The recent US security policy document presents a flawed view of Europe. The document asserts that unrestrained immigration and what it terms "progressive" agendas pose an existential risk to European civilization. Yet, this perspective is based on a fundamental misreading of the reality. The actual challenge facing the EU is not societal but technological and economic backwardness.
A Glaring Growth Gap Separating Europe and the US
Statistics paint a stark contrast. Between 2008 and 2023, US GDP grew by eighty-seven percent, compared to a mere thirteen and a half percent increase for the EU. During this time, European income per person fell from over three-quarters to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading EU nations like Italy and France.
Currently, about half of the global 50 largest technology firms are US-based, while a mere four are from Europe.
The Innovation Shortfall: A Critical Problem
This widening economic gap is driven by superior efficiency gains in the US, largely due to technological innovation and higher total factor productivity. The landscape of global tech dominance is decidedly American. Over the past five decades, 241 US firms have scaled into enterprises valued at over $10bn, compared with only fourteen in the European continent.
This gap raises a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, where does the EU stand? Experts widely agree it is largely a contest between two involving the US and China, with Europe entering at a significant handicap.
Root Causes of Europe's Technological Lag
A number of major factors account for this innovation chasm.
- Venture Capital: The US boasts a much more robust and agile system for financing new ventures. The EU still lacks a genuine capital markets union, which caps the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A American entrepreneur can launch a service under a single set of laws to access a market of over 330 million. The EU, despite a larger population, is divided among 27 separate regimes, creating huge internal barriers.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically met with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its ability in breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, one can find reasons for optimism. Policymakers are increasingly aware of the severe threat and have begun to propose serious reform. Key reports on EU competitiveness and the single market point to the need for major reforms.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable much higher levels of business-led breakthroughs.
Europe still possesses significant advantages: skilled workforce, top-tier education systems, and world-class labs. Coupled with a large internal market and substantial household savings, these foundations could unleash a new wave of investment and entrepreneurship.
Crucially, even if the EU does not take the lead in creating next-generation technologies, it can still dramatically increase productivity by adopting and adapting innovations from elsewhere.
A Critical Juncture
Europe now faces a decisive crossroads. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's technological decline has been steady. However, without bold steps to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.
