The Capitalism and Freedom in the Twenty-First Century Podcast Why Does Europe Struggle with Innovation? With Luis Garicano | Hoover Institution
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Jan 8, 2026 
In this engaging discussion, Luis Garicano, a prominent Spanish economist and former MEP, shares insights from his diverse career and research on Europe's innovation hurdles. He critiques the EU's regulatory landscape, notably the detrimental 'Brussels effect' and overregulation in the wake of Brexit. Garicano elaborates on the structural challenges faced by firms and emphasizes the need for a 'Constitution of Innovation.' The talk also touches on the euro's design flaws and Spain's recent economic stagnation, making for a thought-provoking listen.
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From Eurostat To Chicago Training
- Luis Garicano left a boring Eurostat civil service job and applied to Chicago to study economics.
- His Chicago training with Becker, Rosen and Murphy deeply shaped his applied micro and organizational research.
Knowledge Hierarchies Explain Firm Structure
- Knowledge hierarchies organize problem-solving so routine tasks stay low and exceptional problems go up the chain.
- This minimizes communication costs and explains firm layers, wages, and manager-worker sorting.
Tech Changes Firm Depth And Exploration
- Communication and information technologies differ: communication can centralize decision-making while information lets lower levels solve problems.
- Tech shifts change firm depth, exploration, and the risk of getting trapped in old hierarchies.
