The recent US security policy document offers a misguided view of the European Union. It claims that open-border policies and so-called "progressive" policies represent an grave risk to European civilization. Yet, this argument is based on a fundamental misreading of the situation. The true challenge facing the EU is not cultural but economic and technological backwardness.
A Glaring Growth Gap Between the US and Europe
The data reveal a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, compared to a mere 13.5% increase for the European Union. During this time, European income per person dropped from 76.5% to just half of the US level. Remarkably, even the poorest US state now has a greater average income than major EU nations like France and Italy.
Today, about 50% of the global 50 largest tech companies are US-based, while a mere four are European.
The Technological Deficit: The Core Question
This widening disparity stems from superior productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is overwhelmingly US-centric. Over the past fifty years, 241 US firms have grown into enterprises valued at more than ten billion dollars, versus just 14 in the European continent.
This disparity raises a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, where does the EU stand? Experts widely concede it is essentially a two-horse race involving the US and China, with European nations entering at a significant handicap.
Underlying Factors of the Continent's Innovation Gap
Several major factors explain this innovation chasm.
- Venture Capital: The US boasts a much more robust and more dynamic system for financing new ventures. The EU has yet to establish a true capital markets union, a factor that limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented regulation hinder Europe. A American entrepreneur can introduce a product under one regulatory framework to access a market of over 330 million. The EU, despite a bigger population, is divided among twenty-seven different national regimes, creating huge market obstacles.
- Mindset Differences: Views on risk-taking vary greatly. In some EU nations, business failure was once met with penalties, whereas in the US, it is often seen as a badge of experience.
- Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's long-term lack of spending in defense has eroded its capacity for pioneering research.
The Road Ahead: Grounds for Cautious Optimism
In spite of these challenges, one can find causes for optimism. European leaders are growing more conscious of the severe threat and have begun to propose serious reform. Notable analyses on European competitiveness and the internal market point to the need for major reforms.
With the right incentives and rule changes, these assets could support much higher degrees of commercial innovation.
Europe retains considerable strengths: skilled workforce, excellent education systems, and premier research institutions. Alongside a large internal market and substantial household savings, these foundations could unleash a new wave of venture creation.
Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still dramatically boost productivity by adopting and adapting advancements from elsewhere.
A Critical Juncture
Europe now stands at a critical crossroads. As the saying goes, decline often happens "slowly, then all at once". So far, Europe's technological decline has been steady. But, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could turn into a rapid and permanent decline in world influence.
