The Impotence of European Capital

As we have always said, the European Union does not constitute a unified bloc. The economic and political contradictions of the member nations are simply irreconcilable. In Communism #89, we pointed out that while Germany and its closest economic partners have reaped significant benefits from the single currency, southern European countries have struggled due to challenges in financing their debt.

The EU has shown that it is not—and will never be—able to respond to economic or international crises (like war) in a truly unified way. It is worth highlighting Europe’s weaknesses, as outlined by former Italian Prime Minister Mario Draghi in his report to the European Commission. This helps to further emphasize the challenges faced by member states—portrayed by “Draghian” demagoguery as a unified entity—in competing with global powers like the United States and China.

From Rare Earths to Electric Cars: Who Leads and Who Gets Left Behind in the Race for Resources

In TIC #2, we highlighted the severe difficulties European states are facing in securing gas supplies, and emphasized the central role of the United States in recent imperialist raids. This crisis not only disrupts the energy transition but also has serious implications for public budgets, which are already under significant pressure.

While gas slows the transition to more sustainable energy sources, this shift also critically depends on the availability of materials like lithium. We must view the case of the Serbian Jadar mine—discussed in our previous issue—within this context. The incident exemplifies Europe’s resolve to extract this resource, regardless of the environmental damage.

The Draghi report points out that since 2017, global lithium demand has tripled, while cobalt demand has increased by 70 percent. Estimates from the International Energy Agency indicate that by 2030, demand for materials essential for the energy transition could double or even triple.

It’s essential to understand how the European bourgeoisies are trying to secure their place in the global race for control of these resources, as they face increasingly intense confrontations with other powers.

China holds a dominant position, controlling 68% of global rare earth mining and producing over 90% of the ultra-pure graphite essential for many “green” technologies. The situation is similar with cobalt: 74% of global production comes from the Democratic Republic of Congo, where Chinese companies control 15 of the 19 active mines.

Similar situations exist with other materials. For example, Indonesia mines 49% of the world’s nickel and controls 90% of its refining plants. Australia produces 47% of the world’s lithium, while China controls nearly half of the global chemical plants needed for processing the mineral. As a result, Europe remains structurally dependent on these countries for its energy transition.

China’s strategy goes beyond controlling production. Beijing has implemented restrictive export measures, including bans, quotas, and taxes, with the aim of bringing the entire production chain for these materials within its borders.

These policies have caused significant fluctuations in lithium, cobalt, nickel, and copper prices, with a sharp increase between 2021 and 2022. Although price growth slowed in 2023, the volatility has discouraged investment in “green” technologies like solar panels and electric vehicle batteries. The case of lithium is emblematic, with prices soaring to 12 times the average in Europe before plummeting by 80%. This trend has made many lithium mining projects in Europe economically unsustainable.

As a result, the European industry is facing difficulties. The limited availability of lithium has posed a significant challenge to the entire transition to electric vehicles. According to its development plans, all new cars must be zero-emission by 2035. Yet, at present, only one of the 15 best-selling electric cars in the world is made in Europe. Meanwhile, China is using its lithium export restrictions to become the leading producer of electric vehicles. It now supplies several Western multinationals.

In 2022, Chinese car exports surpassed German exports, while European imports of Chinese-made vehicles increased by 40 percent from the previous year. Japan finds itself in a situation similar to Europe, as it relies heavily on imports of raw materials in order to produce “green” technologies. For the past 25 years, Japan has been investing substantial resources in mining projects abroad through the Japan Organization for Metals and Energy Security (JOGMEC). Its strategy is based on diplomatic agreements, exchange programs, and financial support. In addition, Japan has heavily invested in domestic production processes to minimize waste, and has made major investments to reduce dependence on China.

As for nickel and cobalt, Japan has invested in domestic submarine mining. In doing so, it has reduced its dependence on imports from China for rare earths from 85% in 2009 to 58% in 2018 and aims to drop below 50 percent by next year.

