The recent US security policy document offers a flawed view of the European Union. It claims that open-border policies and what it terms "progressive" policies represent an grave risk to the continent's identity. Yet, this perspective rests on a serious misreading of the situation. The actual danger confronting Europe is not societal but economic and technological backwardness.
A Glaring Growth Divide Separating Europe and the US
The data paint a sobering picture. Between 2008 and 2023, American economic output grew by 87%, while a paltry thirteen and a half percent increase for the European Union. Over this time, European income per person fell from 76.5% to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than major European economies like Italy and France.
Currently, roughly half of the global top fifty tech companies are US-based, while a mere four are from Europe.
The Technological Shortfall: A Critical Problem
The growing disparity stems from superior productivity growth in the US, largely due to 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 ten billion dollars, versus just 14 in the European continent.
This gap raises a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, what is Europe positioned? Experts widely concede it is largely a contest between two between the US and China, with Europe starting at a significant disadvantage.
Root Causes of the Continent's Technological Lag
Several major factors explain this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and agile network for financing new ventures. The EU has yet to establish a genuine capital markets union, which limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented regulation hamper European business. A US startup can launch a service under one set of laws to access a market of over 330 million. The European Union, despite a larger population size, is divided among twenty-seven different national systems, creating significant market obstacles.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was once viewed with stigma, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
In spite of these challenges, one can find causes for optimism. Policymakers are growing more conscious of the severe threat and have started to advance substantial change. Notable reports on European competitiveness and the single market point to the necessity of sweeping reforms.
Given appropriate incentives and rule changes, Europe's strengths could support much higher levels of commercial innovation.
Europe still possesses significant advantages: high-quality human capital, excellent schools and universities, and world-class research institutions. Alongside a vast domestic consumer base and high savings rates, these elements have the potential to trigger a surge of investment and entrepreneurship.
Crucially, even if Europe does not become the leader in developing next-generation technologies, it can still dramatically increase productivity by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now stands at a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, if it fails to take bold steps to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent decline in world influence.
