Sep 21, 2023

Why Europe Needs to Rediscover the Art of Political Innovation

Squeezed between the United States and China when it comes to innovation, the EU has been pointing to the “Brussels Effect.” Producing rules, though, does not compensate for not producing things. Europe needs more inclusive structures that reach beyond its borders rather than closing them down.

European Union flag lies on the ground during the Pro-Europe "Pulse of Europe" movement protest at Gendarmenmarkt square in Berlin, Germany, April 2, 2017.
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What a time to be alive. We are experiencing a “Great Acceleration.” The world is becoming more inventive, adaptive, and adoptive as we all pack into towns and cities. As we interact more we are spurring breakthroughs in energy and transport, civilian and military technologies, finance and pharmaceuticals. So there is reason to hope that man-made innovations might just outpace some man-made problems after all.

But even in the rosiest future, there will be winners and losers. We cannot hope to harness these breakthroughs without massive reform to existing global power structures. Incumbent powers like the United States or Germany do not control these new means and, where they do, they don’t trust existing international rules and institutions to share them. The result so far is a breakdown of global goodwill, and the world’s challenger powers are using their control of foundational technologies and critical resources to gain advantage over the incumbents.

All sides nevertheless have an interest in new rules emerging. The question, however, is how to define these. The US and its main challenger, China, are quite clear: This is a “systemic competition,” akin to the ideological competition of the Cold War. Both are using their mastery of technologies to set new terms of political engagement and draw other countries into adopting their rival value systems. Broadly speaking, moreover, their competition of ideas can be positive—so long as it does not end in two adversarial blocs.

Does the EU Understand the Nature of the Competition?

The European Union is alive to these global shifts, and its response has been to throw itself grimly into a geoeconomic competition. It has discarded its unquestioning faith in global economic institutions and is now focusing on unilateral trade protections, industrial policy, and securing for itself access to critical resources and technologies. EU leaders explain that this amounts to a geoeconomic awakening, and they are working out the right balance of cooperation, competition, and containment vis-à-vis their old ally the United States and emerging market China.

It is sad to see an EU so awake but in fact blind to the world around it. Yes, developing tools to secure our economic prosperity is important, but more important still is to visibly link that economic success back to our political system. A “systemic competition” is a political beauty contest, and if we treat this as just a grim geoeconomic grudge match we won’t sell our values to other parts of the world. Europe needs to show that we have the best ways of handling change and that our techniques can be replicated. If we get rich by trampling over others, the victory will be pyrrhic.

Producing Regulations vs. Producing Products

What, then, is our plan for selling our political system? EU leaders would answer “The Brussels Effect”: The EU, according to its own promotional material and a book of the same title, has a proven track record in creating norms that spread and spread. The EU dares to set for itself the world’s highest standards when it comes to digital privacy, energy transformation, investment standards, and so on. It then uses its economic leverage to ensure that anyone who wants to sell European regulates European. Foreign firms and governments are obligated to swallow our rulebooks before they may access consumers here.

In short, the EU has given itself a moral mandate to unilaterally regulate globalization. But if the EU believes that it is going to be enough, it is kidding itself. Compare our “Brussels Effect” with the California Effect or the Shenzhen Effect. Brussels is producing regulations. These other locations produce actual products. We cannot match their power or effect.

The Self-Defeating Brussels Effect

Take the EU’s General Data Protection Regulation. The GDPR ranks as proof of concept for the Brussels Effect, since its catalogue of rules on digital rights has been widely picked up by regulators and firms outside the EU. And yet the very existence of the GDPR is in fact proof of failure. We need a defensive tool like the GDPR only because we are on the losing side—because the Chinese TikToks and American Facebooks are so very good at transmitting alien political values straight into our sitting rooms.

Europe’s consumers must surely ask why are entrepreneurs not producing apps that are more attentive to European social and political values than Facebook or TikTok? And the answer again is the GDPR. Onerous EU regulations prevent firms from innovating. And on the few occasions that entrepreneurs do buck the trend and come up with new ideas, the GDPR does nothing to help them scale up. This, despite the GDPR being a large-size regulatory regime that ought to harmonize the EU market.

Few foreign firms find us an attractive market for honing new products. We simply lack the willingness to try new things. Consumers here do not trust new tech, so we will never be early adopters and developers, and so no big firms will bother inventing products that appeal to our peculiar values. The GDPR is again the problem here. It is predicated on the idea that change is threatening, and Big Brussels must protect us. It backfires because it confirms our mistrust of change.

Remember Schengen?

The EU’s inability to harness and encourage change shows that we have lost our capacity for “political innovation.” What a difference to the 1990s, when Europeans were still confidently trying out new ways of living. Back then we created bold new governance experiments like the Schengen Area. Europe’s leap pre-empted a fall in barriers everywhere, from Germany to South Africa to the Middle East, established a creative new European common market based on tourism and cultural exchange, and in turn inspired everything from “Schengen hotels” in Asia to toolboxes for handling conflicts in African borderlands.

