The recent US national security strategy offers a misguided assessment of Europe. The document asserts that unrestrained immigration and what it terms "progressive" policies pose an existential threat to the continent's identity. Yet, this argument rests on a serious misreading of the situation. The true danger confronting Europe is not societal but technological and economic backwardness.
The Stark Growth Divide Between Europe and the US
The data reveal a stark picture. From 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent growth for the European Union. Over this time, EU GDP per capita dropped from 76.5% to just half of the US level. Remarkably, even Mississippi now has a higher per capita income than major EU nations like Italy and France.
Currently, roughly 50% of the world’s 50 largest tech companies are American, while only four are European.
The Technological Deficit: A Critical Question
The growing disparity stems from stronger productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The landscape of global tech dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have scaled into companies valued at more than $10bn, versus just 14 in the European continent.
This gap prompts a pressing question: In the race for tomorrow's sectors like semiconductors, AI, and fusion energy, where does the EU positioned? Most analysts concede it is largely a contest between two between the US and China, with European nations entering at a significant disadvantage.
Root Causes of the Continent's Technological Lag
Several major factors explain this technological divide.
- Venture Capital: The US boasts a much more robust and agile network for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that limits the scale of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A US startup can introduce a product under a single set of laws to access a consumer base of over 330 million. The EU, despite a larger population, is divided among twenty-seven different national regimes, creating huge market obstacles.
- Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the US, it is often considered a valuable lesson.
- Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are causes for optimism. Policymakers are growing more conscious of the existential challenge and have started to advance serious reform. Key analyses on European competitiveness and the internal market point to the necessity of sweeping changes.
Given appropriate policies and regulatory reforms, Europe's strengths could support far greater degrees of commercial innovation.
The continent still possesses significant advantages: skilled human capital, excellent schools and universities, and premier research institutions. Alongside a large internal market and substantial household savings, these foundations have the potential to trigger a surge of investment and entrepreneurship.
Importantly, even if the EU does not become the leader in developing next-generation technologies, it can still dramatically increase productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
The European Union now stands at a decisive crossroads. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. But, without decisive action to tackle its deep-seated problems, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.
