The recent US national security strategy offers a misguided view of Europe. It claims that open-border policies and so-called "woke" policies pose an grave threat to European civilization. Yet, this perspective is based on a fundamental misinterpretation of the reality. The actual challenge confronting the EU is not societal but economic and technological lag.
The Stark Growth Divide Separating Europe and the US
Statistics reveal a sobering picture. Between 2008 and 2023, US GDP grew by 87%, compared to a mere 13.5% growth for the EU. Over this time, European income per person fell from 76.5% to just 50% of the US level. Remarkably, even the poorest US state now boasts a higher per capita income than several leading European economies like France and Italy.
Currently, about 50% of the world’s 50 largest tech companies are American, while only four are from Europe.
The Technological Shortfall: A Critical Question
This widening disparity is driven by stronger productivity growth in the United States, fueled by technological innovation and better use of resources. The scene of global tech dominance is decidedly American. In the last fifty years, 241 US firms have grown into enterprises valued at more than $10bn, versus just 14 in the European continent.
This gap raises a pressing question: In the race for future industries like AI, semiconductors, and fusion energy, what is the EU stand? Experts widely concede it is essentially a contest between two between the US and China, with Europe entering at a significant handicap.
Root Causes of Europe's Technological Lag
Several key factors explain this innovation chasm.
- Financing Ecosystem: The US boasts a much more robust and agile system for financing new ventures. Europe still lacks a genuine unified investment market, which caps the scale of emerging companies.
- Bureaucratic Hurdles: Complex and divided rules hamper European business. A American entrepreneur can introduce a service under a single regulatory framework to access a consumer base of over 330 million. The European Union, despite a larger population size, is split among twenty-seven separate regimes, creating huge internal barriers.
- Mindset Differences: Attitudes toward risk-taking vary greatly. In some EU nations, business failure was once met with penalties, whereas in the US, it is often considered a badge of experience.
- Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
In spite of these challenges, one can find reasons for optimism. European leaders are increasingly aware of the existential challenge and have started to advance substantial change. Key analyses on EU competitiveness and the single market highlight the need for major reforms.
Given appropriate policies and rule changes, Europe's strengths might enable far greater levels of commercial innovation.
The continent retains significant advantages: high-quality workforce, top-tier education systems, and world-class labs. Coupled with a large internal market and high savings rates, these foundations have the potential to trigger a new wave of venture creation.
Importantly, even if the EU does not become the leader in developing cutting-edge tech, it can still significantly increase productivity by adopting and adapting innovations from elsewhere.
A Critical Juncture
The European Union now faces a critical moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, Europe's slide in innovation has been gradual. However, if it fails to take bold steps to address its deep-seated problems, today's gradual weakening could turn into a rapid and permanent decline in global economic relevance.
