The recent US security policy document presents a flawed assessment of the European Union. It claims that open-border policies and so-called "progressive" policies represent an existential threat to European civilization. Yet, this argument is based on a fundamental misinterpretation of the reality. The actual danger facing the EU is not societal but technological and economic lag.
A Glaring Economic Divide Between Europe and the US
Statistics reveal a sobering picture. Between 2008 and 2023, American economic output surged by 87%, compared to a paltry 13.5% increase for the EU. Over this period, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Strikingly, even Mississippi now boasts a higher per capita income than major EU nations like France and Italy.
Today, about half of the global top fifty technology firms are American, while only four are from Europe.
The Innovation Shortfall: A Critical Question
The growing disparity stems from stronger productivity growth in the US, fueled by technological innovation and higher total factor productivity. The scene of global tech dominance is overwhelmingly US-centric. Over the past five decades, hundreds of American startups have scaled into enterprises valued at more than $10bn, versus only fourteen in Europe.
This disparity prompts a pressing issue: In the race for future industries like AI, semiconductors, and fusion energy, what is the EU positioned? Experts widely agree it is largely a contest between two between the United States and China, with European nations entering at a significant disadvantage.
Underlying Factors of Europe's Technological Lag
Several major reasons explain this technological divide.
- Financing Ecosystem: The US boasts a far deeper and more dynamic network for financing new ventures. The EU has yet to establish a true unified investment market, which limits the growth potential of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hamper Europe. A American entrepreneur can introduce a product under a single set of laws to access a consumer base of over 330 million. The European Union, despite a larger population size, is split among twenty-seven separate systems, creating huge internal barriers.
- Mindset Differences: Views on risk-taking differ sharply. In some EU nations, a startup's collapse was once met with penalties, whereas in the US, it is often considered a valuable lesson.
- Military Investment: 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 Hopefulness
Despite these challenges, there are causes for hope. Policymakers are growing more conscious of the existential challenge and have started to propose substantial change. Notable reports on EU competitiveness and the internal market highlight the necessity of major changes.
Given appropriate incentives and regulatory reforms, these assets might enable much higher levels of business-led breakthroughs.
Europe still possesses significant strengths: skilled human capital, top-tier schools and universities, and world-class research institutions. Coupled with a vast domestic consumer base and high savings rates, these foundations have the potential to trigger a surge of investment and entrepreneurship.
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.
A Critical Juncture
The European Union now faces a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent'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 sudden and irreversible loss of world influence.
