The recent US security policy document presents a flawed view of Europe. The document asserts that open-border policies and so-called "progressive" policies pose an existential threat to European civilization. Yet, this perspective rests on a serious misreading of the situation. The true danger facing Europe is not cultural but economic and technological lag.
The Stark Economic Divide Separating Europe and the US
The data paint a sobering contrast. From 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent growth for the European Union. During this time, EU GDP per capita fell from over three-quarters to just half of the American figure. Strikingly, even Mississippi now has a greater average income than several leading European economies like Italy and France.
Currently, about 50% of the world’s top fifty tech companies are US-based, while only four are from Europe.
The Technological Shortfall: The Core Question
The growing disparity stems from superior productivity growth in the US, fueled by technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have grown into enterprises valued at over $10bn, versus only fourteen in Europe.
This gap raises a pressing question: In the race for tomorrow's sectors like AI, semiconductors, and fusion energy, where does Europe stand? Experts widely concede it is largely a two-horse race between the US and China, with European nations starting at a significant handicap.
Root Causes of Europe's Innovation Gap
Several major reasons account for 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, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A US startup can launch a product under one regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is split among 27 different national systems, creating huge market obstacles.
- Cultural Attitudes: Views on risk-taking vary greatly. In parts of Europe, business failure was historically met with penalties, whereas in the United States, it is often considered a badge of experience.
- Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.
The Road Ahead: Grounds for Hopefulness
Despite these challenges, one can find causes for hope. European leaders are increasingly aware of the severe threat and have started to advance substantial change. Key reports on European competitiveness and the internal market point to the necessity of sweeping changes.
Given appropriate incentives and rule changes, these assets might enable much higher levels of business-led breakthroughs.
Europe still possesses considerable advantages: skilled human capital, top-tier schools and universities, and world-class labs. Alongside a large internal market and substantial household savings, these foundations have the potential to trigger a surge of investment and entrepreneurship.
Crucially, even if the EU does not become the leader in developing cutting-edge tech, it can still significantly increase economic output by adopting and adapting advancements from other regions.
An Inflection Point
The European Union now faces a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. But, without decisive action to address its deep-seated problems, today's slow erosion could give way to a rapid and permanent decline in global economic relevance.
