The recent US security policy document presents a misguided assessment of Europe. The document asserts that open-border policies and so-called "progressive" policies pose an existential threat to European civilization. Yet, this argument is based on a serious misinterpretation of the situation. The actual challenge confronting Europe is not cultural but economic and technological backwardness.
A Glaring Growth Divide Between the US and Europe
Statistics paint a sobering picture. From 2008 and 2023, American economic output grew by 87%, compared to a paltry 13.5% increase for the EU. During this time, European income per person fell from over three-quarters to just 50% of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading European economies like Italy and France.
Currently, about 50% of the global 50 largest technology firms are American, while a mere four are European.
The Technological Shortfall: A Critical Question
The growing disparity is driven by stronger efficiency gains in the United States, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is decidedly American. Over the past five decades, hundreds of American startups have grown into companies valued at over ten billion dollars, compared with only fourteen in Europe.
This gap raises a vital question: In the race for tomorrow's sectors like AI, semiconductors, and quantum computing, where does Europe positioned? Experts widely agree it is essentially a two-horse race between the US and China, with European nations starting at a significant handicap.
Underlying Factors of the Continent's Innovation Gap
A number of key reasons explain this technological divide.
- Venture Capital: The US boasts a much more robust and agile network for funding startups. Europe still lacks a genuine capital markets union, a factor that caps the scale of new firms.
- Bureaucratic Hurdles: Complex and divided regulation hinder Europe. A US startup can introduce a service under a single set of laws to access a market of over 330 million. The EU, despite a larger population size, is divided among twenty-seven separate systems, creating huge market obstacles.
- Mindset Differences: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once met with penalties, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its ability in pioneering research.
The Road Ahead: Grounds for Cautious Optimism
In spite of these challenges, there are reasons for hope. European leaders are growing more conscious of the severe threat and have begun to propose serious reform. Key reports on EU competitiveness and the single market point to the need for sweeping changes.
Given appropriate policies and rule changes, Europe's strengths might enable far greater degrees of business-led breakthroughs.
Europe retains considerable advantages: high-quality human capital, excellent education systems, and premier research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements could trigger a surge of venture creation.
Crucially, even if Europe does not become the leader in creating next-generation technologies, it can still significantly boost economic output by implementing and tailoring advancements from other regions.
An Inflection Point
The European Union now stands at a decisive crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, the continent's technological decline has been gradual. But, without bold steps to tackle its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of world influence.
