ONE ECONOMY TO RULE THEM ALL:

Venture capitalist Michael Mortiz of Sequoia Capital likely spoke for many in Silicon Valley when he wrote in a recent op-ed:

Over the past five years, the eight most valuable technology companies developed in Europe have assembled a combined market value of around $32 billion. That's not a figure to be sneezed at any more than the admirable young European technology entrepreneurs who, despite all odds, are more inclined to take a risk than members of their parents' generation. But EU legislators should be wondering why Europe's eight most valuable companies are only worth about 10 percent of Facebook or 6 percent of Google. [Financial Times]

Europe is wealthy and well educated, certainly more so than China, which has the same number of tech firms on the Forbes list. So what's its problem? There are a few obvious answers: lack of access to venture capital, inflexible labor markets, and a heterogeneous home market of distinct language, cultures, and regulations.

One French tech entrepreneur has described America's edge this way: "The confluence of a large pool of capital, world-class talent, vibrant support infrastructure, and a risk-loving culture has bred a self-fulfilling cycle of innovation and entrepreneurship."

Don't skip over that bit about culture. A European Commission study found Europeans more skeptical of entrepreneurship than Americans, and possessing a higher level of uncertainty avoidance. The churn of American society -- companies starting and dying, workers switching firms -- is also key to America's innovative capacity. In a new analysis, San Francisco Federal Reserve economist John Fernald notes that America's "economic fluidity and dynamism" helps spread ideas throughout the private sector. It's why Europe invested a lot in computers in the 1990s but never got a tech boom that boosted productivity, Fernald explains.

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