The recent US security policy document offers a misguided assessment of Europe. It claims that open-border policies and what it terms "woke" policies pose an grave threat to European civilization. Yet, this argument is based on a fundamental misreading of the reality. The true challenge confronting the EU is not cultural but economic and technological backwardness.
A Glaring Economic Divide Separating Europe and the US
Statistics reveal a sobering contrast. From 2008 and 2023, US GDP surged by eighty-seven percent, while a mere thirteen and a half percent increase for the EU. Over this time, European income per person fell from 76.5% to just 50% of the US level. Remarkably, even Mississippi now boasts a higher per capita income than major EU nations like France and Italy.
Today, about 50% of the global 50 largest tech companies are American, while a mere four are European.
The Innovation Shortfall: A Critical Problem
This widening economic gap stems from stronger productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly American. In the last fifty years, hundreds of American startups have grown into companies valued at more than $10bn, versus only fourteen in the European continent.
This gap raises a pressing question: In the race for future industries like semiconductors, AI, and fusion energy, what is the EU positioned? Experts widely concede it is largely a two-horse race involving the United States and China, with Europe starting at a clear disadvantage.
Root Causes of the Continent's Technological Lag
Several major factors explain this technological divide.
- Venture Capital: The United States has a much more robust and more dynamic system for financing new ventures. The EU still lacks a true unified investment market, which limits the growth potential of new firms.
- Regulatory Fragmentation: Excessive and fragmented rules hinder Europe. A American entrepreneur can launch a service under one regulatory framework to access a consumer base of over 330 million. The EU, despite a bigger population size, is split among twenty-seven separate regimes, creating significant market obstacles.
- Mindset Differences: Views on entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was historically viewed with penalties, whereas in the United States, it is often considered a badge of experience.
- Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's long-term lack of spending in military capabilities has weakened its ability in breakthrough innovation.
The Road Ahead: Grounds for Hopefulness
Despite these challenges, one can find causes for optimism. Policymakers are growing more conscious of the severe threat and have started to propose serious reform. Key analyses on EU competitiveness and the single market highlight the necessity of major changes.
With the right policies and regulatory reforms, these assets could support much higher levels of commercial innovation.
Europe still possesses significant advantages: high-quality workforce, top-tier schools and universities, and world-class research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements have the potential to trigger a surge of investment and entrepreneurship.
Importantly, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly boost economic output by implementing and tailoring advancements from other regions.
An Inflection Point
Europe now stands at a critical moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's slide in innovation has been steady. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of global economic relevance.
