Donald Trump's security policy document offers a flawed view of Europe. It claims that open-border policies and so-called "woke" policies represent an existential risk to the continent's identity. Yet, this argument rests on a serious misreading of the reality. The actual danger facing Europe is not cultural but technological and economic lag.
A Glaring Growth Divide Between Europe and the US
The data paint a sobering picture. From 2008 and 2023, American economic output surged by eighty-seven percent, while a mere 13.5% growth for the European Union. Over this time, EU GDP per capita fell from over three-quarters to just 50% of the US level. 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 US-based, while only four are European.
The Innovation Shortfall: A Critical Question
The growing economic gap stems from stronger productivity growth in the US, largely due to technological innovation and higher total factor productivity. The scene of world technology leadership is overwhelmingly US-centric. In the last five decades, 241 US firms have scaled into companies valued at over ten billion dollars, compared with just 14 in Europe.
This gap raises a pressing issue: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, where does Europe positioned? Experts widely agree it is essentially a contest between two between the US and China, with European nations starting at a significant handicap.
Underlying Factors of Europe's Innovation Gap
Several key factors account for this technological divide.
- Venture Capital: The US boasts a far deeper and agile system for funding startups. Europe still lacks a true capital markets union, a factor that limits the scale of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A American entrepreneur can introduce a service under one regulatory framework to access a market of hundreds of millions. The EU, despite a bigger population size, is split among 27 separate systems, creating significant internal barriers.
- Mindset Differences: Attitudes toward risk-taking differ sharply. In some EU nations, a startup's collapse was historically viewed with penalties, whereas in the United States, it is often considered a badge of experience.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.
A Path Forward: Reasons for Cautious Optimism
In spite of these hurdles, there are reasons for hope. Policymakers are growing more conscious of the severe threat and have started to advance serious reform. Key reports on EU competitiveness and the single market point to the necessity of major reforms.
With the right policies and regulatory reforms, Europe's strengths could support much higher levels of commercial innovation.
Europe still possesses considerable strengths: high-quality human capital, excellent schools and universities, and world-class labs. Alongside a large internal market and high savings rates, these foundations could unleash a new wave of investment and entrepreneurship.
Importantly, even if the EU does not become the leader in developing cutting-edge technologies, it can still dramatically boost economic output by adopting and adapting advancements from other regions.
An Inflection Point
Europe now faces a decisive crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, the continent's technological decline has been steady. However, if it fails to take decisive action to tackle its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible decline in world influence.
