The recent US security policy document presents a misguided assessment of Europe. The document asserts that open-border policies and what it terms "woke" agendas represent an grave risk to European civilization. Yet, this perspective rests on a fundamental misreading of the reality. The true danger confronting the EU is not cultural but technological and economic backwardness.
The Stark Growth Gap Between Europe and the US
Statistics reveal a sobering contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, compared to a mere 13.5% increase for the EU. Over this period, EU GDP per capita fell from over three-quarters to just half of the American figure. Strikingly, even the poorest US state now has a higher per capita income than several leading EU nations like France and Italy.
Currently, roughly half of the global 50 largest tech companies are US-based, while a mere four are from Europe.
The Technological Deficit: The Core Question
This widening disparity is driven by stronger productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The landscape of world technology leadership is decidedly American. In the last five decades, hundreds of American startups have grown into companies valued at more than $10bn, compared with just 14 in Europe.
This gap raises a pressing issue: In the race for future industries like AI, semiconductors, and fusion energy, what is the EU stand? Most analysts agree it is largely a two-horse race involving the United States and China, with European nations entering at a significant handicap.
Root Causes of Europe's Technological Lag
A number of key reasons explain this innovation chasm.
- Financing Ecosystem: The US boasts a much more robust and more dynamic system for funding startups. Europe still lacks a genuine unified investment market, which caps the scale of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hamper 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 split among 27 separate systems, creating huge internal barriers.
- Cultural Attitudes: Views on risk-taking differ sharply. In some EU nations, a startup's collapse was historically met with penalties, whereas in the US, it is often considered 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 eroded its ability in pioneering research.
A Path Forward: Reasons for Cautious Optimism
In spite of these challenges, one can find reasons for optimism. European leaders are growing more conscious of the severe threat and have begun to propose substantial change. Key reports on European competitiveness and the internal market point to the need for major changes.
Given appropriate policies and rule changes, these assets could support much higher levels of commercial innovation.
Europe retains significant strengths: skilled human capital, top-tier schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these foundations have the potential to unleash a new wave of venture creation.
Crucially, even if Europe does not become the leader in creating cutting-edge tech, it can still dramatically boost economic output by implementing and tailoring innovations from elsewhere.
A Critical Juncture
The European Union now stands at a decisive crossroads. As the saying goes, economic erosion often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. But, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could give way to a sudden and irreversible loss of world influence.
