Donald Trump's security policy document presents a misguided assessment of Europe. It claims that open-border policies and so-called "woke" policies represent an existential risk to the continent's identity. However, this argument is based on a serious misreading of the situation. The actual danger facing Europe is not cultural but technological and economic lag.
A Glaring Growth Gap Separating Europe and the US
Statistics paint a stark picture. Between 2008 and 2023, US GDP surged by 87%, while a mere thirteen and a half percent growth for the European Union. During this time, EU GDP per capita dropped from over three-quarters to just half of the US level. Strikingly, even the poorest US state now boasts a greater average income than several leading European economies like Italy and France.
Currently, about half of the global top fifty technology firms are US-based, while a mere four are European.
The Technological Shortfall: A Critical Problem
The growing disparity stems from stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly US-centric. Over the past fifty years, 241 US firms have scaled into enterprises valued at more than $10bn, compared with only fourteen in Europe.
This disparity raises a vital question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, what is the EU positioned? Most analysts concede it is largely a two-horse race involving the US and China, with European nations entering at a significant handicap.
Underlying Factors of the Continent's Technological Lag
A number of major factors explain this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for financing new ventures. Europe has yet to establish a genuine capital markets union, which caps the growth potential of new firms.
- Bureaucratic Hurdles: Complex and divided rules hamper Europe. A US startup can launch a service under a single set of laws to access a consumer base of hundreds of millions. The EU, despite a bigger population size, is divided among 27 different national regimes, creating significant internal barriers.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically viewed with stigma, whereas in the US, it is often considered a valuable lesson.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has eroded its capacity for breakthrough innovation.
A Path Forward: Reasons for Cautious Optimism
Despite these challenges, one can find reasons for optimism. Policymakers are increasingly aware of the existential challenge and have started to propose substantial change. Notable reports on EU competitiveness and the internal market point to the need for sweeping changes.
With the right incentives and rule changes, Europe's strengths might enable much higher degrees of commercial innovation.
Europe still possesses significant strengths: skilled human capital, top-tier education systems, and world-class research institutions. Alongside a large internal market and high savings rates, these foundations could trigger a surge of venture creation.
Crucially, even if Europe does not become the leader in developing next-generation tech, it can still significantly increase productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
Europe now stands at a critical moment. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. However, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.