Tellingly, back in the 1990s when Schengen was launched, other parts of the world voluntarily slapped an EU flag on their own policies, keen to be associated with us. What a contrast to the Brussels Effect, which pulls up barriers around EU markets simply to generate a source of leverage vis-à-vis foreigners. These days, we signal only that we will use our economic power to protect our cosy status quo before our economic power dwindles completely, that the lifeboat of new innovations is for us only. And how degraded an experiment like Schengen is—associated with the aggressive control of European borders.

How to Innovate Politically

There are two important points about political innovation that are key to improving EU performance:

First, innovation is not the same thing as invention—it is not a synonym for coming up with completely new ways of digitalizing services, decarbonizing manufacturing, and so on. Or rather it includes invention, but it is actually a spectrum that runs right through to adoption—to leapfrogging rival countries by appropriating ideas they have spent millions of dollars inventing or refining, and making them your own. In between invention and adoption lies the task of scaling up new ideas and leaving your stamp on them as you make these widely available, reliable, and affordable. To excel at political innovation, it is enough to be good at just one of these aspects—invention, honing, and mass adoption.

Schengen ranks as a classic example of the middle ground between invention and adoption. Europe did not invent the idea of regional free movement—we borrowed experiments from Latin America and West Africa. But we were the ones who actually brought these ideas to market and made them available to other regions. Moreover, we did so under difficult circumstances in Europe, amid angst about mass immigration from the former Soviet Union, wars in the Balkans and Caucasus, and violent sub-national independence movements in the EU.

Second, a country’s brute size alone is seldom decisive for political innovation. Even in big powers like the US or China, successful political innovation tends to give a strong role to localities. That’s because, although a muscular centralized approach might help you assert innovative policies at home and abroad, this counts for nothing if your policies achieve no local, societal buy-in. Towns and cities are the source of most of the world’s man-made problems, and also where the solutions are coming from. Working out how to operate in sympathy with localities is the key.

Again, Schengen is proof of the importance of local buy-in for political innovation in Europe: One thing that made the Schengen passport-free travel zone a success was a sensitivity to local peculiarities. Schengen not only spurred localities on different sides of a national border to soften hostile identity politics. It linked up poor places across Europe, carefully lifting national border controls in a way that conjoined peripheral regions in each member state and suddenly set them at the heart of the European economy.

How the US and China Do It

So, what matters here is how well big states harness their political geography, and in particular their cities and towns. The US, for instance, maxes out its cities to specialize in invention: A handful of US cities have sufficient capital (in both senses: ready cash and clever heads) to generate new ways of living. These are not always the biggest American cities. They are those where the affluent middle classes are clustered in the center rather than dispersed to the suburbs. US tech firms have helped these cities develop smart policies, and the State Department has partnered with them, preferring to work with individual mayors and avoid the political polarization that plagues the federal level.

The People’s Republic of China likewise uses its cities, this time to major in the other side of the spectrum—adoption. It has experienced late urbanization and, following strong criticism a decade ago that it was picking up the worst habits from abroad when it came to urban planning, has corrected course and now specializes in appropriating and then mass replicating the best foreign ideas for digital services, connectivity, and so on. It has even appropriated from the US the best ways of inventing new ideas. The “smart city” is a case in point.

Seizing the Middle Ground

The EU does have a few big cities with high concentrations of capital but, unlike in the US and China, these big urban hubs are not what define its capacity for innovation. EU spatial planners characterized Western Europe’s set-up as “polynodal”—an even weave of small but diverse localities that are intensely hooked up to each other. And the EU has worked to maintain this character, even after distant Mediterranean islands and poorly connected Central European states acceded.

Compared to the US and China, the EU’s distinctive political geography lends itself to the middle ground—to testing and refining novel ideas: Get these diverse localities to try new policies and discuss the results, and very soon you have a workable set of innovative practices to sell to people, businesses and to the world. In the process, moreover, Europe can leave a liberal stamp on them thanks to its trademark emphasis on locality, territorial cohesion, and free exchange.

Happily, the US and China have left this middle ground largely unattended. As the US stakes out invention and China adoption, there is space in between for a third player, for the EU. There are, moreover, positive examples of European localities behaving in just the way prescribed, exchanging novel ideas from abroad so as to scale up policies, such as when around 40 coal-producing regions and former coal-producing regions hooked up to influence the EU’s climate transition policies. And yet these examples of bottom-up innovation appear extremely rare—and most of what Brussels does must seem distant and disconnected from localities. The Brussels Effect is simply not some organic bottom-up expression of European values.

Setting Bad Examples

So how do we know that the EU’s potential lies in this middle ground? The truth is that evidence exists mainly in the negative: Localities in Europe currently innovate bad governance—teaming up across differences of size and wealth to find ways to skimp on EU rules and international targets in order to bring them into line with local preferences.

