Donald Trump's security policy document presents a misguided assessment of Europe. The document asserts that open-border policies and what it terms "progressive" policies represent an grave threat to the continent's identity. Yet, this argument is based on a serious misreading of the situation. The actual challenge facing Europe is not societal but economic and technological lag.
A Glaring Economic Gap Between the US and Europe
The data paint a stark contrast. From 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent increase for the European Union. Over this time, European income per person dropped from over three-quarters to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than major European economies like France and Italy.
Currently, about half of the world’s top fifty tech companies are US-based, while only four are from Europe.
The Innovation Shortfall: A Critical Question
The growing disparity stems from stronger productivity growth in the US, largely due to technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last five decades, hundreds of American startups have grown into companies valued at more than ten billion dollars, compared with just 14 in Europe.
This gap raises a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely concede it is essentially a contest between two between the US and China, with Europe starting at a clear disadvantage.
Underlying Factors of the Continent's Innovation Gap
A number of major reasons account for this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for financing new ventures. Europe still lacks a genuine capital markets union, which limits the scale of new firms.
- Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A American entrepreneur can launch a product under a single set of laws to access a market of hundreds of millions. The European Union, despite a bigger population, is split among twenty-seven separate systems, creating huge internal barriers.
- Cultural Attitudes: Attitudes toward risk-taking differ sharply. In some EU nations, business failure was historically met with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.
A Path Forward: Grounds for Cautious Optimism
In spite of these challenges, there are reasons for hope. European leaders are growing more conscious of the existential challenge and have started to propose substantial change. Key analyses on European competitiveness and the single market point to the need for major changes.
Given appropriate incentives and regulatory reforms, Europe's strengths could support far greater degrees of commercial innovation.
Europe retains significant strengths: skilled human capital, top-tier schools and universities, and world-class labs. Alongside a vast domestic consumer base and substantial household savings, these elements could trigger a surge of venture creation.
Importantly, even if Europe does not take the lead in creating cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now faces a critical crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, Europe's slide in innovation has been gradual. However, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of world influence.
