The recent US security policy document presents a misguided view of Europe. It claims that open-border policies and so-called "woke" policies represent an existential risk to European civilization. However, this argument is based on a serious misinterpretation of the situation. The true danger confronting Europe is not societal but technological and economic lag.
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 13.5% increase for the EU. During this period, EU GDP per capita fell from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now has a greater average income than several leading European economies like Italy and France.
Currently, roughly 50% of the world’s 50 largest technology firms are US-based, while a mere four are European.
The Technological Shortfall: The Core Question
The growing economic gap stems from stronger productivity growth in the United States, fueled by breakthroughs and better use of resources. The scene of world technology dominance is decidedly American. In the last five decades, hundreds of American startups have scaled into companies valued at over $10bn, compared with just 14 in the European continent.
This disparity prompts a pressing question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Most analysts concede it is largely a contest between two involving the US and China, with Europe starting at a significant disadvantage.
Underlying Factors of Europe's Technological Lag
A number of key factors explain this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic network for funding startups. The EU has yet to establish a true capital markets union, a factor that caps the growth potential of new firms.
- Bureaucratic Hurdles: Complex and divided rules hamper European business. A American entrepreneur can introduce a service under one regulatory framework to access a consumer base of over 330 million. The European Union, despite a bigger population size, is split among twenty-seven separate systems, creating significant market obstacles.
- Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the US, 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 eroded its ability in breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are causes for hope. Policymakers are increasingly aware of the existential challenge and have started to advance serious reform. Key analyses on EU competitiveness and the single market point to the necessity of major reforms.
Given appropriate incentives and regulatory reforms, these assets might enable far greater levels of commercial innovation.
The continent still possesses considerable strengths: high-quality human capital, top-tier schools and universities, and premier labs. Coupled with a large internal market and substantial household savings, these foundations have the potential to trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in creating next-generation technologies, it can still dramatically boost economic output by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. However, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of world influence.
