The recent US security policy document presents a misguided view of the European Union. The document asserts that unrestrained immigration and what it terms "progressive" policies pose an existential threat to European civilization. Yet, this perspective rests on a serious misreading of the reality. The actual danger confronting the EU is not societal but technological and economic lag.
A Glaring Growth Divide Between Europe and the US
The data reveal a sobering contrast. From 2008 and 2023, US GDP grew by 87%, compared to a paltry thirteen and a half percent 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 Mississippi now boasts a higher per capita income than major EU nations like France and Italy.
Today, about 50% of the global 50 largest technology firms are American, while only four are from Europe.
The Technological Deficit: The Core Question
This widening economic gap stems from stronger productivity growth 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 fifty years, hundreds of American startups have scaled into enterprises valued at over $10bn, compared with only fourteen in Europe.
This disparity raises a pressing issue: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe positioned? Most analysts agree it is largely a two-horse race between the United States and China, with Europe entering at a significant disadvantage.
Underlying Factors of the Continent's Innovation Gap
Several major reasons explain this innovation chasm.
- Venture Capital: The US boasts a far deeper and agile system for funding startups. Europe has yet to establish a genuine capital markets union, a factor that caps the scale of emerging companies.
- Bureaucratic Hurdles: Complex and divided rules hamper Europe. A American entrepreneur can introduce a product under one set of laws to access a market of hundreds of millions. The European Union, despite a bigger population, is divided among 27 different national systems, creating huge internal barriers.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, business failure was once met with stigma, whereas in the US, it is often seen as a badge of experience.
- Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in military capabilities has weakened its ability in pioneering research.
A Path Forward: Reasons for Cautious Optimism
Despite these hurdles, there are causes for optimism. Policymakers are increasingly aware of the severe threat and have begun to propose serious reform. Key reports on European competitiveness and the internal market point to the need for major changes.
Given appropriate policies and regulatory reforms, Europe's strengths could support much higher levels of business-led breakthroughs.
The continent still possesses significant strengths: skilled workforce, top-tier education systems, and premier labs. Coupled with a vast domestic consumer base and high savings rates, these elements could trigger a surge of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in creating cutting-edge technologies, it can still dramatically boost economic output by adopting and adapting innovations from elsewhere.
An Inflection Point
The European Union now faces a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. But, if it fails to take bold steps to tackle its structural weaknesses, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.
