Donald Trump's security policy document offers a misguided assessment of Europe. The document asserts that open-border policies and what it terms "progressive" policies pose an grave risk to European civilization. Yet, this perspective rests on a fundamental misinterpretation of the situation. The true challenge confronting Europe is not cultural but economic and technological backwardness.
A Glaring Growth Divide Separating Europe and the US
The data paint a stark contrast. Between 2008 and 2023, US GDP grew by 87%, while a mere 13.5% growth for the European Union. Over this period, European income per person dropped from 76.5% to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than major European economies like France and Italy.
Today, roughly 50% of the world’s top fifty technology firms are US-based, while a mere four are European.
The Technological Deficit: The Core Problem
The growing disparity stems from superior productivity growth in the United States, fueled by breakthroughs and better use of resources. The scene of world technology leadership is overwhelmingly US-centric. Over the past fifty years, 241 US firms have grown into companies valued at over $10bn, compared with just 14 in Europe.
This disparity prompts a vital issue: As the competition for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Experts widely agree it is largely a contest between two between the US and China, with European nations starting at a significant disadvantage.
Root Causes of the Continent's Innovation Gap
Several key reasons explain this technological divide.
- Venture Capital: The US boasts a much more robust and agile network for financing new ventures. Europe has yet to establish a genuine capital markets union, which caps the growth potential of emerging companies.
- Bureaucratic Hurdles: Complex and divided regulation hamper Europe. A US startup can introduce a service under a single set of laws to access a market of over 330 million. The EU, despite a bigger population, is divided among 27 different national systems, creating huge market obstacles.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once viewed with penalties, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded its ability in pioneering research.
A Path Forward: Grounds for Cautious Optimism
Despite these hurdles, one can find reasons for hope. Policymakers are increasingly aware of the existential challenge and have begun to propose substantial change. Key analyses on EU competitiveness and the single market point to the need for major changes.
With the right policies and rule changes, these assets could support much higher levels of commercial innovation.
Europe retains considerable strengths: high-quality human capital, excellent schools and universities, and premier labs. Alongside a large internal market and high savings rates, these foundations could trigger a new wave of investment and entrepreneurship.
Importantly, even if the EU does not become the leader in creating cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now stands at a critical crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's technological decline has been steady. But, 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.
