🔗 Share this article

The recent US security policy document offers a misguided assessment of the European Union. The document asserts that unrestrained immigration and what it terms "woke" policies pose an grave threat to European civilization. However, this argument is based on a serious misreading of the situation. The true danger facing Europe is not societal but economic and technological backwardness.

The Stark Economic Divide Between the US and Europe

The data reveal a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent growth for the European Union. During this time, European income per person fell from 76.5% to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading EU nations like Italy and France.

Today, roughly half of the world’s 50 largest tech companies are American, while a mere four are European.

The Technological Deficit: A Critical Problem

The growing disparity stems from stronger productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly American. In the last five decades, hundreds of American startups have grown into enterprises valued at more than ten billion dollars, compared with just 14 in the European continent.

This disparity prompts a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Experts widely concede it is largely a contest between two involving the US and China, with Europe entering at a significant disadvantage.

Underlying Factors of Europe's Innovation Gap

Several major factors explain this innovation chasm.

• Venture Capital: The United States has a far deeper and agile network for financing new ventures. The EU still lacks a true unified investment market, which caps the scale of new firms.
• Regulatory Fragmentation: Complex and divided rules hamper Europe. A US startup can launch a product under one regulatory framework to access a market of over 330 million. The EU, despite a bigger population, is split among 27 separate regimes, creating huge market obstacles.
• Mindset Differences: Views on entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was once viewed with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in defense has weakened its ability in pioneering research.

The Road Ahead: Reasons for Hopefulness

Despite these challenges, there are reasons for optimism. Policymakers are increasingly aware of the existential challenge and have begun to advance substantial change. Key analyses on EU competitiveness and the internal market highlight the necessity of major changes.

Given appropriate incentives and rule changes, Europe's strengths could support much higher degrees of commercial innovation.

Europe still possesses significant strengths: skilled workforce, excellent schools and universities, and premier research institutions. Coupled with a vast domestic consumer base and substantial household savings, these elements could unleash a new wave of investment and entrepreneurship.

Crucially, even if Europe does not become the leader in developing next-generation tech, it can still significantly boost economic output by adopting and adapting innovations from elsewhere.

A Critical Juncture

Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, the continent's slide in innovation has been gradual. However, if it fails to take bold steps to address its deep-seated problems, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.