Donald Trump's security policy document presents a misguided view of the European Union. It claims that open-border policies and what it terms "woke" policies represent an existential risk to the continent's identity. Yet, this argument rests on a serious misreading of the reality. The true challenge facing the EU is not societal but economic and technological backwardness.
The Stark Growth Gap Between the US and Europe
The data paint a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, while a paltry 13.5% increase for the European Union. Over this period, European income per person fell from over three-quarters to just half of the American figure. Remarkably, even the poorest US state now has a greater average income than several leading European economies like France and Italy.
Currently, about 50% of the world’s 50 largest tech companies are US-based, while a mere four are from Europe.
The Innovation Deficit: A Critical Problem
This widening disparity is driven by stronger efficiency gains in the US, fueled by breakthroughs and higher total factor productivity. The scene of global tech dominance is overwhelmingly US-centric. In the last five decades, 241 US firms have scaled into enterprises valued at over $10bn, versus only fourteen in Europe.
This disparity prompts a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Most analysts concede it is largely a contest between two between the United States and China, with Europe entering at a clear handicap.
Root Causes of the Continent's Technological Lag
Several major factors account for this innovation chasm.
- Venture Capital: The US boasts a far deeper and agile system for financing new ventures. Europe still lacks a genuine unified investment market, a factor that caps the growth potential of new firms.
- Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A American entrepreneur can introduce a product under a single set of laws to access a consumer base of over 330 million. The European Union, despite a larger population, is divided among 27 different national systems, creating significant internal barriers.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was historically met with penalties, whereas in the United States, it is often seen as a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.
The Road Ahead: Reasons for Cautious Optimism
In spite of these hurdles, one can find causes for optimism. European leaders are growing more conscious of the severe threat and have started to propose serious reform. Notable reports on European competitiveness and the single market highlight the need for sweeping changes.
Given appropriate incentives and regulatory reforms, these assets could support much higher degrees of business-led breakthroughs.
The continent retains significant advantages: high-quality human capital, excellent schools and universities, and premier research institutions. Alongside a large internal market and high savings rates, these elements have the potential to trigger a new wave of investment and entrepreneurship.
Importantly, even if the EU does not take the lead in creating next-generation technologies, it can still dramatically increase economic output by adopting and adapting advancements from other regions.
An Inflection Point
Europe now faces a decisive crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been steady. But, without decisive action to tackle its deep-seated problems, today's slow erosion could turn into a rapid and permanent loss of world influence.
