The recent US security policy document offers a flawed view of Europe. It claims that open-border policies and so-called "progressive" policies pose an grave threat to the continent's identity. Yet, this perspective rests on a fundamental misinterpretation of the reality. The actual challenge facing the EU is not cultural but economic and technological backwardness.
The Stark Growth Divide Between the US and Europe
The data paint a stark picture. 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 period, European income per person dropped from over three-quarters to just half of the American figure. Remarkably, even Mississippi now boasts a greater average income than major EU nations like Italy and France.
Today, about half of the global 50 largest technology firms are US-based, while only four are European.
The Innovation Deficit: A Critical Problem
The growing economic gap stems from superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The landscape of world technology dominance is overwhelmingly American. Over the past fifty years, hundreds of American startups have grown into enterprises valued at more than ten billion dollars, versus just 14 in Europe.
This gap raises a pressing issue: In the race for tomorrow's sectors like AI, semiconductors, and quantum computing, where does Europe stand? Most analysts agree it is essentially a contest between two between the United States and China, with Europe starting at a significant handicap.
Underlying Factors of Europe's Technological Lag
A number of key factors explain this technological divide.
- Financing Ecosystem: The United States has a far deeper and agile network for financing new ventures. Europe still lacks a genuine capital markets union, which limits the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented rules hinder Europe. A US startup can launch a service under one set of laws to access a market of over 330 million. The European Union, despite a larger population size, is split among twenty-seven separate systems, creating significant internal barriers.
- Mindset Differences: Views on entrepreneurial failure differ sharply. In some EU nations, business failure was once viewed with penalties, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has weakened its capacity for breakthrough innovation.
The Road Ahead: Reasons for Hopefulness
In spite of these challenges, there are reasons for hope. European leaders are growing more conscious of the severe threat and have started to advance substantial change. Key analyses on EU competitiveness and the single market highlight the need for major reforms.
Given appropriate policies and rule changes, Europe's strengths might enable much higher levels of commercial innovation.
Europe retains significant advantages: skilled workforce, top-tier education systems, and premier research institutions. Alongside a large internal market and high savings rates, these elements could unleash a surge of venture creation.
Importantly, even if Europe does not take the lead in developing cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring advancements from elsewhere.
A Critical Juncture
The European Union now stands at a decisive crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could turn into a rapid and permanent loss of global economic relevance.
