Future of Europe: Balancing Innovation and Regulation by 2035
The European Union (EU) finds itself at a crossroads, with the principle of subsidiarity playing a pivotal role in shaping its future. This principle, enshrined in the Treaty on European Union (Maastricht Treaty), advocates for decisions to be made as close as possible to the citizens they affect.
Subsidiarity reinforces legitimacy by policies crafted closer to citizens being more likely to reflect local preferences, respond to feedback, and command public trust. It is designed to preserve diversity, encourage local innovation, and prevent unnecessary centralization. However, in practice, subsidiarity has often been sidelined, especially in recent years, leading to increasingly harmonized policies in areas such as taxation, digital regulation, and industrial policy.
A Europe that is responsive and decentralized is more resilient, both politically and economically, than one that seeks to manage complexity from the center. Countries or regions can test novel approaches to taxation, labor law, startup regulation, or digital services, learning from each other's successes and failures when subsidiarity is respected.
In a less likely, but potentially transformative scenario, Europe embraces subsidiarity and decentralization as drivers of innovation. In this model, the EU could position itself as a framework provider, setting basic parameters and legal interoperability, while allowing jurisdictions to compete and innovate within those boundaries. This approach would enable member states, regions, and cities to design and implement policies that reflect their specific comparative advantages, administrative capabilities, and cultural conditions.
However, it is also possible that Europe follows a cautious reform path, making some improvements but remaining inclined toward centralization and harmonization. In this scenario, the EU could centralize further, leading to high regulatory standards and social protections but falling further behind in global innovation and competitiveness.
Two countries that stand out in Europe for fostering innovation with simplified regulations, supportive agencies, and favorable tax/investment environments for startups are Austria and Switzerland. Austria, with its strong scientific traditions, exceptional talent pools, and active support from agencies like the Austrian Business Agency, helps reduce bureaucratic hurdles for startups. Switzerland, on the other hand, offers a thriving startup ecosystem with high foreign investment inflows, facilitating innovation through access to capital and a dense technology startup scene.
Meanwhile, Spain scores well for lifestyle factors, but ranks lower on administrative simplicity and career opportunities for expatriates. This highlights the need for a more balanced approach that considers both the economic and social aspects of subsidiarity.
Subsidiarity and institutional competition provide Europe with a unique edge over centralized systems like China by allowing diversity and decentralization to flourish. However, the drift toward top-down uniformity in the EU undermines Europe's capacity for institutional diversity and localized experimentation.
As the EU navigates its future, the revitalization of subsidiarity could be a key factor in fostering innovation, promoting local experimentation, and ensuring the EU remains competitive on the global stage.
