The recent US security policy document offers a flawed assessment of Europe. It claims that open-border policies and so-called "progressive" agendas pose an grave threat to European civilization. However, this perspective rests on a serious misinterpretation of the reality. The true challenge confronting the EU is not societal but economic and technological lag.
A Glaring Economic Divide Separating the US and Europe
Statistics reveal a stark picture. Between 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 American figure. Remarkably, even Mississippi now boasts a greater average income than major EU nations like France and Italy.
Today, about half of the world’s top fifty tech companies are American, while only four are European.
The Innovation Shortfall: A Critical Question
This widening disparity is driven by superior efficiency gains in the United States, largely due to technological innovation and higher total factor productivity. The landscape of global tech dominance is overwhelmingly American. Over the past fifty years, 241 US firms have scaled into companies valued at over ten billion dollars, compared with just 14 in Europe.
This disparity prompts a pressing question: In the race for future industries like semiconductors, AI, and fusion energy, where does Europe stand? Most analysts concede it is largely a contest between two involving the US and China, with Europe entering at a significant disadvantage.
Underlying Factors of the Continent's Technological Lag
Several major factors account for this technological divide.
- Venture Capital: The United States has a much more robust and agile network for financing new ventures. Europe still lacks a genuine capital markets union, which caps the scale of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented regulation hamper Europe. A American entrepreneur can introduce a service under one set of laws to access a consumer base of hundreds of millions. The EU, despite a bigger population, is divided among twenty-seven different national systems, creating significant market obstacles.
- Mindset Differences: Views on entrepreneurial failure differ sharply. In some EU nations, business failure was once met with stigma, whereas in the United States, it is often seen as a badge of experience.
- Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its ability in breakthrough innovation.
The Road Ahead: Reasons for Cautious Optimism
Despite these challenges, one can find reasons for hope. Policymakers are increasingly aware of the existential challenge and have started to advance substantial change. Key reports on European competitiveness and the internal market highlight the need for sweeping reforms.
Given appropriate policies and regulatory reforms, Europe's strengths could support much higher levels of commercial innovation.
The continent retains significant strengths: high-quality human capital, top-tier education systems, and world-class labs. Coupled with a large internal market and high savings rates, these elements could trigger a new wave of venture creation.
Importantly, even if the EU does not take the lead in creating next-generation technologies, it can still dramatically increase productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
Europe now faces a decisive crossroads. As the saying goes, decline often happens "gradually and then suddenly". So far, the continent's technological decline has been steady. But, without decisive action to address its deep-seated problems, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.
