Donald Trump's security policy document offers a flawed view of the European Union. It claims that unrestrained immigration and so-called "progressive" policies represent an existential risk to the continent's identity. Yet, this argument is based on a serious misreading of the reality. The actual challenge confronting the EU is not societal but economic and technological backwardness.
A Glaring Growth Gap Between the US and Europe
The data paint a stark picture. From 2008 and 2023, American economic output grew by eighty-seven percent, while a paltry 13.5% increase for the EU. During this period, European income per person fell from 76.5% to just 50% of the US level. Remarkably, even Mississippi now has a greater average income than major European economies like Italy and France.
Currently, about 50% of the world’s 50 largest tech companies are US-based, while a mere four are European.
The Technological Deficit: The Core Problem
The growing disparity stems from superior productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The landscape of world technology dominance is decidedly US-centric. In the last five decades, 241 US firms have grown into enterprises valued at more than ten billion dollars, compared with only fourteen in Europe.
This gap raises a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, where does Europe stand? Most analysts agree it is largely a contest between two between the US and China, with Europe entering at a clear handicap.
Underlying Factors of Europe's Technological Lag
Several key reasons account for this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that caps the growth potential of new firms.
- Bureaucratic Hurdles: Excessive and fragmented regulation hamper Europe. A US startup can introduce a product under a single set of laws to access a market of over 330 million. The European Union, despite a bigger population, is divided among 27 different national systems, creating significant internal barriers.
- Mindset Differences: Views on risk-taking vary greatly. In some EU nations, a startup's collapse was historically viewed with penalties, whereas in the US, it is often seen as a valuable lesson.
- Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. Europe's long-term lack of spending in military capabilities has eroded its ability in breakthrough innovation.
A Path Forward: Reasons for Cautious Optimism
In spite of these challenges, one can find reasons for optimism. European leaders are increasingly aware of the existential challenge and have started to propose substantial change. Notable analyses on European competitiveness and the internal market highlight the need for major changes.
Given appropriate incentives and regulatory reforms, these assets might enable far greater levels of business-led breakthroughs.
The continent still possesses considerable strengths: high-quality human capital, top-tier education systems, and premier research institutions. Alongside a vast domestic consumer base and substantial household savings, these elements could trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in creating next-generation tech, it can still dramatically increase economic output by implementing and tailoring advancements from other regions.
An Inflection Point
The European Union now faces a decisive crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent's technological decline has been gradual. But, if it fails to take decisive action to tackle its structural weaknesses, today's slow erosion could give way to a sudden and irreversible decline in world influence.
