My blog, the Wales Wide Web, now goes back over twenty years. We have covered many themes around teaching and learning, new qualifications, knowledge building and sharing, and of course, technology. Over the past year, many of the articles have focused on AI and education, syndicated through the AI Pioneers website and newsletter. This entry is also very pertinent to the debates over AI, although coming at something of a tangent.

There is much handwringing over the limited number of large, cutting-edge technology companies in Europe, with only one major AI foundation model provider based in France. Some have argued that there is too much regulation in Europe and that this stifles innovation. However, this is a contested hypothesis amongst economists. Nobel-winning economist Paul Krugman argues that Europeans have much more economic security than most Americans, lower economic inequality, longer life expectancy, and more leisure time. He talks about the US-EU paradox, noting: “We have two ways of comparing major economies: one based on measured economic growth, one based on measured purchasing power. Both comparisons involve orthodox, widely accepted procedures. Both are carried out by eminently respectable statisticians and agencies. Yet they lead to starkly different conclusions. One says that Europe is in relative decline, while the other says it isn’t.” The European Union increasingly talks about digital sovereignty. But what does this mean and how might it be achieved.

In a new study for the European Trade Union Confederation, Mariana Mazzucato advances a compelling alternative explanation for the perceived stagnation of economic growth and innovation in Europe and explain the US EU paradox. Writing in Social Europe, she challenges the dominant narrative that European competitiveness is being choked by the price of labour or the burden of regulation. Instead, her research points to a much deeper structural issue: the profound financialisation of Europe's largest corporations.

The findings from her analysis of Europe’s 300 largest publicly listed non-financial corporations over the past twenty-five years are stark. For two decades, capital has been cheap and abundant, and corporate profits have remained strong. Yet, investment in productive capacity, productivity, and wages have all stalled. Mazzucato reveals that Europe’s non-financial corporate sector now saves more than it invests. Even more surprisingly, since 2009, this sector has acted as a net lender to the rest of the economy. This represents a complete inversion of the historic role of corporations as borrowers who use capital to produce goods, build infrastructure, and drive innovation.

The numbers demonstrate a significant shift away from building the future. For every euro of profit earned by Europe’s non-financial corporations, the share reinvested in new productive capacity has more than halved, falling from nearly nineteen percent in 2000 to just over seven percent in 2024. Consequently, net capital formation across this sector has plummeted as a percentage of GDP. Rather than investing in the laboratories, factories, and research facilities required to compete in emerging fields like artificial intelligence, large European firms are increasingly earning their returns as financial actors. They are collecting interest on bonds, receiving dividends, and lending to their own customers.

This financial extraction comes at a heavy cost to the workforce and the broader economy. Labour’s share of income in the real economy is lower today than it was at the turn of the millennium. Furthermore, Mazzucato notes that more than two-thirds of the companies studied had announced restructuring events, putting nearly three million European jobs at risk. Strikingly, almost eighty percent of those restructuring announcements came from firms that reported a profit in the same year. The implication is clear: jobs are being cut not to stem losses, but as a tactic to artificially inflate shareholder returns. Over the past quarter of a century, corporate profits grew almost twice as fast as wages, and shareholder payouts grew even faster.

This brings us back to the debate over Europe's position in the global AI race. The lack of European tech giants is frequently blamed on restrictive policies, with critics pointing to the AI Act or GDPR as barriers to entry. However, Mazzucato’s research suggests that the real barrier is how capital is allocated. When it is more attractive for a profitable European corporation to route its earnings into share buybacks and financial assets rather than into high-risk, high-reward innovation, the continent will naturally fall behind in developing capital-intensive technologies like generative AI.

Mazzucato argues that this financialisation is not an inevitable law of nature, but a direct policy outcome shaped by corporate governance rules, tax codes, and fiscal frameworks. It rests on a flawed economic model that fails to distinguish between creating value through production and extracting value through ownership. To reverse this trend, she advocates for a modern, mission-oriented industrial strategy. This approach requires attaching binding conditions to public support, ensuring that public investment shares in both the risks and the rewards, rather than merely de-risking private ventures.

If Europe is to foster genuine innovation and secure its place in the technological future, it cannot simply rely on making capital cheaper or deregulating the labour market. It requires corporate governance that looks beyond the next quarter's shareholder payouts. Most importantly, as Mazzucato and others argue, workers must be placed at the centre of this transition, forming part of a new social contract between business, labour, and the state. Only by shifting the focus from financial extraction back to productive investment can Europe build the shared foundations necessary for lasting prosperity and technological resilience.