The recent US national security strategy offers a misguided view of Europe. It claims that open-border policies and what it terms "progressive" policies represent an existential threat to the continent's identity. Yet, this argument is based on a serious misreading of the situation. The true danger confronting the EU is not societal but technological and economic lag.
The Stark Growth Divide Between Europe and the US
The data paint a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, while a paltry 13.5% increase for the European Union. Over this time, European income per person dropped from 76.5% to just 50% of the US level. Remarkably, even the poorest US state now has a greater average income than several leading EU nations like France and Italy.
Today, about 50% of the world’s top fifty tech companies are US-based, while only four are from Europe.
The Technological Shortfall: The Core Problem
This widening economic gap is driven by superior productivity growth in the United States, largely due to breakthroughs and higher total factor productivity. The landscape of global tech leadership is overwhelmingly American. In the last five decades, 241 US firms have scaled into enterprises valued at over $10bn, compared with only fourteen in the European continent.
This gap prompts a pressing question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely concede it is largely a two-horse race involving the US and China, with Europe starting at a significant handicap.
Root Causes of the Continent's Innovation Gap
A number of major reasons account for this technological divide.
- Venture Capital: The United States has a much more robust and agile network for financing new ventures. The EU still lacks a genuine capital markets union, a factor that limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented rules hamper European business. A US startup can launch a service under a single set of laws to access a market of hundreds of millions. The EU, despite a larger population size, is divided among twenty-seven separate systems, creating huge market obstacles.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, business failure was once viewed with stigma, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has eroded its ability in pioneering research.
The Road Ahead: Reasons for Cautious Optimism
Despite these hurdles, one can find causes for optimism. European leaders are growing more conscious of the existential challenge and have started to advance serious reform. Key analyses on EU competitiveness and the internal market highlight the need for sweeping changes.
Given appropriate policies and regulatory reforms, Europe's strengths could support much higher levels of business-led breakthroughs.
The continent still possesses significant advantages: skilled workforce, excellent schools and universities, and premier labs. Alongside a vast domestic consumer base and high savings rates, these elements could trigger a surge of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in creating cutting-edge tech, it can still significantly increase economic output by implementing and tailoring advancements from other regions.
A Critical Juncture
The European Union now stands at a decisive crossroads. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible decline in world influence.
