The recent US national security strategy offers a misguided view of Europe. The document asserts that open-border policies and what it terms "woke" agendas represent an existential risk to European civilization. However, this argument is based on a serious misinterpretation of the reality. The true danger facing the EU is not cultural but technological and economic backwardness.
A Glaring Economic Gap Between Europe and the US
The data paint a stark picture. From 2008 and 2023, American economic output grew by eighty-seven percent, while a mere thirteen and a half percent growth for the European Union. During this period, European income per person fell from over three-quarters to just 50% of the American figure. Strikingly, even the poorest US state now boasts a higher per capita income than major EU nations like Italy and France.
Currently, roughly 50% of the world’s top fifty tech companies are US-based, while a mere four are European.
The Technological Shortfall: The Core Question
This widening disparity stems from superior productivity growth in the US, largely due to technological innovation and higher total factor productivity. The scene of world technology leadership is decidedly American. In the last five decades, hundreds of American startups have scaled into enterprises valued at more than $10bn, versus only fourteen in the European continent.
This gap prompts a vital question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Most analysts concede it is essentially a contest between two involving the US and China, with European nations starting at a significant handicap.
Root Causes of Europe's Technological Lag
Several major factors explain this technological divide.
- Venture Capital: The US boasts a much more robust and more dynamic system for funding startups. Europe has yet to establish a genuine unified investment market, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A American entrepreneur can launch a product under a single regulatory framework to access a market of hundreds of millions. The European Union, despite a bigger population size, is divided among 27 separate regimes, creating significant market obstacles.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, a startup's collapse was once viewed with stigma, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in defense has weakened its capacity for pioneering research.
The Road Ahead: Grounds for Cautious Optimism
In spite of these challenges, there are causes for hope. European leaders are increasingly aware of the existential challenge and have started to advance serious reform. Key reports on European competitiveness and the single market highlight the need for sweeping changes.
With the right policies and regulatory reforms, Europe's strengths might enable much higher degrees of commercial innovation.
Europe still possesses considerable advantages: high-quality human capital, excellent schools and universities, and premier labs. Alongside a large internal market and high savings rates, these elements could unleash a new wave of investment and entrepreneurship.
Crucially, even if Europe does not become the leader in creating next-generation technologies, it can still significantly increase productivity by implementing and tailoring advancements from elsewhere.
An Inflection Point
The European Union now stands at a decisive moment. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. But, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could turn into a rapid and permanent decline in global economic relevance.
