Regulations such as the GDPR and the AI Act hinder innovation, entrepreneurship, and private initiative in Europe

Regulations such as the GDPR and the AI Act hinder innovation, entrepreneurship, and private initiative in Europe.

The GDPR was drafted by bureaucrats and politicians who never managed a business, worked in the real economy, or engaged in sales.

The intentions were certainly good. Large corporations do need regulation. There are still significant areas requiring oversight, such as their monopolistic behavior toward suppliers, partners, and customers.

However, the GDPR has hurt small companies far more than large corporations. GDPR compliance is a fixed overhead. The big players immediately hired legal teams - they could afford it. Now, when you sign up for any platform, including Google, Microsoft, Amazon, or Facebook, you are inundated with hundreds of pages of consent forms and legal jargon, which small businesses or private individuals inevitably accept without reading.

A few years ago, I actually tried reading Google's documents related to data sharing and privacy. I managed to get through maybe two pages. There were countless annexes, totaling perhaps 500 or even 1,000 pages. For SMEs and startups, drafting or even reading such provisions is an impossible task.

A recent paper (summary below) confirms that GDPR hurt the economy, especially SMEs. Numerous analyses, including the famous Mario Draghi report from September 2024, as well as several official reports from the European Commission and DG Grow, also confirm that Europe is falling behind in innovation, competitiveness, and even GDP.

Yet, Europe continues to pile on more regulations.

The AI Act placed a new and immense burden on companies conducting AI and data research. The costs of understanding or complying are substantial. The entire business and research community has expressed concern (see examples below). Some large corporations moved their R&D activities from Europe to the US, while others absorbed the overhead. Who suffers? Startups and SMEs.

The EU continues to talk about innovation and growth. But in practice, the immediate reaction to new technology and innovation is to regulate and control. Then we wonder why we face poor economic performance, low innovation, low entrepreneurship, and a lack of unicorns.

Later edit

Great discussion on the related LinkedIn topic:

I strongly support the importance of privacy for consumers and private individuals.

My questions are:

1) is there any proof that the current GDPR regulation is effective? 

Imho, in practice, all companies deployed a cookie banner, and updated the small-text EULA that nobody reads anyway.

2) if the advantages of Gdpr are bigger than the disaster created to small businesses. 

I haven't seen any study on the societal impact.

The impact on the economy is proven: it's a disaster.

Notes

Summary and extracts from the analysis of the impact of the GDPR regulation

"Mounting evidence —including a critical paragraph in the recent Draghi (2024a) report— suggests it is doing more harm than good to Europe's tech ecosystem.

The "Brussels Effect," coined by Anu Bradford in a 2012 paper (and later a 2020 book of the same title) says that when the EU makes rules, because its market is so large, companies around the world will decide it's easier to just follow those rules everywhere rather than trying to have different rules for different places

Obviously, this argument is very appealing to EU bureaucrats and EU parliamentarians 

* Web traffic and online tracking fell by 10-15% after GDPR began

* The market has become more concentrated.

* Innovation has slowed. 

Web traffic and online tracking fell by 10-15% after GDPR began. Users often opt out when asked for consent. EU firms store 26% less data on average than US firms two years after the GDPR and reduce computation relative to US firms by 15%. 

The market has become more concentrated. Large firms with their own data gained market share. Small firms struggle more to comply and reach customers than large ones.

Innovation has slowed. New app entries in the Google Play Store halved after GDPR. Venture capital deals in the EU fell by 26.1% compared to the US. In particular AI innovation in Europe has been hindered- GDPR increase the cost of storing and processing the data required to train AI models.

Big Firms Win, Small Firms Lose

It appears GDPR has put smaller firms at a relative disadvantage and that it has increased market concentration, particularly benefiting very large firms, notably Google.  The reason is that GDPR increases the fixed costs of data manipulationGoogle can afford that.

...small Spanish B2B company which used to have a contact database of 300,000 firms. The day GDPR started, that dropped to 15,000 because they needed explicit consent

Less Innovation, Fewer Entrants"

The Sept. 2024 Meta letter, signed by 40 executives from Ericsson, Capgemini, Deutsche Bahn, Deutsche Bank, Nokia, Renault etc.

