The recent US security policy document presents a flawed assessment of Europe. The document asserts that open-border policies and so-called "woke" policies pose an existential threat to European civilization. Yet, this argument rests on a serious misreading of the situation. The true danger facing Europe is not societal but technological and economic lag.
A Glaring Growth Gap Separating the US and Europe
The data reveal a sobering picture. Between 2008 and 2023, American economic output surged by 87%, compared to a paltry 13.5% growth for the EU. Over this time, EU GDP per capita dropped from over three-quarters to just half of the American figure. Strikingly, even the poorest US state now boasts a greater average income than several leading European economies like Italy and France.
Today, roughly 50% of the global 50 largest technology firms are US-based, while only four are European.
The Innovation Shortfall: A Critical Problem
The growing disparity stems from stronger productivity growth in the US, fueled by technological innovation and better use of resources. The landscape of world technology dominance is decidedly US-centric. Over the past fifty years, hundreds of American startups have scaled into enterprises valued at over ten billion dollars, compared with just 14 in the European continent.
This disparity prompts a pressing issue: In the race for future industries like AI, semiconductors, and quantum computing, what is the EU positioned? Experts widely concede it is essentially a two-horse race involving the United States and China, with European nations entering at a clear handicap.
Underlying Factors of Europe's Technological Lag
Several major factors explain this technological divide.
- Venture Capital: The United States has a much more robust and agile network for funding startups. Europe has yet to establish a genuine capital markets union, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented rules hinder Europe. A American entrepreneur can introduce a service under one regulatory framework to access a consumer base of hundreds of millions. The EU, despite a bigger population, is split among twenty-seven different national systems, creating significant market obstacles.
- Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, business failure was once met with penalties, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded its ability in breakthrough innovation.
The Road Ahead: Reasons for Hopefulness
In spite of these challenges, one can find reasons for hope. Policymakers are growing more conscious of the existential challenge and have begun to advance substantial change. Key reports on EU competitiveness and the internal market highlight the need for sweeping reforms.
With the right incentives and regulatory reforms, Europe's strengths might enable much higher degrees of commercial innovation.
The continent still possesses significant advantages: high-quality workforce, excellent education systems, and world-class research institutions. Coupled with a large internal market and substantial household savings, these elements have the potential to trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in developing cutting-edge technologies, it can still significantly increase economic output by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now stands at a decisive moment. As the saying goes, economic erosion often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. But, without decisive action to address its structural weaknesses, today's slow erosion could give way to a sudden and irreversible decline in world influence.