A single city or region in—say—Bavaria will refuse to upgrade its local immigrant reception policies so as not to attract asylum-seekers, or it will create strict local planning laws that prevent building windfarms next to human habitation. Then these practices are quickly rolled out in localities across Hungary or Italy, and then again across countries in the Balkans, which are obliged to meet EU norms on immigration and energy.

This evidence, too, is hard to pin down—often it is about inaction—but Brussels officials have ready examples. They also speak of how foreign countries like China or multinational firms link up locations where they can exploit poor local standards, perhaps for cheap production, using Europe’s poly-nodal geography to their own ends.

The Brussels Effect Backfires

The most obvious effect of the “Brussels Effect,” in other words, is rule-shirking from EU regions and localities—a fact that undermines the EU’s standing in the global political competition. The EU may claim to be implementing high standards, but foreign diplomats are clear in their verdict: the Brussels Effect is really about protecting European localities from high standards. Brazilians currently complain, for instance, that the real aim of EU conditions supposedly spreading high EU environmental standards and protecting the Amazon rain forest from agricultural use is to protect backward European rural areas from Brazilian efficiency. And yes, the Brazilians would say that. But African representatives say something similar.

European Commission officials have responded by throwing money at struggling localities, helping them with this or that target or transition. But this only unleashed a cycle of European centralization and populism: the commission has repurposed money from the EU’s Cohesion Funds. These funds are designed on a multi-annual basis to help localities build connectivity and equality as the best recipe for handling digital or climate transformation. By raiding these funds the commission is undermining Europe’s local resilience.

The commission has responded to the inevitable backlash from left-behind regions by introducing prizes and covenants, which reward cities that aspire to commission standards—Europe’s Barcelonas and Amsterdams, Budapests or Warsaws. These cities are responding to the new incentive structure, using their ability to live up to EU standards to pitch for EU cash, bypassing national governments and other regions. This has led to the overt and covert shirking of EU rules and, as problems of corruption and rule of law have become known, peripheral member states have been slapped down with the threat of budgetary sanctions.

Breaking Out of the Cycle

Are there signs that the EU might break out of this cycle—that it might adopt an approach to political innovation based more on responsiveness in Brussels to local exchange? There is one small body that has held out against the European Commission, and has tried to maintain the transmission belt between Europe’s localities and Brussels. This is the Committee of the Regions, the collection of 300 indomitable local representatives that has a consultative role in EU affairs. It was the body that marshalled the abovementioned coalition of coal-producing regions, led by representatives from Germany’s federal state of North Rhine-Westphalia.

The Committee of the Regions has started acting far beyond the consultative role foreseen for it, undertaking international initiatives designed to take the edge off of the EU’s heavy-handed geopolitics and retain the EU’s openness and attractiveness abroad. Its members and secretariat are now operating in conflict zones, establishing a trademark brand of European localism where EU diplomats would rather play geopolitics.

Speak with representatives from the Western Balkans, North Africa, Eastern Europe, and many describe their contact with the Committee of the Regions as the most constructive recent contact they have had with the EU. In Libya, the Committee brought together the mayors of warring cities, and worked out sympathetic approaches to labor immigration from West Africa or local communication infrastructure. In Ukraine, the Committee got involved with efforts on decentralization, digital tendering, minority rights, and supported progressive mayors, important contributions to Ukrainian resilience in the face of Russian aggression. Above all, here is a group of European representatives who seem interested in learning from political innovations in Ukraine or Jordan, rather than imposing their rulebook.

However, this has not been welcome in Brussels. The EU institutions have been wary of the Committee’s activism, not least because it contains an implicit critique of their own work and authority. And some members sense that the Committee is squandering relations to the institutions and neglecting its core business. Members from poorer areas are opting for alternative bodies that directly lobby the European Commission, such as the Conference of Peripheral and Maritime Regions. Those that are bullish about migration, digitalization, and decarbonization prefer glitzy networks like Eurocities.

Existential Implications

We are in a moment where the local exchange of ideas and bottom-up pressure has almost existential implications for Europe. We could soon face a choice between hostile problems like climate change, and hostile solutions invented and developed outside our value systems. In this brutal system competition, the local level is key. If the Committee of the Regions did not exist, you would have to invent it. But the Committee does exist, and it bears the effects of 30 years of underfunding and political neglect. It is hardly considered a serious organization, let alone one with an important role to play in European geopolitics. This needs fixing.

One could link the Committee to the European Parliament, so as to give weight to exchange and risk-taking by local representatives. One could build on European Commission efforts like URBACT, with its national contact points, or programs like “Building Europe with Local Councilors,” and preventing competition with Committee of the Regions. And one could link exchanges with localities outside the EU, filling the Team Europe approach with life.

But it takes a political mind-shift, not least from Brussels institutions that are happy to cite global geopolitical imperatives so long as this helps their claims to authority, but less so when it means beefing up European structures that are needed for political innovation. What is required is a shift in how we see political innovation, treating it as a political mission, and a constitutional template.

Roderick Parkes is research director and head of the Alfred von Oppenheim Center for the Future of Europe at the German Council on Foreign Relations (DGAP).

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