There is an important difference between European and American appetites, in addition to those for fast foods: risk taking. “Investments in Start-Ups Pick Up Pace,” reports the New York Times after surveying the high-tech financing scene here in America. “Europe Struggles to Foster a Startup Culture,” reports the Wall Street Journal. It seems that in contrast with “multiple rounds of fund-raising [in the U.S.] in months, rather than years,” Europeans are “valuing prudence … and leisure time over flamboyant risk-taking.”
“Any time you’re raising over $8-12 million, you need to leave Europe,” says Peter Smith, who had to go to the West Coast to raise $30 million for his Blockchain, a bitcoin company that now processes transactions valued at $2 billion per month. Some observers put the top amount that European investors will risk on a startup at closer to $5 million, more than a little short of the $100 million billionaire investor-activist Carl Icahn just bet on ride-sharing Lyft’s ability to compete successfully with the much larger Uber. This unavailability of risk-taking capital was the loudest of the complaints I heard from fledgling German entrepreneurs at a meeting in Berlin.
As a consequence of these opposed attitudes towards risk-taking, says the Wall Street Journal, “policy makers in Europe are increasingly concerned about the lack of home-grown rivals to compete against dominant U.S. players like Google Inc. and Facebook Inc.” Add Amazon to the list. Some of that concern is mere techno-envy, some good old fashioned anti-Americanism. But some has a basis in three problems created for the EU by the business practices of the successful U.S. firms: taxes, privacy, and competitive tactics.
The tax issue is the easiest to understand. European nations, like America and other countries, need revenues with which to meet the promises they have made to their ageing populations. American companies, like those from other countries, want to minimize their tax liabilities – indeed, their boards are under a fiduciary obligation to do just that. In the process, they at times cut special deals, such as the one between Amazon and Luxembourg, the discovery of which is now generating dealmakers’ remorse. Jean-Claude Juncker, then serving as Luxembourg’s premier and now president of the European Commission, is a vigorous opponent of deals to meet the special needs of member states such as Great Britain, but he agreed to an arrangement that shifted Amazon’s profits from Europe to “an untaxed entity,” according to EC investigators.
In the case of taxation, when special breaks become a bit too special, politics overtakes the letter of the law. Amazon has now agreed to pay taxes where it earns profits, to state the matter in broad terms. Other American companies are bound to be pressured to follow suit, putting an end to a game of “find my taxable profits if you can,” one that should have brought to an end long ago by a simple reform – a tax on sales in the countries in which the sales are made.