The recent US national security strategy presents a misguided view of the European Union. It claims that open-border policies and so-called "progressive" policies pose an grave threat to the continent's identity. Yet, this perspective is based on a serious misreading of the situation. The actual challenge confronting the EU is not cultural but technological and economic lag.
A Glaring Growth Gap Between Europe and the US
The data reveal a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, compared to a mere 13.5% growth for the European Union. Over this time, European income per person fell from 76.5% to just 50% of the American figure. Strikingly, even the poorest US state now boasts a greater average income than major EU nations like Italy and France.
Currently, roughly 50% of the global 50 largest tech companies are American, while a mere four are European.
The Innovation Shortfall: The Core Problem
The growing economic gap stems from superior productivity growth in the US, fueled by breakthroughs and higher total factor productivity. The landscape of world technology leadership is decidedly US-centric. In the last fifty years, 241 US firms have scaled into companies valued at more than $10bn, versus just 14 in Europe.
This disparity prompts a pressing question: As the competition for future industries like semiconductors, AI, and fusion energy, where does Europe stand? Experts widely concede it is essentially a contest between two involving the United States and China, with European nations entering at a significant handicap.
Underlying Factors of the Continent's Innovation Gap
A number of major reasons account for this innovation chasm.
- Venture Capital: The United States has a far deeper and agile network 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: Complex and divided rules hinder Europe. A US startup can introduce a product under one set of laws to access a market of over 330 million. The EU, despite a larger population size, is split among 27 different national regimes, creating significant market obstacles.
- Mindset Differences: Attitudes toward risk-taking differ sharply. In some EU nations, a startup's collapse was once met with penalties, whereas in the US, it is often seen as a valuable lesson.
- Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these hurdles, one can find reasons for optimism. Policymakers are growing more conscious of the severe threat and have begun to advance substantial change. Notable reports on European competitiveness and the internal market point to the necessity of sweeping changes.
Given appropriate incentives and rule changes, Europe's strengths could support far greater degrees of commercial innovation.
Europe retains significant strengths: high-quality workforce, top-tier schools and universities, and world-class labs. Coupled with a large internal market and substantial household savings, these foundations could unleash a surge of venture creation.
Importantly, even if Europe does not take the lead in creating cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring advancements from elsewhere.
An Inflection Point
The European Union now stands at a decisive crossroads. As the saying goes, economic erosion often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. However, without bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of world influence.
