The recent US security policy document offers a misguided assessment of the European Union. It claims that open-border policies and what it terms "woke" policies pose an grave threat to the continent's identity. However, this argument rests on a serious misreading of the situation. The actual danger confronting the EU is not societal but technological and economic backwardness.
The Stark Growth Divide Between Europe and the US
Statistics reveal a stark contrast. Between 2008 and 2023, American economic output surged by 87%, while a mere 13.5% increase for the EU. Over this time, European income per person fell from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now boasts a higher per capita income than several leading European economies like Italy and France.
Currently, roughly half of the world’s 50 largest tech companies are US-based, while only four are from Europe.
The Technological Deficit: The Core Question
The growing economic gap stems from superior productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The scene of world technology dominance is overwhelmingly US-centric. In the last fifty years, hundreds of American startups have grown into enterprises valued at over ten billion dollars, versus just 14 in Europe.
This gap prompts a vital question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Most analysts agree it is largely a two-horse race between the US and China, with Europe entering at a significant disadvantage.
Underlying Factors of the Continent's Technological Lag
A number of major factors account for this innovation chasm.
- Venture Capital: The US boasts a far deeper and agile network for financing new ventures. Europe still lacks a true capital markets union, a factor that caps the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented regulation hinder European business. A US startup can introduce a service under one set of laws to access a market of over 330 million. The EU, despite a bigger population size, is divided among twenty-seven different national systems, creating significant market obstacles.
- Mindset Differences: Views on entrepreneurial failure vary greatly. In some EU nations, business failure was historically viewed with penalties, whereas in the US, it is often considered a badge of experience.
- Defense Spending: The United States enjoys a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are reasons for optimism. Policymakers are increasingly aware of the severe threat and have started to advance serious reform. Key analyses on European competitiveness and the single market point to the necessity of sweeping reforms.
Given appropriate incentives and regulatory reforms, these assets could support much higher degrees of commercial innovation.
Europe still possesses significant advantages: skilled human capital, top-tier education systems, and premier research institutions. Alongside a large internal market and high savings rates, these elements could unleash a new wave of venture creation.
Importantly, even if Europe does not take the lead in developing next-generation tech, it can still significantly boost productivity by adopting and adapting innovations from other regions.
An Inflection Point
The European Union now stands at a critical moment. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been gradual. However, if it fails to take bold steps to address its deep-seated problems, today's gradual weakening could turn into a rapid and permanent loss of world influence.
