The recent US national security strategy presents a misguided assessment of Europe. It claims that open-border policies and so-called "progressive" policies pose an grave risk to the continent's identity. Yet, this argument rests on a serious misinterpretation of the reality. The true challenge facing Europe is not cultural but economic and technological lag.
A Glaring Economic Gap Between the US and Europe
The data paint a stark contrast. From 2008 and 2023, US GDP surged by 87%, compared to a paltry 13.5% growth for the European Union. During this period, European income per person fell from over three-quarters to just 50% of the US level. Strikingly, even Mississippi now boasts a greater average income than major EU nations like Italy and France.
Currently, roughly half of the world’s top fifty tech companies are US-based, while a mere four are from Europe.
The Technological Shortfall: The Core Question
This widening economic gap stems from stronger productivity growth in the US, fueled by breakthroughs and higher total factor productivity. The scene of global tech dominance is decidedly US-centric. In the last fifty years, 241 US firms have grown into companies valued at over $10bn, versus just 14 in Europe.
This disparity prompts a pressing question: As the competition for future industries like semiconductors, AI, and fusion energy, where does the EU stand? Experts widely concede it is largely a two-horse race between the US and China, with Europe starting at a significant disadvantage.
Root Causes of the Continent's Innovation Gap
Several major factors explain this technological divide.
- Venture Capital: The United States has a far deeper and more dynamic network for funding startups. Europe still lacks a true capital markets union, a factor that caps the scale of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A US startup can introduce a service under one set of laws to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is divided among twenty-seven different national systems, creating significant internal barriers.
- Cultural Attitudes: Views on risk-taking differ sharply. In some EU nations, business failure was once met with stigma, whereas in the US, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its ability in pioneering research.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are reasons for hope. Policymakers are increasingly aware of the existential challenge and have begun to advance serious reform. Key reports on European competitiveness and the internal market highlight the necessity of sweeping reforms.
Given appropriate policies and regulatory reforms, these assets might enable far greater degrees of business-led breakthroughs.
The continent still possesses considerable strengths: skilled workforce, excellent education systems, and premier research institutions. Alongside a large internal market and substantial household savings, these foundations could unleash a surge of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in creating next-generation tech, it can still dramatically increase economic output by implementing and tailoring innovations from other regions.
An Inflection Point
The European Union now faces a critical moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. But, if it fails to take bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a rapid and permanent decline in global economic relevance.
