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."