How Did Europe Fall So Far Behind In Technology

Ethan
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THE STATE OF EUROPE

Once upon a time, Europe was the most domineering force in the entire world. They controlled swathes of land across the entire globe extracting resources, manpower, and wealth for their own prosperity. Since then, Europe’s outdated and predatory system of colonialism and imperialism has been replaced by capitalism which is ironically also rather predatory. 

How Did Europe Fall So Far Behind In Technology


And for the longest time, it seemed that Europe was thriving in this new world order. They had dozens of heavy weights in the Fortune 500 in the pharmaceutical, banking, energy, and fashion industries. But, there is one industry in which Europe has completely dropped the ball in: tech. 

Despite being some of the most modern and powerful countries in the world, Europe only has 2 tech companies in the Fortune 100, companies that you probably never even heard of: ASML and SAP. And while ASML and SAP are no doubt champions in their own right, put next to American big tech champions, they pale in comparison. 

ASML currently stands at a $272 billion market cap while SAP stands at a $181 billion market cap. For perspective, there have been days that Apple has lost SAP’s entire market cap in a singular day. And that’s just comparing the top players. 

If we go down the list, it looks even worse for Europe. Europe’s 8th largest tech company doesn’t even make the Fortune 500 list, and the only globally relevant European tech startup that immediately comes to mind is Spotify. 

Now, I can already hear some of you saying that this is actually a good thing. It’s a good thing that Europe’s economy isn’t dominated by dozens of big tech monopolistic corporations. And I definitely get where you’re coming from, but at the same time, this is very much a massive disadvantage for Europe as they’re starting to be viewed as the second world when it comes to tech. So, how did Europe get left so far behind when it comes to tech? 


THE DISPARITY VISUALIZED

Now, it’s easy to be apathetic to big tech companies. Boo hoo, Europe doesn’t have any mega-tech companies that control every aspect of our lives. But, one of the positives of big tech is that they’ve created millions of high paying jobs; however, this doesn’t seem to have really affected Europe nearly as much. 

In fact, when it comes to compensation, European tech workers are only earning about half as much as American tech workers for the same jobs. Take entry-level software engineers for example. In the top American tech cities, we’re talking about 128 in San Francisco and 133 in NYC. In the top European tech cities, however, we’re talking about 63 in London and 60 in Amsterdam. And this disparity goes all the way to the top. 

For director of engineering, we’re talking about 202 in San Francisco and 174 in NYC, but for the same job, it’s only 124 in London and 101 in Amsterdam. And let’s not forget, it’s not like London is cheap to live in. If anything, London is a tier 2 city in terms of cost of living for which tech generally pays 15% less but not 50% less. 

You might be saying that that’s because Europe doesn’t have ultra-rich tech companies that can pay as much and you’re right. But, almost every American tech company has a European base and they’re now using Europe as a cheap labor market. And I’m not even talking about Eastern European countries like Poland and Ukraine. I’m actually talking about top cities like London. 

Take Facebook, for example. For level 5 engineers, the pay average compensation of $421,000. You wanna guess how much they pay L5 engineers in London though? Well, for the most part, they pay something in the low $200s. Some London L5 engineers even earn as little as $ 130. 

Now, I’m not saying that you should feel bad for any of these people. All of these people are obviously extremely well off whether they’re making $400 or $200 or $130, but putting aside the specific numbers, think about it from a macro scale. Imagine you’re in the United Kingdom. For centuries, you ruled the entire world. People used to say that the sun never set on the British empire. 

You’re not as powerful as you once used to be but you’re still a world power. After all, you still have the 6th largest GDP in the world coming in at $3 trillion. But despite all of that, America dares to come into your country and pay your citizens half the compensation or less. I don’t know about you but if I was in the UK, I’d feel pretty insulted, but it gets even worse. 

You see, European tech not only compares poorly to America but it also compares poorly to the developing world. Take Google India for example. Google generally pays slightly less than Facebook, like 5% or so. But, you wanna guess how much L5 Google engineers are making in India. Well, a lot of them are earning high $100s. Aka, the top 25% of Indian FAANG engineers are making more than the bottom 25% of European FAANG engineers. 

And that isn't meant as a hit against India. If anything, it’s actually the exact opposite. All this shows is that India is very much heading in the direction of becoming a first-world country while Europe is heading in the exact opposite direction all because of tech. And that’s just looking at the UK, one of the most prosperous European countries. 

So, Europe as whole compares even less favorably to the modern tech industry which brings us to the question of what in the world happened to Europe? 


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EUROPEAN CULTURE

While researching for this article, I was hoping to find some sort of pivotal event that completely changed the trajectories of American tech and European tech but there was no such singular event. Rather, it seems that the current state of European tech is very much a culmination of decades of evolving European culture. 

Europeans tend to be more practical. They actually want to live life and not just live to work and this ideology has been worked into their laws themselves. America is the only advanced economy that does not guarantee paid time off. 

