Donald Trump's national security strategy offers a misguided assessment of Europe. The document asserts that open-border policies and so-called "progressive" policies represent an grave risk to European civilization. However, this perspective is based on a fundamental misreading of the situation. The actual danger confronting the EU is not societal but technological and economic backwardness.
A Glaring Economic Divide Between Europe and the US
The data reveal a stark contrast. Between 2008 and 2023, US GDP surged by 87%, while a mere thirteen and a half percent growth for the EU. Over this period, EU GDP per capita fell from 76.5% to just 50% of the American figure. Remarkably, even the poorest US state now has a higher per capita income than several leading EU nations like France and Italy.
Today, about half of the global 50 largest tech companies are American, while a mere four are from Europe.
The Technological Shortfall: The Core Question
The growing disparity is driven by stronger efficiency gains in the United States, fueled by breakthroughs and higher total factor productivity. The landscape of world technology dominance is decidedly American. Over the past five decades, 241 US firms have scaled into companies valued at over $10bn, versus just 14 in the European continent.
This disparity raises a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, where does the EU stand? Experts widely agree it is largely a contest between two between the United States and China, with European nations entering at a clear disadvantage.
Underlying Factors of the Continent's Technological Lag
Several major reasons account for this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and more dynamic network for funding startups. The EU has yet to establish a genuine capital markets union, a factor that caps the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A US startup can launch a service under a single set of laws to access a consumer base of hundreds of millions. The EU, despite a bigger population size, is split among twenty-seven separate systems, creating huge internal barriers.
- Cultural Attitudes: Views on 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 valuable lesson.
- Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has weakened its ability in pioneering research.
The Road Ahead: Grounds for Hopefulness
Despite these hurdles, one can find reasons for hope. European leaders are increasingly aware of the existential challenge and have started to advance substantial change. Key analyses on EU competitiveness and the internal market highlight the necessity of sweeping reforms.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable much higher levels of commercial innovation.
The continent still possesses considerable advantages: skilled human capital, excellent schools and universities, and world-class research institutions. Coupled with a vast domestic consumer base and substantial household savings, these foundations could trigger a surge of venture creation.
Importantly, even if Europe does not become the leader in developing cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring advancements from elsewhere.
A Critical Juncture
Europe now faces a decisive crossroads. As the saying goes, decline often happens "slowly, then all at once". So far, the continent's slide in innovation has been steady. However, if it fails to take bold steps to address its structural weaknesses, today's slow erosion could turn into a rapid and permanent decline in global economic relevance.
