Donald Trump's security policy document offers a misguided view of the European Union. The document asserts that open-border policies and so-called "woke" policies pose an grave risk to the continent's identity. Yet, this argument rests on a fundamental misreading of the situation. The actual danger confronting Europe is not societal but economic and technological backwardness.
A Glaring Economic Gap Between Europe and the US
The data reveal a stark contrast. Between 2008 and 2023, American economic output grew by 87%, while a mere 13.5% growth for the EU. During this time, EU GDP per capita dropped from over three-quarters to just half of the US level. Strikingly, even Mississippi now has a higher per capita income than several leading European economies like Italy and France.
Today, about half of the world’s top fifty technology firms are American, while only four are European.
The Innovation Shortfall: A Critical Problem
This widening disparity is driven by stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The landscape of global tech dominance is overwhelmingly American. Over the past fifty years, 241 US firms have grown into companies valued at more than $10bn, versus only fourteen in the European continent.
This disparity raises a vital question: As the competition for future industries like semiconductors, AI, and quantum computing, where does the EU positioned? Most analysts concede it is essentially a two-horse race involving the US and China, with European nations starting at a significant disadvantage.
Underlying Factors of Europe's Innovation Gap
Several key reasons account for this innovation chasm.
- Venture Capital: The United States has a much more robust and agile network for funding startups. Europe still lacks a true capital markets union, a factor that caps the scale of emerging companies.
- Bureaucratic Hurdles: Complex and divided rules hinder Europe. A US startup can launch a service under a single regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is split among twenty-seven separate systems, creating significant market obstacles.
- Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once viewed with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Defense Spending: The US benefits from a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has weakened its ability in pioneering research.
The Road Ahead: Grounds for Cautious Optimism
In spite of these hurdles, there are causes for optimism. European leaders are increasingly aware of the existential challenge and have begun to propose serious reform. Key analyses on European competitiveness and the internal market highlight the necessity of major reforms.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable far greater degrees of business-led breakthroughs.
Europe still possesses significant advantages: skilled workforce, top-tier schools and universities, and premier research institutions. Alongside a large internal market and high savings rates, these elements have the potential to unleash a new wave of venture creation.
Importantly, even if the EU does not take the lead in creating next-generation tech, it can still significantly increase productivity by implementing and tailoring innovations from elsewhere.
An Inflection Point
The European Union now stands at a decisive moment. As the saying goes, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. But, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could turn into a rapid and permanent decline in global economic relevance.
