The recent US national security strategy offers a misguided assessment of Europe. It claims that unrestrained immigration and what it terms "progressive" policies pose an grave risk to European civilization. Yet, this argument is based on a fundamental misreading of the situation. The actual challenge facing the EU is not societal but technological and economic lag.
The Stark Growth Gap Separating Europe and the US
The data reveal a sobering picture. Between 2008 and 2023, US GDP surged by eighty-seven percent, while a mere 13.5% increase for the European Union. Over this time, EU GDP per capita dropped from 76.5% to just 50% of the American figure. Strikingly, even the poorest US state now boasts a greater average income than several leading European economies like Italy and France.
Currently, roughly 50% of the world’s 50 largest technology firms are American, while a mere four are European.
The Innovation Shortfall: The Core Problem
The growing disparity stems from stronger productivity growth in the US, fueled by technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last five decades, hundreds of American startups have grown into companies valued at over $10bn, versus just 14 in Europe.
This gap prompts a pressing question: As the competition for future industries like AI, semiconductors, and fusion energy, what is the EU positioned? Most analysts concede it is largely a two-horse race involving the US and China, with Europe entering at a clear handicap.
Root Causes of the Continent's Technological Lag
A number of key reasons explain this technological divide.
- Venture Capital: The US boasts a much more robust and agile network for funding startups. Europe has yet to establish a true unified investment market, a factor that limits the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hamper Europe. A US startup can introduce a product under a single set of laws to access a consumer base of hundreds of millions. The European Union, despite a larger population size, is divided among twenty-seven different national systems, creating significant market obstacles.
- Cultural Attitudes: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was once met with stigma, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a deeply integrated academic-military-industrial complex. Europe's chronic underinvestment in defense has eroded its capacity for pioneering research.
A Path Forward: Reasons for Hopefulness
Despite these hurdles, there are causes for hope. European leaders are increasingly aware of the severe threat and have begun to propose substantial change. Key reports on EU competitiveness and the single market highlight the necessity of major changes.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable much higher degrees of business-led breakthroughs.
Europe still possesses considerable strengths: high-quality workforce, excellent education systems, 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 venture creation.
Importantly, even if the EU does not become the leader in creating next-generation tech, it can still significantly increase economic output by adopting and adapting innovations from elsewhere.
A Critical Juncture
The European Union now stands at a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. But, if it fails to take bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a rapid and permanent loss of world influence.
