The recent US national security strategy presents a flawed assessment of the European Union. The document asserts that unrestrained immigration and so-called "progressive" policies pose an grave threat to the continent's identity. However, this argument rests on a fundamental misinterpretation of the reality. The true danger confronting Europe is not societal but economic and technological backwardness.
The Stark Economic Gap Separating the US and Europe
The data paint a sobering contrast. Between 2008 and 2023, US GDP grew by eighty-seven percent, while a mere thirteen and a half percent increase for the European Union. During this time, European income per person fell from 76.5% to just half of the American figure. Remarkably, even the poorest US state now boasts a greater average income than several leading EU nations like France and Italy.
Today, roughly 50% of the global 50 largest technology firms are American, while a mere four are European.
The Innovation Shortfall: The Core Problem
The growing economic gap is driven by stronger efficiency gains in the US, largely due to technological innovation and higher total factor productivity. The scene of global tech dominance is overwhelmingly American. Over the past five decades, 241 US firms have grown into companies valued at more than $10bn, versus just 14 in the European continent.
This disparity prompts a pressing question: In the race for future industries like AI, semiconductors, and quantum computing, where does the EU positioned? Experts widely agree it is largely a two-horse race between the US and China, with European nations entering at a significant handicap.
Underlying Factors of Europe's Technological Lag
Several major reasons account for this technological divide.
- Financing Ecosystem: The United States has a far deeper and agile system for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that caps the scale of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hamper Europe. A US startup can launch a service under a single set of laws to access a market of over 330 million. The EU, despite a bigger population, is divided among 27 separate systems, creating significant internal barriers.
- Mindset Differences: Views on risk-taking vary greatly. In some EU nations, a startup's collapse was historically viewed with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.
The Road Ahead: Reasons for Hopefulness
Despite these challenges, there are causes for optimism. Policymakers are increasingly aware of the existential challenge and have started to propose substantial change. Key reports on EU competitiveness and the single market point to the need for major changes.
Given appropriate policies and regulatory reforms, these assets might enable much higher degrees of commercial innovation.
Europe retains significant strengths: skilled human capital, top-tier schools and universities, and world-class labs. Alongside a large internal market and substantial household savings, these foundations could trigger a new wave of venture creation.
Crucially, even if the EU does not become the leader in creating cutting-edge technologies, it can still dramatically increase productivity by implementing and tailoring advancements from other regions.
A Critical Juncture
Europe now faces a critical crossroads. As the saying goes, decline often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could turn into a rapid and permanent decline in global economic relevance.