All EU countries, however, mandate that employers provide atleast 20 paid vacation days every year. And many countries like France actually mandate 30 paid vacation days or 6 weeks per year. And all of that is in addition to paid public holidays and usually unlimited sick days. 

What this means is that American tech workers only get about 2-3 weeks of vacation time while European tech workers usually get 7-8 weeks of vacation time. But, the amount of vacation time Americans get doesn’t even matter because Americans just don’t take vacations. Many tech companies like Netflix actually offer unlimited paid time off because they’re extremely confident that their employees won't abuse it. 

In fact, the average American with unlimited PTO only takes 10 days or 2 weeks off per year. Europeans on the other hand actually tend to use all of their vacation time. In France for example, it’s common to take off all of August. And that’s just vacation time. 

On a weekly basis, Europeans tend to work 35 to 40 hours while Americans tend to 40 to 45 hours. And if you look at the more competitive Americans and places like India and China, it’s actually more like 70 to 80 hours. 

Now, studies have shown that the European approach produces more productivity per hour, but in terms of overall productivity, American tech workers generally come out far ahead of European tech workers simply because they work 500 to 1000 hours more per year. As such, tech companies are unsurprisingly willing to pay American engineers a lot more than European engineers. 

But actual productivity only tells half the story. The other half is due to vastly different compensation laws and policies especially when it comes to benefits. In America, on top of your cash salary, you can usually expect a bonus, up to a 3% match on a 401K plan, and discounted health insurance. 

In Europe, however, you can usually expect a bonus, up to a 10% contribution to a pension fund, and fully paid for private health insurance. In general, Europeans tend to get far more small benefits here and there and that’s just what’s apparent on the compensation package. Behind the scenes, European employers have to pay far more in taxes. 

Take the social security tax for example. American employers only have to 7.65% in social security tax. In the UK, employers have to pay 13.8%. In Germany, employers have to pay 20%. And in France, employers have to pay a whopping 45%. Obviously, companies are going to take all of this into account when making job offers to Europeans leading to far less upfront compensation. 

So, all of that kind of explains the quantitative side of lower European compensation, but the reality is that the biggest factor leading to Europe being left behind actually has nothing to do with objective reasoning. 


CONTENTMENT

It’s easy to write off the European tech industry using some sort of quantitative measure whether it’s Europeans working less or higher taxes or more benefits or whatever the case may be. But, the reality is that there is only one reason why the disparity between American tech and European tech is so large. It’s because Europe has something that America never had and likely never will: contentment. 

Whether its on a macro scale where big tech companies are trying to grow to billions of users or on a micro scale where employees are vying for the next promotion or bonus, Europeans often just don’t care, atleast not nearly as much as Americans. 

Take employee tenure for example. The median employee tenure in America is 4.8 years while the median employee tenure in Europe is over double at 9.8 years. This is primarily because Europeans are far less likely to constantly jump around companies looking for the best compensation and title possible. And this isn’t to say that Europeans aim low. 

They absolutely do want a solid income, healthy benefits, and a comfortable retirement. But that’s also all they want. They’re not looking for the mega millions that American tech workers are after, and likely the best example of this is stock-based compensation. You know how we were talking about European tech workers only being paid half of American tech workers? 

Well, that’s only if you look at total compensation. If you’re just comparing cash salary and bonus, European tech compensation is actually quite comparable to American tech compensation espeically when you factor in more paid time off, larger retirement contributions, and better health insurance. Where European compensation actually falls way behind is stock based compensation. 

Let’s go back to our American L5 Facebook engineer for example. Out of their total comp of $421,000, a $183,000 or nearly half is just stock. In London, however, these same engineers are often paid as little as $20 to $30k in stock, or only about 15% as much as their American counterparts. This isn’t because big tech is snubbing these employees but largely because Europeans tend to value stock compensation far less than Americans. 

In America, especially with startups, engineers are often willing to forgo their entire cash compensation or take a very modest salary in exchange for more equity. In Europe, however, it’s the exact opposite. Most would much rather have a consistent and reliable cash income instead of equity. 

And when you take the most lucrative part of tech compensation out of the equation, well, European compensation is what you’re left with and the higher you go in title, the bigger the disparity. European L7 Facebook engineers for example are earning up to half a million dollars less. 

And honestly, I don’t see this changing as this isn’t just the case with tech but basically every industry. US doctors average over 300 while many European doctors don’t even cross 100. US lawyers can ofteen cross 200 while European lawyers often don’t cross 100. 

It’s this same trend is carrying over to the tech industry as well just at a different level. And given that the Europeans that do want to earn more money and start big companies just come to America, it’s likely that this disparity will only grow with time. 

But hey, maybe that’s not such a bad thing. Europeans may not be home to the highest salaries or the biggest companies, but they are home to the happiest people on the planet, and in the end, isn’t that what really matters?

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