The recent US national security strategy offers a flawed assessment of the European Union. The document asserts that open-border policies and so-called "progressive" agendas pose an existential risk to European civilization. Yet, this argument is based on a serious misreading of the reality. The actual danger facing Europe is not societal but technological and economic backwardness.
A Glaring Economic Gap Between Europe and the US
The data paint a sobering contrast. From 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent increase for the EU. During this time, EU GDP per capita dropped from 76.5% to just half of the American figure. Remarkably, even Mississippi now has a greater average income than major European economies like France and Italy.
Currently, about 50% of the world’s 50 largest technology firms are American, while a mere four are European.
The Technological Deficit: A Critical Problem
This widening economic gap is driven by stronger productivity growth in the United States, fueled by breakthroughs and better use of resources. The landscape of world technology dominance is overwhelmingly US-centric. In the last fifty years, 241 US firms have grown into companies valued at over ten billion dollars, versus just 14 in Europe.
This disparity raises a vital question: In the race for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Experts widely agree it is largely a contest between two between the United States and China, with Europe starting at a clear disadvantage.
Underlying Factors of Europe's Innovation Gap
A number of key reasons explain this technological divide.
- Venture Capital: The US boasts a much more robust and more dynamic network for funding startups. The EU still lacks a true capital markets union, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Complex and divided regulation hamper Europe. A American entrepreneur can launch a product under a single set of laws to access a market of over 330 million. The European Union, despite a bigger population, is divided among 27 separate regimes, creating huge internal barriers.
- Cultural Attitudes: Attitudes toward risk-taking vary greatly. In some EU nations, business failure was once met with stigma, 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. The continent's long-term lack of spending in defense has eroded its ability in breakthrough innovation.
A Path Forward: Grounds for Cautious Optimism
In spite of these challenges, there are causes for optimism. European leaders are growing more conscious of the severe threat and have begun to propose substantial change. Notable reports on European competitiveness and the internal market point to the need for sweeping changes.
With the right incentives and regulatory reforms, Europe's strengths might enable far greater degrees of commercial innovation.
Europe retains considerable strengths: skilled human capital, top-tier schools and universities, and premier research institutions. Alongside 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 take the lead in creating next-generation tech, it can still significantly boost economic output by implementing and tailoring innovations from elsewhere.
An Inflection Point
Europe now stands at a decisive moment. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. But, without decisive action to address its deep-seated problems, today's slow erosion could give way to a rapid and permanent decline in global economic relevance.
