The recent US national security strategy presents a misguided assessment of the European Union. The document asserts that open-border policies and so-called "progressive" agendas represent an grave threat to the continent's identity. However, this argument is based on a fundamental misreading of the situation. The actual danger confronting the EU is not societal but technological and economic lag.
The Stark Economic Gap Between the US and Europe
Statistics paint a sobering contrast. Between 2008 and 2023, American economic output surged by 87%, compared to a mere 13.5% growth for the EU. Over this time, European income per person fell from over three-quarters to just half of the American figure. Strikingly, even the poorest US state now boasts a greater average income than several leading European economies like France and Italy.
Currently, about half of the world’s 50 largest tech companies are American, while a mere four are European.
The Technological Deficit: A Critical Question
The growing economic gap stems from superior productivity growth in the US, fueled by technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have scaled into companies valued at over $10bn, compared with just 14 in Europe.
This disparity prompts a vital question: In the race for future industries like semiconductors, AI, and quantum computing, what is the EU stand? Experts widely concede it is largely a two-horse race involving the US and China, with Europe starting at a clear handicap.
Underlying Factors of the Continent's Technological Lag
Several key reasons account for this technological divide.
- Financing Ecosystem: The US boasts a much more robust and agile network for financing new ventures. The EU still lacks a genuine capital markets union, which caps the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A American entrepreneur can introduce a product under one regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a larger population size, is divided among 27 different national systems, creating huge market obstacles.
- Cultural Attitudes: Views on risk-taking vary greatly. In parts of Europe, business failure was once met with stigma, whereas in the US, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.
The Road Ahead: Reasons for Cautious Optimism
Despite these hurdles, one can find causes for hope. Policymakers are growing more conscious of the severe threat and have started to advance substantial change. Notable reports on European competitiveness and the internal market point to the need for major reforms.
Given appropriate policies and rule changes, these assets could support far greater levels of business-led breakthroughs.
The continent retains significant strengths: skilled workforce, top-tier schools and universities, and world-class research institutions. Coupled with a large internal market and substantial household savings, these foundations have the potential to unleash a new wave of venture creation.
Importantly, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly boost economic output by implementing and tailoring advancements from other regions.
An Inflection Point
The European Union now stands at a critical moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's technological decline has been gradual. But, without bold steps to address its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.
