The recent US national security strategy offers a misguided assessment of Europe. The document asserts that open-border policies and so-called "progressive" agendas pose an grave risk to European civilization. Yet, this argument rests on a serious misinterpretation of the situation. The actual challenge confronting Europe is not societal but economic and technological backwardness.
The Stark Economic Gap Separating Europe and the US
The data paint a stark picture. From 2008 and 2023, American economic output surged by 87%, while a mere thirteen and a half percent increase for the European Union. During this period, EU GDP per capita fell from over three-quarters to just half of the US level. Strikingly, even the poorest US state now boasts a higher per capita income than several leading European economies like Italy and France.
Currently, roughly half of the world’s top fifty technology firms are US-based, while only four are from Europe.
The Technological Shortfall: A Critical Question
This widening economic gap is driven by superior productivity growth in the US, largely due to technological innovation and higher total factor productivity. The landscape of world technology dominance is decidedly American. In the last fifty years, 241 US firms have grown into companies valued at over $10bn, compared with just 14 in Europe.
This disparity raises a pressing issue: In the race for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Most analysts agree it is essentially a two-horse race involving the US and China, with Europe entering at a clear disadvantage.
Underlying Factors of the Continent's Technological Lag
A number of major reasons account for this technological divide.
- Venture Capital: The United States has a much more robust and more dynamic network for financing new ventures. The EU still lacks a true capital markets union, which caps the scale of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hinder Europe. A US startup can introduce a product under one set of laws to access a consumer base of over 330 million. The EU, despite a larger population, is split among 27 separate systems, creating significant market obstacles.
- Cultural Attitudes: Attitudes toward risk-taking vary greatly. In parts of Europe, a startup's collapse was historically viewed with penalties, whereas in the US, it is often considered a valuable lesson.
- Military Investment: The United States enjoys a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.
A Path Forward: Grounds for Hopefulness
Despite these hurdles, there are causes for optimism. Policymakers are increasingly aware of the severe threat and have started to advance serious reform. Key analyses on European competitiveness and the internal market point to the need for major reforms.
With the right incentives and regulatory reforms, Europe's strengths could support much higher degrees of commercial innovation.
The continent retains considerable strengths: skilled workforce, excellent schools and universities, and world-class research institutions. Coupled with a vast domestic consumer base and substantial household savings, these foundations have the potential to unleash a new wave of venture creation.
Crucially, even if the EU does not take the lead in creating next-generation tech, it can still significantly boost productivity by implementing and tailoring advancements from elsewhere.
A Critical Juncture
The European Union now faces a decisive moment. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. However, if it fails to take decisive action to address its structural weaknesses, today's slow erosion could turn into a rapid and permanent decline in global economic relevance.