How does “Europe” plan to deal with this crisis? Draghi’s mandate involved formulating mitigation policies, but the circumstances were far from favorable. Draghi suggests that the EU should follow the path Japan took—twenty years too late—while starting from a significantly weaker position relative to China. Financially, however, the EU does not allocate any public support for mining projects, leaving the bulk of the costs to the private sector. Here the first critical issues emerge. Other companies face a seemingly lose-lose battle against China’s monopoly. With the power to set the prices of key materials, China makes any challenge both unaffordable and highly uncertain.

The gas crisis has underscored the importance of maintaining strategic reserves in order to handle emergencies more effectively. But when it comes to rare materials, Europe has no strategic reserve—despite their essential role in the production of advanced technologies and military systems. Draghi proposes filling this gap by developing strategic reserves. To achieve so, European countries would have to set aside their national ambition. They would also need to identify new suppliers, as China is likely to limit its exports to prevent stockpiling of reserves.

Disconnected Europe: Poor Centralization and Lack of Development in Telecommunications and Digital Infrastructure

There are many areas of capitalist production where European industry, as a whole, is falling behind other major powers. Here, Draghi denounces the failure to centralize capital at a European level, which is due in part to the inalienable demands of national policies. This is a recurring theme, and as a good banker, Draghi does not hesitate to reiterate it. Draghi is well aware that centralization is the result of both capitalist success and failure, and that it is both the starting point and the ultimate goal of the mode of production he represents.

For example, in the telecommunications sector, Draghi criticizes the fact that European companies are too small to effectively implement fiber optic coverage and roll out 5G technologies across the entire region. He points out that there are 34 mobile operators and as many as 351 virtual operators. These virtual operators don’t own spectrum licenses or have the infrastructure needed to provide such services. Instead, they rely on the infrastructure of a “real” mobile operator to market their services.

Contrast this to the United States and China: in the US there are only 3 mobile operators and 70 virtual ones, while in China there are 4 real operators and 16 virtual ones. While virtual operators help expand service access by offering lower-cost options on a large scale, they don’t contribute to the consolidation or technological development of the infrastructure itself. As a result, this prevents the industry from achieving the same profitability levels as other major global powers.

The backwardness of the telecommunications sector in Europe, primarily due to the lack of proper capital centralization and market fragmentation, affects the entire industry. This slows down the digital transition in the capitalist production system, with consequences for both supply and distribution chains.

If Europe fails to develop telecom operators large enough to invest in advanced technologies like 5G, it will be forced to rely on foreign technologies. In particular, Europe’s dependence on China for acquiring 5G technology is becoming more and more apparent. Huawei is a key player in this sector.

However, buying 5G technology from China has sparked mixed reactions, which are fueled by concerns over security and Beijing’s potential geopolitical influence. These reactions have been particularly strong in Europe, where several member states have expressed fears that Chinese 5G infrastructure could be used for espionage activities or to undermine the digital sovereignty of European nations. These fears have been amplified by US pressure, which views the growing presence of China in global telecommunications as a threat to its own national security and that of its allies.

Concerns about cybersecurity have actually been a key factor fueling the 5G debate. The United States has adopted an aggressive stance in order to deter European countries from relying on Huawei. Washington has even threatened to reduce intelligence cooperation with countries that continued to use Chinese 5G.

European industry finds itself in a Catch-22. On the one hand, it must rely on Chinese technology to avoid falling behind in the race for digitization; on the other, it has to balance its development needs with national security concerns.

If terrestrial infrastructure reveals the limitations of European capital, the situation in space is no better. Low Earth Orbit (LEO) communication satellite systems can deliver high-speed connectivity of up to 100 Mbps, even in rural and remote areas where physical infrastructure cannot meet demand. However, there is almost no European presence in this area. European technology, in fact, relies on costly satellite systems in equatorial geostationary orbits (GEOs), such as SES (Luxembourg), Eutelsat (France), and Hispasat (Spain), which cannot deliver the same high levels of connectivity.

