The recent US security policy document offers a misguided view of the European Union. It claims that open-border policies and so-called "woke" policies represent an existential threat to the continent's identity. Yet, this argument is based on a fundamental misinterpretation of the reality. The actual danger confronting Europe is not societal but economic and technological lag.
The Stark Economic Gap Separating the US and Europe
Statistics paint a sobering contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, while a mere 13.5% increase for the EU. During this period, European income per person dropped from 76.5% to just 50% of the American figure. Remarkably, even the poorest US state now boasts a greater average income than major EU nations like France and Italy.
Currently, roughly half of the world’s 50 largest tech companies are American, while a mere four are European.
The Innovation Shortfall: A Critical Question
This widening economic gap is driven by superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of world technology dominance is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have grown into enterprises valued at over $10bn, versus only fourteen in Europe.
This disparity raises a vital question: In the race for future industries like semiconductors, AI, and quantum computing, what is Europe positioned? Experts widely agree it is largely a contest between two involving the United States and China, with Europe starting at a significant handicap.
Underlying Factors of Europe's Technological Lag
A number of key reasons account for this technological divide.
- Venture Capital: The United States has a much more robust and more dynamic network for funding startups. The EU has yet to establish a genuine capital markets union, which limits the scale of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented regulation hinder Europe. A US startup can launch a service under a single set of laws to access a market of over 330 million. The European Union, despite a bigger population size, is divided among twenty-seven separate regimes, creating significant internal barriers.
- Cultural Attitudes: Views on risk-taking vary greatly. In parts of Europe, business failure was once met with penalties, whereas in the US, it is often considered a badge of experience.
- Military Investment: The US benefits from a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in military capabilities has weakened its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are causes for hope. Policymakers are growing more conscious of the severe threat and have started to propose serious reform. Notable analyses on European competitiveness and the single market highlight the need for sweeping changes.
Given appropriate policies and regulatory reforms, Europe's strengths might enable far greater levels of business-led breakthroughs.
The continent retains considerable advantages: high-quality workforce, excellent education systems, and world-class labs. Alongside a large internal market and substantial household savings, these elements have the potential to unleash a new wave of venture creation.
Importantly, even if the EU does not become the leader in creating next-generation technologies, it can still significantly increase productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
Europe now faces a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. However, if it fails to take bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in world influence.
