The recent US national security strategy presents a misguided assessment of Europe. The document asserts that open-border policies and what it terms "progressive" policies represent an grave risk to the continent's identity. However, this argument rests on a fundamental misinterpretation of the reality. The true danger facing the EU is not societal but technological and economic backwardness.
A Glaring Economic Divide Between the US and Europe
The data paint a stark contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, compared to a mere 13.5% increase for the European Union. During this time, EU GDP per capita fell from over three-quarters to just 50% of the American figure. Strikingly, even the poorest US state now has a greater average income than major EU nations like France and Italy.
Currently, roughly 50% of the global 50 largest technology firms are American, while only four are European.
The Innovation Shortfall: A Critical Question
The growing economic gap stems from superior productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The landscape of world technology dominance is decidedly US-centric. In the last five decades, 241 US firms have scaled into companies valued at over $10bn, compared with only fourteen in the European continent.
This disparity prompts a pressing question: In the race for tomorrow's sectors like AI, semiconductors, and fusion energy, what is Europe positioned? Most analysts concede it is largely a contest between two between the US and China, with European nations entering at a significant disadvantage.
Root Causes of the Continent's Technological Lag
Several key reasons account for this innovation chasm.
- Venture Capital: The US boasts a far deeper and more dynamic system for funding startups. The EU has yet to establish a true capital markets union, a factor that limits the scale of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A US startup can launch a product under a single regulatory framework to access a consumer base of over 330 million. The EU, despite a bigger population, is split among twenty-seven separate regimes, creating significant internal barriers.
- Mindset Differences: Views on risk-taking vary greatly. In parts of Europe, a startup's collapse was historically met with penalties, whereas in the US, it is often seen as a badge of experience.
- Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has weakened its capacity for breakthrough innovation.
The Road Ahead: Reasons for Hopefulness
Despite these hurdles, one can find reasons for optimism. European leaders are increasingly aware of the existential challenge and have started to propose serious reform. Notable reports on EU competitiveness and the single market highlight the need for sweeping reforms.
Given appropriate policies and rule changes, Europe's strengths might enable much higher degrees of business-led breakthroughs.
The continent retains considerable strengths: high-quality workforce, top-tier education systems, and premier labs. Alongside a large internal market and substantial household savings, these elements have the potential to unleash a new wave of venture creation.
Crucially, even if Europe does not become the leader in creating 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 critical crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's technological decline has been gradual. But, if it fails to take decisive action to tackle its structural weaknesses, today's slow erosion could give way to a sudden and irreversible decline in global economic relevance.
