Donald Trump's security policy document offers a misguided view of Europe. The document asserts that open-border policies and what it terms "progressive" policies represent an grave threat to European civilization. However, this argument rests on a serious misreading of the situation. The actual danger facing the EU is not societal but economic and technological backwardness.
The Stark Economic Gap Separating Europe and the US
The data paint a sobering picture. Between 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent growth for the European Union. Over this period, European income per person dropped from 76.5% to just 50% of the US level. Remarkably, even Mississippi now boasts a higher per capita income than major EU nations like France and Italy.
Today, roughly half of the world’s 50 largest technology firms are American, while only four are from Europe.
The Innovation Shortfall: A Critical Problem
This widening disparity stems from stronger productivity growth in the US, fueled by technological innovation and better use of resources. The landscape of global tech dominance is overwhelmingly American. In the last five decades, 241 US firms have scaled into enterprises valued at over ten billion dollars, compared with just 14 in Europe.
This gap raises a pressing issue: As the competition for future industries like AI, semiconductors, and fusion energy, where does Europe positioned? Experts widely agree it is largely a contest between two involving the United States and China, with Europe starting at a clear handicap.
Root Causes of Europe's Technological Lag
Several key factors account for this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and agile system for funding startups. The EU still lacks a genuine capital markets union, a factor that limits the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A US startup can introduce a product under one set of laws to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is divided among 27 different national regimes, creating huge market obstacles.
- Mindset Differences: Views on entrepreneurial failure differ sharply. In some EU nations, a startup's collapse was once viewed with penalties, whereas in the US, it is often seen as a valuable lesson.
- Defense Spending: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, one can find reasons for hope. European leaders are increasingly aware of the severe threat and have started to advance serious reform. Key reports on EU competitiveness and the single market highlight the need for major reforms.
With the right incentives and regulatory reforms, Europe's strengths might enable much higher levels of commercial innovation.
Europe still possesses significant advantages: skilled workforce, excellent schools and universities, 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 cutting-edge technologies, it can still dramatically increase productivity by adopting and adapting advancements from other regions.
A Critical Juncture
The European Union now faces a critical moment. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. However, if it fails to take bold steps to tackle its structural weaknesses, today's slow erosion could give way to a sudden and irreversible decline in global economic relevance.
