The recent US national security strategy presents a misguided view of the European Union. The document asserts that unrestrained immigration and so-called "woke" policies pose an existential risk to the continent's identity. However, this argument rests on a serious misreading of the situation. The actual challenge facing the EU is not cultural but economic and technological lag.
A Glaring Economic Divide Between the US and Europe
The data paint a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, compared to a paltry thirteen and a half percent growth for the EU. Over this time, European income per person fell from over three-quarters to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading European economies like France and Italy.
Currently, roughly 50% of the global 50 largest technology firms are US-based, while a mere four are from Europe.
The Technological Deficit: A Critical Problem
The growing disparity is driven by stronger efficiency gains in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is decidedly American. Over the past five decades, 241 US firms have scaled into enterprises valued at more than ten billion dollars, compared with just 14 in the European continent.
This gap raises a pressing issue: In the race 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 US and China, with Europe entering at a significant disadvantage.
Root Causes of the Continent's Technological Lag
Several key factors account for this technological divide.
- Venture Capital: The US boasts a much more robust and more dynamic network for funding startups. The EU has yet to establish a true unified investment market, a factor that caps the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A American entrepreneur can launch a service under one set of laws to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is split among 27 separate systems, creating huge internal barriers.
- 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 considered a badge of experience.
- Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in defense has eroded its capacity for pioneering research.
A Path Forward: Reasons for Hopefulness
Despite these challenges, one can find reasons for hope. Policymakers are increasingly aware of the severe threat and have started to advance serious reform. Notable analyses on European competitiveness and the single market point to the need for major reforms.
Given appropriate policies and rule changes, Europe's strengths could support far greater levels of business-led breakthroughs.
Europe still possesses significant advantages: high-quality human capital, excellent education systems, and premier labs. Alongside a large internal market and high savings rates, these elements have the potential to unleash a surge of investment and entrepreneurship.
Crucially, even if Europe does not take the lead in developing next-generation technologies, it can still dramatically boost economic output by implementing and tailoring innovations from other regions.
An Inflection Point
The European Union now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been steady. However, without bold steps to tackle its structural weaknesses, today's gradual weakening could give way to a rapid and permanent decline in world influence.
