Donald Trump's security policy document presents a misguided assessment of the European Union. The document asserts that unrestrained immigration and what it terms "progressive" agendas represent an existential risk to the continent's identity. However, this perspective rests on a serious misreading of the situation. The actual danger confronting Europe is not societal but technological and economic backwardness.
A Glaring Growth Gap Separating Europe and the US
The data paint a stark picture. Between 2008 and 2023, American economic output surged by eighty-seven percent, while a paltry 13.5% increase for the EU. During this period, European income per person fell from 76.5% to just half of the US level. Remarkably, even the poorest US state now boasts a greater average income than several leading EU nations like France and Italy.
Currently, about half of the global 50 largest tech companies are US-based, while a mere four are from Europe.
The Innovation Deficit: A Critical Problem
This widening disparity stems from stronger efficiency gains in the US, fueled by breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly American. In the last fifty years, 241 US firms have grown into enterprises valued at over ten billion dollars, versus just 14 in the European continent.
This disparity raises a vital issue: As the competition for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Most analysts concede it is largely a two-horse race involving the US and China, with European nations starting at a clear disadvantage.
Root Causes of the Continent's Innovation Gap
A number of major reasons account for this technological divide.
- Venture Capital: The United States has a much more robust and agile network for funding startups. Europe still lacks a genuine capital markets union, which limits the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A US startup can launch a service under one regulatory framework to access a market of over 330 million. The EU, despite a larger population, is split among twenty-seven separate systems, creating significant market obstacles.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, a startup's collapse was once viewed with stigma, whereas in the United States, it is often seen as a badge of experience.
- Military Investment: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
Despite these hurdles, there are reasons for optimism. European leaders are increasingly aware of the existential challenge and have started to advance substantial change. Notable analyses on European competitiveness and the internal market point to the need for sweeping changes.
With the right policies and regulatory reforms, these assets might enable much higher levels of commercial innovation.
Europe retains considerable advantages: skilled human capital, excellent schools and universities, and world-class labs. Coupled with a large internal market and substantial household savings, these elements could trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in developing next-generation technologies, it can still dramatically boost productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
Europe now stands at a decisive crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's technological decline has been steady. However, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible loss of world influence.
