The recent US security policy document offers a misguided assessment of Europe. It claims that open-border policies and so-called "woke" policies pose an existential threat to European civilization. However, this argument rests on a fundamental misreading of the reality. The true challenge confronting the EU is not societal but economic and technological lag.
A Glaring Growth Divide Between Europe and the US
The data paint a sobering contrast. Between 2008 and 2023, American economic output surged by eighty-seven percent, while a paltry 13.5% increase for the EU. Over this time, European income per person fell from 76.5% to just 50% of the American figure. Remarkably, even the poorest US state now boasts a higher per capita income than several leading European economies like Italy and France.
Currently, about half of the world’s top fifty tech companies are American, while a mere four are from Europe.
The Technological Shortfall: A Critical Problem
The growing disparity stems from stronger efficiency gains in the United States, largely due to breakthroughs and higher total factor productivity. The landscape of global tech leadership is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have scaled into companies valued at more than $10bn, compared with just 14 in the European continent.
This gap raises a pressing issue: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe positioned? Most analysts concede it is essentially a two-horse race involving the United States and China, with Europe starting at a significant disadvantage.
Root Causes of Europe's Innovation Gap
A number of major reasons account for this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for funding startups. Europe still lacks a true capital markets union, which limits the growth potential of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hinder European business. A US startup can launch a product under a single regulatory framework to access a market of over 330 million. The European Union, despite a larger population, is divided among 27 separate systems, creating huge market obstacles.
- Cultural Attitudes: Views on entrepreneurial failure differ sharply. In parts of Europe, business failure was historically viewed with penalties, whereas in the US, 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 military capabilities has eroded its ability in pioneering research.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, one can find causes for hope. Policymakers are increasingly aware of the existential challenge and have begun to propose serious reform. Key analyses on EU competitiveness and the single market highlight the need for major reforms.
Given appropriate policies and rule changes, these assets might enable much higher levels of business-led breakthroughs.
Europe still possesses considerable advantages: skilled human capital, top-tier education systems, and premier labs. Alongside a vast domestic consumer base and substantial household savings, these elements could unleash a new wave of venture creation.
Importantly, even if the EU does not become the leader in developing next-generation tech, it can still significantly boost productivity by adopting and adapting advancements from other regions.
A Critical Juncture
Europe now stands at a critical crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. However, without bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of world influence.
