The recent US security policy document presents a misguided view of Europe. The document asserts that open-border policies and so-called "progressive" agendas pose an existential threat to the continent's identity. Yet, this perspective rests on a fundamental misinterpretation of the reality. The true danger facing the EU is not societal but economic and technological lag.
The Stark Economic Divide Separating the US and Europe
Statistics paint a sobering contrast. From 2008 and 2023, American economic output surged by 87%, compared to a mere thirteen and a half percent increase for the EU. During this time, European income per person dropped from over three-quarters to just 50% of the US level. Strikingly, even Mississippi now has a higher per capita income than several leading EU nations like Italy and France.
Currently, about 50% of the global 50 largest technology firms are US-based, while only four are European.
The Technological Shortfall: A Critical Problem
The growing disparity is driven by superior productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech leadership is overwhelmingly American. Over the past fifty years, hundreds of American startups have grown into enterprises valued at over $10bn, versus just 14 in the European continent.
This gap raises a pressing issue: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely concede it is essentially a contest between two between the US and China, with European nations starting at a clear handicap.
Underlying Factors of Europe's Technological Lag
Several key reasons explain this innovation chasm.
- Financing Ecosystem: The United States has a far deeper and agile system for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that caps the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A American entrepreneur can launch a product under one set of laws to access a market of hundreds of millions. The European Union, despite a bigger population size, is split among 27 different national systems, creating significant internal barriers.
- Mindset Differences: Views on entrepreneurial failure vary greatly. In some EU nations, business failure was once viewed with stigma, whereas in the US, it is often considered a valuable lesson.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these hurdles, one can find causes for hope. European leaders are growing more conscious of the severe threat and have started to propose substantial change. Notable analyses on EU competitiveness and the internal market highlight the necessity of sweeping changes.
Given appropriate incentives and rule changes, Europe's strengths could support far greater degrees of business-led breakthroughs.
The continent still possesses significant strengths: high-quality human capital, excellent schools and universities, and premier research institutions. Alongside a vast domestic consumer base and substantial household savings, these elements could unleash a new wave of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in developing next-generation tech, it can still significantly boost productivity by adopting and adapting advancements from elsewhere.
A Critical Juncture
Europe now stands at a decisive moment. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's technological decline has been steady. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible loss of global economic relevance.
