The recent US security policy document offers a misguided assessment of the European Union. It claims that open-border policies and so-called "woke" policies represent an grave risk to European civilization. Yet, this perspective is based on a serious misreading of the reality. The actual challenge facing the EU is not cultural but economic and technological backwardness.
The Stark Growth Divide Between Europe and the US
The data paint a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, compared to a paltry thirteen and a half percent increase for the European Union. During this time, European income per person fell from over three-quarters to just half of the American figure. Remarkably, even Mississippi now has a higher per capita income than several leading European economies like France and Italy.
Currently, about half of the global 50 largest technology firms are American, while a mere four are European.
The Innovation Shortfall: The Core Problem
This widening disparity stems from stronger efficiency gains in the US, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is decidedly American. Over the past fifty years, 241 US firms have grown into companies valued at more than $10bn, versus only fourteen in Europe.
This gap raises a pressing question: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, what is Europe stand? Most analysts concede it is essentially a two-horse race between the US and China, with Europe entering at a significant handicap.
Underlying Factors of the Continent's Technological Lag
A number of major factors account for this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic network for financing new ventures. The EU has yet to establish a genuine unified investment market, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hinder European business. A American entrepreneur can introduce a product under a single set of laws to access a consumer base of hundreds of millions. The EU, despite a larger population size, is split among twenty-seven separate systems, creating huge market obstacles.
- Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, business failure was historically viewed with penalties, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.
The Road Ahead: Reasons for Hopefulness
In spite of these challenges, there are reasons for optimism. Policymakers are growing more conscious of the severe threat and have started to propose substantial change. Key reports on EU competitiveness and the single market point to the necessity of sweeping reforms.
Given appropriate incentives and regulatory reforms, these assets might enable much higher degrees of commercial innovation.
Europe retains considerable advantages: skilled workforce, top-tier education systems, and world-class research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements have the potential to trigger a surge of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in developing cutting-edge tech, it can still dramatically boost economic output by implementing and tailoring innovations from elsewhere.
An Inflection Point
The European Union now faces a critical crossroads. As the saying goes, decline often happens "slowly, then all at once". So far, the continent's slide in innovation has been gradual. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.
