The recent US security policy document presents a flawed assessment of the European Union. It claims that open-border policies and so-called "woke" policies represent an grave risk to the continent's identity. However, this argument rests on a serious misinterpretation of the situation. The actual danger confronting the EU is not societal but economic and technological backwardness.
The Stark Growth Divide Separating the US and Europe
The data reveal a stark contrast. Between 2008 and 2023, US GDP grew by 87%, while a paltry 13.5% growth for the EU. Over this time, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Remarkably, even the poorest US state now boasts a greater average income than several leading EU nations like Italy and France.
Currently, about half of the global top fifty technology firms are American, while a mere four are European.
The Technological Shortfall: The Core Question
This widening economic gap is driven by stronger productivity growth in the US, largely due to technological innovation and higher total factor productivity. The scene of global tech leadership is decidedly US-centric. Over the past fifty years, hundreds of American startups have grown into companies valued at over $10bn, compared with just 14 in the European continent.
This disparity prompts a pressing issue: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU stand? Most analysts concede it is largely a contest between two involving the US and China, with European nations entering at a clear disadvantage.
Root Causes of Europe's Technological Lag
A number of key factors explain this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and agile system for funding startups. The EU has yet to establish a true capital markets union, a factor that limits the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A US startup can launch a product under one set of laws to access a consumer base of over 330 million. The European Union, despite a bigger population size, is split among twenty-seven separate regimes, creating significant internal barriers.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was once met with stigma, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's chronic underinvestment in defense has weakened its capacity for breakthrough innovation.
The Road Ahead: Reasons for Hopefulness
Despite these hurdles, there are causes for hope. Policymakers are growing more conscious of the existential challenge and have begun to advance serious reform. Key reports on European competitiveness and the internal market highlight the need for major reforms.
Given appropriate policies and regulatory reforms, these assets could support much higher degrees of business-led breakthroughs.
The continent still possesses considerable strengths: high-quality workforce, excellent education systems, and world-class research institutions. Alongside a large internal market and high savings rates, these elements could trigger a surge of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in creating cutting-edge technologies, it can still significantly boost productivity by implementing and tailoring advancements from elsewhere.
An Inflection Point
Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, Europe's slide in innovation has been gradual. But, without decisive action to address its structural weaknesses, today's slow erosion could turn into a sudden and irreversible decline in world influence.