"the reality is Europe has become less competitive and less innovative compared to other regions and it now risks falling further behind in the AI era due to inconsistent regulatory decision making."

Deloitte analysis on the impact of the AI Act

"More than half of the [500] companies surveyed believe that their innovation opportunities in the field of AI will be restricted by regulation; less than a fifth think that the AI Act will have a positive impact on innovation opportunities."

Revolutionizing apps: Google Docs, iPhone, Hermix AI

10 years ago, Google Docs / Sheets revolutionized the way we collaborate on large teams. In projects, in education, even in personal life.

Collaborative applications were not new, but Gdocs made them easily accessible to all. You only need to open a browser, and it works. 

Now everybody opens a shared spreadsheet or doc, even to organize a trip, or a dinner, or to split a restaurant bill.

Apple did the same with the iPod, for music, and with the iPhone for... everything.

These mini-revolutions happen every few years. And their impact is astounding. 15 years ago it was almost impossible for 15 people to collaborate simultaneously on the same document. 20 years ago it was impossible to watch movies, music or write emails in your car.

AI is currently revolutionizing... everything. The way we study, learn, communicate, write code. And we can't even imagine how AI will completely transform our daily habits in just a few years.

We are now launching Tender AI Chat in Hermix. This will allow users to interrogate and interact directly with a tender. We are thrilled about the possibilities unlocked by this tool.

And very excited about the future.

Not all data processing energy is equal. The case of Bitcoin vs. AI

Datacenters, data processing and AI need a huge amount of energy. Some days processing energy makes sense. Not all data processing energy  makes sense.

Energy in itself is not an issue. We consume huge amounts of energy for a lot of things. For cars, phones, food, highways and bridges. Because that energy produces value. 

So, the question is not (only) about the energy needed by datacenters, or by AI, or Bitcoin. The question is if that energy creates enough value. 

The AI is already producing value. There's a debate about the current hype and maybe some over-promising, but we already have clear practical applications of AI: for translation, spelling, speech recognition, text to speech and speech to text, image analysis and so many others. At Hermix, we use AI for tender summarization and analysis, used by hundreds of bid professionals.

On the other hand, Bitcoin produces simply nothing.

Microsoft is restarting a closed nuclear plant for a future data center.

Amazon will build a new data center powered by 3 SMRs.

Again about AI vs art: how do you measure quality?

Varujan Pambuccian continues the discussion about AI vs. art. With a practical case study: a comparison between a simple AI generated picture, vs a complex (more) intentional design.

The interesting question is how do you measure quality and emotion in art. Sure, there is a difference between the two drawings, but it's almost impossible to say which one is better, or which evokes more emotion. At first glance, I was much more moved by the simpler one. Then I was surprised to find out that, in fact, the other one was more labor-intensive.

Of course, an army of artists is now vociferating against AI, claiming that it’s not art. But what is art? What counts as art? There is no definition or measure. No artist has the capacity or the right to define what art is and what it is not.

But this discussion is not new. This debate also existed around naive painting, and art created by children, or randomly created art, about Dadaism, or about colors randomly thrown on a canvas.

So I maintain the position that AI is a tool. It can be a simpler or a more complex tool. But it is a tool. Made by people, used by people, displayed and interpreted by people.

A brief history of the glorification of the past

One day, when I will be old and wise, I will study philosophy and socio-psychology, and my research topic will be the myth of the glorious past. The rosy retrospection syndrome, "neiges d'antan."

Another topic might be the study of happiness, but this correlates dangerously well with depression.

Because we have at least 4,000 years of documented history of glorification of the past. Probably the first hieroglyph written by the first Egyptian scribe was about how things were better "in the old days." And the last story told by the last Neanderthal was likely about "today's decadent Sapiens civilization and their decline compared to the moral values of our Homo Erectus ancestors."

On the other hand, when I will be older and wiser, I will most likely write an essay about the decline of the modern world.