🔗 Share this article

The recent US security policy document offers a misguided assessment of Europe. It claims that open-border policies and so-called "woke" policies represent an existential threat to the continent's identity. However, this perspective is based on a fundamental misreading of the situation. The true challenge confronting Europe is not societal but economic and technological backwardness.

The Stark Economic Gap Between the US and Europe

The data reveal a sobering contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, compared to a paltry 13.5% growth for the European Union. During this period, EU GDP per capita fell from 76.5% to just half of the American figure. Remarkably, even Mississippi now boasts a greater average income than several leading EU nations like France and Italy.

Today, roughly half of the world’s top fifty technology firms are US-based, while a mere four are European.

The Innovation Shortfall: The Core Problem

The growing economic gap stems from superior productivity growth in the US, fueled by breakthroughs and better use of resources. The landscape of world technology dominance is decidedly American. Over the past five decades, 241 US firms have grown into companies valued at more than $10bn, versus just 14 in Europe.

This disparity prompts a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, where does the EU stand? Experts widely agree it is largely a contest between two involving the US and China, with European nations starting at a significant disadvantage.

Root Causes of the Continent's Innovation Gap

A number of key reasons explain this technological divide.

• Financing Ecosystem: The United States has a much more robust and more dynamic network for funding startups. Europe has yet to establish a true unified investment market, a factor that caps the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented regulation hamper Europe. A American entrepreneur can launch a product under a single regulatory framework to access a consumer base of over 330 million. The EU, despite a bigger population, is split among twenty-seven different national regimes, creating huge market obstacles.
• Mindset Differences: Views on 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 valuable lesson.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in military capabilities has eroded its ability in breakthrough innovation.

A Path Forward: Grounds for Cautious Optimism

Despite these hurdles, there are causes for optimism. Policymakers are increasingly aware of the existential challenge and have begun to advance serious reform. Notable reports on EU competitiveness and the single market point to the need for major reforms.

Given appropriate policies and regulatory reforms, Europe's strengths might enable far greater degrees of business-led breakthroughs.

Europe retains significant strengths: high-quality human capital, top-tier schools and universities, and world-class labs. Coupled with a vast domestic consumer base and high savings rates, these foundations could unleash a new wave of venture creation.

Crucially, even if Europe does not become the leader in creating next-generation technologies, it can still dramatically increase economic output by implementing and tailoring advancements from elsewhere.

A Critical Juncture

Europe now stands at a critical moment. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's slide in innovation has been steady. But, without bold steps to tackle its structural weaknesses, today's slow erosion could turn into a rapid and permanent decline in world influence.