Earlier this month, the Nobel Memorial Prize in Economic Sciences was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for “having explained innovation-driven economic growth.” Their work emphasizes that growth thrives in environments that reward risk, allow failure, and encourages invention. The seminal paper from Aghion and Howitt argues that economic progress is driven by creative destruction. This continuous process of innovation and displacement creates competitive markets. Policymakers who fear industrial disruption, they warn, are likely to suppress the very mechanisms that generate prosperity.
European regulators, however, didn’t get the memo. It is no accident of history that Europe has none of the top ten tech companies, and only four of the top 50. And according to a December study, over the past 50 years the United States has created 240 publicly traded companies valued at more than $10 billion EUR each. Europe has produced 14 such companies.
Having stymied a homegrown tech sector, European officials now seek to make amends by punishing successful American companies through laws such as the EU’s Digital Markets Act (DMA). President Trump has condemned these actions as an attack on American tech companies designed to extort revenue.
Presented as a means to ensure fairness in digital markets, the DMA imposes strict obligations on large digital providers who control a “core platform or service” designated as “gatekeepers.” Curiously, five of the seven gatekeepers are American companies.
By design, the DMA shifts competition policy from ex post enforcement of actual harm to ex ante administrative control. It preemptively prohibits practices such as self-preferencing, limits data integration between platforms, and compels companies to license proprietary technologies to rivals.
By punishing scale and success, it mistakes the effects of innovation for market failure. Its underlying assumption—that large firms must necessarily wield power unfairly—is not grounded in empirical evidence but in a static model of competition long discredited by the Austrian school of economics. The result is a framework that endorses equilibrium over discovery, regulation over entrepreneurship.
The DMA’s specific obligations are also counterproductive to the purported goal of creating competitive markets. For example, by forcing platform companies to open their ecosystems or share technical interfaces with competitors, the DMA directly undermines IP rights. The strength of the U.S. innovation system has long rested on clear, enforceable rights to control and license technological breakthroughs thereby incentivizing innovators to enter and disrupt established markets.
Professor Jonathan Barnett has shown that restrictions on licensing freedom distort the structure of high-tech industries. When firms cannot license their technologies on market terms, they are pushed toward inefficient vertical integration—developing and commercializing everything internally to prevent expropriation. This "over-integration" raises costs, slows diffusion, and limits collaboration, precisely the opposite of what regulators claim to desire. Licensing is not anticompetitive; it is the mechanism by which markets spread technology efficiently. By constraining it, the DMA imposes a hidden tax on innovation.
As a result, firms that might otherwise partner across borders now face regulatory uncertainty that discourages cooperation. The result is a slower, smaller, and more risk-averse innovation ecosystem.
As Mises warned in Omnipotent Government, interventionism inevitably evolves into economic nationalism. The rhetoric of “digital sovereignty” now emanating from Brussels reflects the old fallacy that prosperity requires autarky. But attempts to secure self-sufficiency in digital infrastructure are bound to isolate European innovators from global networks of knowledge and capital. By targeting successful American firms under the banner of fairness, the DMA risks not only distorting markets but igniting trade tensions with the United States.
The DMA lands at a precarious moment for transatlantic relations. The United States and the EU should be collaborating on standards and research to counter China’s state-directed techno-nationalism. Instead, the DMA undermines that unity, inviting retaliatory measures such as digital-service tariffs and reciprocal trade restrictions.
Both Austrian economists and modern innovation theorists agree that progress arises not from regulation but from experimentation. The DMA replaces the open-ended process of market discovery with a centralized bureaucracy that presumes to know in advance which innovations will succeed. Such policies may yield short-term political victories but long-term economic decline.
The work of Aghion and Mokyr underscores this irony: Europe is repeating the very protectionist mistakes that once stifled its own industrial revolution. If Europe truly seeks digital sovereignty, it will find it not in dirigisme but in freedom—the freedom to create, to compete, and to fail. The future of innovation is one born of creative destruction and belongs not to the regulators of the past but to the entrepreneurs of the future.
