozone members don't want the tradeoffs that would come with that.

As true as that is, the Euro has about a 20% market shares of countries' forex reserves, quite literally making it a major reserve currency.

Yeah, I figured that someone would respond stating something like that. It's nowhere near the dollar, but it is a strong number 2 (because people buy lots of stuff from the Eurozone).

Try buying oil in Euros.

The reserve currency/low cost of capital angle is huge.

Can you quantify how huge?

That's a bit of an absurd request given the complexity of the global economy. That said, you can look at the gap between the loan rates paid by the average US firm vs. non-US.

Agree. This whole "EU is too fragmented/too risk averse" rhetoric in my opinion is insufficient to address why other advanced economies (Canada, Australia, NZ, Japan) also had regressions in the competitiveness of their tech sectors like Europe, and why US weaknesses don't seem to hold US businesses back.

In the end, it all boils down to whether you can get the $$$ to build at scale, and US businesses can get the most $$$ because US controls the world reserve currency (cf. Seigniorage). It's not surprising that the start of US outperformance correlates with the beginning of massive QE in 2008.

The example countries you mentioned also have much smaller populations than EU and USA which may be a different limiting factor.

Japan has a fairly sizeable 130m population. They used to have the world's most advanced tech industry in the 80s/part of the 90s.

Also do not discount Canada. At almost 40m people (comparable to say, Spain), access to US+Mexico market via NAFTA and a historically strong tech sector (Ati, Blackberry etc) you'd expect them to be very strong. However, despite these strengths, today Canada's tech sector pretty much devolved to a nearby location for US companies to temporarily relocate employees that had H1B issues. Canadian-origin tech companies are now basically gone from the big leagues.

In the 80s, the rhetoric was that Japan was going to buy everything. And, if not the most advanced tech industry, a very advanced one.

I'm from NZ. It's also risk averse, and a single economy and currency of 5 million people 2100km away from any other economy of note sounds a lot more 'fragmented' than anything in the EU.

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