The recent US national security strategy offers a misguided assessment of Europe. The document asserts that open-border policies and what it terms "woke" policies pose an existential threat to European civilization. Yet, this argument is based on a serious misinterpretation of the reality. The true danger facing Europe is not societal but technological and economic lag.
The Stark Economic Divide Separating Europe and the US
Statistics paint a stark contrast. From 2008 and 2023, US GDP grew by 87%, while 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 American figure. Strikingly, even Mississippi now has a greater average income than major EU nations like France and Italy.
Currently, about 50% of the world’s top fifty tech companies are American, while only four are from Europe.
The Technological Deficit: The Core Problem
This widening disparity stems from superior efficiency gains in the US, largely due to breakthroughs and higher total factor productivity. The landscape of world technology leadership is decidedly US-centric. In the last five decades, hundreds of American startups have scaled into enterprises valued at more than $10bn, versus just 14 in the European continent.
This disparity prompts a vital issue: As the competition for future industries like semiconductors, AI, and fusion energy, where does Europe stand? Most analysts concede it is largely a two-horse race between the United States and China, with Europe entering at a clear handicap.
Root Causes of the Continent's Technological Lag
A number of major factors explain this innovation chasm.
- Venture Capital: The United States has a much more robust and more dynamic system for financing new ventures. Europe still lacks a true capital markets union, a factor that limits the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A American entrepreneur can launch a service under one set of laws to access a consumer base of over 330 million. The European Union, despite a bigger population size, is split among 27 separate regimes, creating significant market obstacles.
- Cultural Attitudes: Views on risk-taking differ sharply. In some EU nations, a startup's collapse was once viewed with stigma, whereas in the United States, it is often considered a badge of experience.
- Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has weakened its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
Despite these hurdles, there are causes for hope. Policymakers are increasingly aware of the severe threat and have begun to advance serious reform. Notable analyses on EU competitiveness and the single market point to the need for major reforms.
Given appropriate policies and regulatory reforms, Europe's strengths could support much higher degrees of business-led breakthroughs.
Europe still possesses considerable strengths: high-quality workforce, top-tier schools and universities, and premier labs. Alongside a large internal market and high savings rates, these elements could unleash a surge of venture creation.
Importantly, even if the EU does not become the leader in creating next-generation technologies, it can still dramatically increase productivity by implementing and tailoring innovations from elsewhere.
A Critical Juncture
Europe now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, Europe's slide in innovation has been gradual. But, without bold steps to address its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible loss of world influence.