In contrast, Musk’s Starlink constellation and Amazon’s Kuiper are both more cost-effective and significantly more efficient. On the government side, the EU is investing in the IRIS2 program in order to close this huge technological gap, but at present there is still no plan to commercialize this technology and make it available to private capital.

That is, the dependence on China for 5G is compounded by the dependence on the United States for satellite connectivity. In terms of software, Android and Apple account for 66% and 34% of the mobile phone market, respectively. On the other hand, there is no European mobile device company capable of competing in the market. Instead, it is dominated by the American Apple (33%), South Korea’s Samsung (31%), and China’s Xiaomi (15%).

In general, capitalists with technology that exceeds the social average earn additional profits at the expense of those whose technology lags behind the social average.

Building on this basic law of the capitalist mode of production, we turn to the topic of technological development in the field of information technology. Here again, the outlook for European capital is bleak. When it comes to hardware and electronic components, the United States accounts for 40% of global investment in research and development. China’s share stands at 19%, while European countries contribute only 12% to the industry’s global investment. In software, the disparities are even starker. The US accounts for 71% of global investment, China 15%, and European nations contribute less than half of Beijing’s share, at just 7%.

China and the US also take the lead roles in the race towards quantum computing. The United States accounts for 50% of the private capital invested in developing this new technology, with Microsoft, Google, and IBM leading the most important initiatives driven by strategic interests. European private capital invested in this sector amounts to only 5% of the total, just one-tenth of the amount invested in the United States. In the field of Artificial Intelligence, 73% of the foundation models developed since 2017 are American, while 15% are Chinese. Given the still limited use of this technology at the industrial level in Europe, where only 11% of companies utilize it, the real strategic risk is that European capital may become dependent on models developed elsewhere, both for general and specialized applications. The “leading” European imperialisms are hobbling on, with venture capital investment in Europe totaling $8 billion in 2023, compared to $68 billion in the US and $15 billion in China. Another strategic area is cloud computing, which has important repercussions in security and development capabilities. This sector is dominated by Amazon Web Services, Microsoft Azure, and Google Cloud, which together hold 65% of the world market. In Europe, the largest company in this sector managed to grab only 2% of the European market. Europe is on track to become entirely dependent in this sector, as the capital of the three major American suppliers is, by sheer economy of scale, deterministically poised to dominate increasingly. Europe’s lag in IT has significant repercussions on both the production and circulation of surplus value.

In manufacturing, inadequate infrastructure and the challenge of maintaining independence make modernization increasingly difficult. This hampers efforts to reduce waste, improve production quality, and implement automated processes and integrated robotics within the framework commonly known as the “Internet of Things.”

Exacerbating the situation is the inability to innovate. This is partly due to the fragmentation of capital, but also because of the many small and medium-sized enterprises that lack access to these development opportunities. In terms of circulation, it is worth noting that only 4 of the world’s largest 50 digital marketplaces are based in Europe.

The leading digital marketplaces include US based companies such as Alphabet, Amazon, Meta, Apple, Microsoft, and X, alongside China’s Tencent, Alibaba, ByteDance, and Baidu. The vast majority of European consumers shop in a digital market dominated by non-European capital.

This general technological lag forces European capital to surrender market share or fall behind. As a result, European nations will be compelled to invest in an attempt to regain some ground. However, this effort is a desperate race, made more challenging by the late start and the weary legs of an aging capitalism.

However, one thing is certain: in order to maintain their position in the fierce global competition, the European bourgeoisies will continue to rely on the brutal intensification of surplus-value extraction. This will be done through forced exploitation, cuts to public services, and the systematic dismantling of the living and working conditions of the proletariat

The phase in which social peace in Europe could be bought, due to the strong position of European powers, is now waning. As a result, the return of the glorious era of class struggle—once hastily relegated to history by bourgeois historians—will make a powerful comeback on the historical stage.