The recent US security policy document presents a misguided assessment of the European Union. The document asserts that open-border policies and what it terms "woke" agendas pose an existential threat to the continent's identity. Yet, this argument rests on a fundamental misreading of the situation. The true danger facing the EU is not societal but economic and technological lag.
A Glaring Economic Divide Between Europe and the US
Statistics paint a stark picture. Between 2008 and 2023, American economic output surged by 87%, while a mere 13.5% increase for the EU. Over this period, European income per person fell from over three-quarters to just half of the American figure. Strikingly, even Mississippi now boasts a greater average income than major EU nations like France and Italy.
Currently, roughly 50% of the world’s 50 largest technology firms are American, while only four are from Europe.
The Innovation Shortfall: A Critical Question
The growing disparity stems from stronger efficiency gains in the United States, largely due to technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly US-centric. In the last fifty years, hundreds of American startups have grown into enterprises valued at over $10bn, compared with only fourteen in Europe.
This disparity prompts a pressing issue: In the race for future industries like AI, semiconductors, and quantum computing, what is the EU positioned? Experts widely agree it is largely a two-horse race involving the US and China, with Europe entering at a significant disadvantage.
Underlying Factors of Europe's Technological Lag
Several major reasons explain this innovation chasm.
- Venture Capital: The US boasts a much more robust and agile network for funding startups. Europe still lacks a genuine unified investment market, which caps the scale of emerging companies.
- Regulatory Fragmentation: Complex and divided rules hinder European business. A American entrepreneur can introduce a service under a single regulatory framework to access a market of hundreds of millions. The EU, despite a larger population, is split among twenty-seven separate regimes, creating significant market obstacles.
- Cultural Attitudes: Attitudes toward risk-taking vary greatly. In some EU nations, business failure was historically met with penalties, whereas in the United States, it is often considered a valuable lesson.
- Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.
A Path Forward: Reasons for Cautious Optimism
In spite of these challenges, there are causes for optimism. European leaders are increasingly aware of the severe threat and have started to advance substantial change. Key analyses on EU competitiveness and the internal market point to the need for major changes.
With the right incentives and rule changes, these assets could support far greater degrees of business-led breakthroughs.
Europe retains considerable strengths: skilled human capital, top-tier schools and universities, and premier research institutions. Coupled with a large internal market and substantial household savings, these foundations have the potential to trigger a new wave of venture creation.
Importantly, even if the EU does not take the lead in creating cutting-edge tech, it can still significantly increase productivity by implementing and tailoring advancements from other regions.
An Inflection Point
The European Union now stands at a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent's slide in innovation has been steady. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of global economic relevance.
