Donald Trump's security policy document presents a misguided view of the European Union. The document asserts that open-border policies and so-called "progressive" policies represent an existential risk to the continent's identity. Yet, this perspective rests on a serious misreading of the reality. The actual challenge facing Europe is not societal but technological and economic lag.
The Stark Economic Divide Separating Europe and the US
Statistics paint a sobering contrast. Between 2008 and 2023, American economic output surged by 87%, compared to a paltry thirteen and a half percent growth for the European Union. Over this period, European income per person dropped from over three-quarters to just half of the US level. Remarkably, even Mississippi now has a greater average income than several leading EU nations like France and Italy.
Currently, about half of the global 50 largest tech companies are American, while only four are European.
The Innovation Deficit: The Core Question
This widening disparity stems from superior productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech dominance is overwhelmingly American. In the last five decades, 241 US firms have scaled into enterprises valued at more than ten billion dollars, versus only fourteen in Europe.
This gap raises a pressing question: In the race for tomorrow's sectors like AI, semiconductors, and quantum computing, what is the EU positioned? Most analysts concede it is essentially a contest between two involving the US and China, with Europe starting at a significant handicap.
Root Causes of the Continent's Innovation Gap
Several key reasons account for this innovation chasm.
- Financing Ecosystem: The US boasts a far deeper and agile system for funding startups. Europe has yet to establish a true capital markets union, which caps the scale of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A US startup can introduce a service under a single regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is divided among twenty-seven different national systems, creating huge market obstacles.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically met with stigma, whereas in the United States, it is often seen as a badge of experience.
- Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has eroded its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
Despite these challenges, there are reasons for hope. European leaders are increasingly aware of the existential challenge and have begun to propose substantial change. Notable analyses on EU competitiveness and the single market highlight the necessity of major changes.
Given appropriate policies and rule changes, these assets could support far greater levels of commercial innovation.
Europe still possesses considerable strengths: high-quality workforce, excellent schools and universities, and premier labs. Alongside a large internal market and substantial household savings, these foundations could trigger a surge of investment and entrepreneurship.
Importantly, even if the EU does not take the lead in developing next-generation tech, it can still significantly increase productivity by implementing and tailoring advancements from elsewhere.
A Critical Juncture
Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. However, if it fails to take bold steps to address its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of world influence.
