The recent US national security strategy offers a misguided assessment of Europe. It claims that open-border policies and what it terms "woke" policies represent an grave threat to European civilization. However, this perspective is based on a serious misinterpretation of the reality. The actual danger confronting the EU is not societal but technological and economic lag.
A Glaring Economic Gap Separating the US and Europe
Statistics reveal a sobering contrast. Between 2008 and 2023, US GDP surged by 87%, compared to a paltry thirteen and a half percent growth for the European Union. During this time, European income per person dropped from over three-quarters to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than major EU nations like France and Italy.
Today, about half of the world’s 50 largest technology firms are US-based, while a mere four are European.
The Technological Shortfall: A Critical Question
This widening economic gap is driven by superior efficiency gains in the US, largely due to technological innovation and higher total factor productivity. The scene of world technology dominance is decidedly American. Over the past five decades, hundreds of American startups have scaled into companies valued at over ten billion dollars, compared with only fourteen in Europe.
This disparity raises a pressing question: In the race for future industries like AI, semiconductors, and fusion energy, what is Europe positioned? Most analysts concede it is largely a contest between two between the United States and China, with European nations entering at a significant disadvantage.
Underlying Factors of the Continent's Innovation Gap
A number of major factors account for this innovation chasm.
- Venture Capital: The United States has a much more robust and agile network for funding startups. The EU has yet to establish a genuine capital markets union, which caps the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A American entrepreneur can launch a service under one regulatory framework to access a market of over 330 million. The EU, despite a larger population size, is divided among twenty-seven separate systems, creating significant market obstacles.
- Mindset Differences: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was once viewed with stigma, whereas in the US, it is often seen as a valuable lesson.
- Military Investment: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's long-term lack of spending in military capabilities has weakened its ability in breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these hurdles, there are causes for hope. European leaders are increasingly aware of the severe threat and have begun to advance serious reform. Notable reports on European competitiveness and the single market point to the need for major changes.
With the right incentives and regulatory reforms, these assets could support far greater levels of commercial innovation.
The continent retains considerable strengths: high-quality human capital, excellent schools and universities, and world-class labs. Alongside a large internal market and high savings rates, these foundations could trigger a new wave of venture creation.
Crucially, even if the EU does not become the leader in creating cutting-edge technologies, it can still dramatically increase economic output by implementing and tailoring advancements from elsewhere.
A Critical Juncture
The European Union now faces a critical crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent's slide in innovation has been gradual. But, without decisive action to address its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in world influence.