Two theories of Europe's missing Tesla

This week I’m reading a father-son team with competing explanations of why Europe lags behind the US in generating innovative companies. Luis Garicano (and coauthor Per Strömberg) look specifically at Sweden, which has been unusually successful at generating “unicorns” (tech companies worth over $1 billion) given its small population. They credit this to the existence of an active angel investor community in the country, which in turn they credit to a tax provision that allows startup founders to avoid capital gains tax on shares they sell — but only if they in turn invest the money in other startups. Pieter Garicano, a very smart commentator on European economic issues and Luis’s son, has a long essay in Works in Progress that places the blame instead on Europe’s restrictive labor laws, which make it time-consuming, expensive, and sometimes outright impossible to fire workers; this then makes it a bad idea to hire lots of workers on projects that might fail, which hampers innovation. The solution, he argues, isn’t to abandon workers but to embrace Denmark’s “flexicurity” model pairing rules allowing easy firing with a generous safety net to catch workers who are let go.