Donald Trump's security policy document presents a misguided view of Europe. It claims that open-border policies and what it terms "woke" policies represent an existential risk to European civilization. Yet, this perspective is based on a fundamental misreading of the situation. The true danger facing the EU is not cultural but economic and technological backwardness.
A Glaring Growth Gap Separating the US and Europe
The data reveal a stark picture. Between 2008 and 2023, American economic output surged by eighty-seven percent, while a mere thirteen and a half percent growth for the European Union. During this time, European income per person fell from over three-quarters to just 50% of the US level. Remarkably, even Mississippi now boasts a greater average income than several leading EU nations like Italy and France.
Today, roughly 50% of the world’s 50 largest technology firms are US-based, while a mere four are European.
The Innovation Deficit: The Core Problem
This widening disparity stems from superior productivity growth in the US, largely due to technological innovation and higher total factor productivity. The landscape of world technology dominance is overwhelmingly US-centric. In the last five decades, hundreds of American startups have scaled into companies valued at over $10bn, versus just 14 in the European continent.
This gap raises a vital question: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, where does Europe positioned? Most analysts concede it is largely a contest between two between the United States and China, with Europe starting at a significant disadvantage.
Root Causes of the Continent's Innovation Gap
Several key reasons explain this innovation chasm.
- Financing Ecosystem: The US boasts a much more robust and more dynamic network for funding startups. Europe has yet to establish a genuine capital markets union, which caps the scale of new firms.
- Bureaucratic Hurdles: Excessive and fragmented regulation hamper Europe. A American entrepreneur can launch a product under one set of laws to access a market of hundreds of millions. The EU, despite a bigger population size, is divided among 27 different national systems, creating huge internal barriers.
- Cultural Attitudes: 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 seen as a badge of experience.
- Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
In spite of these hurdles, one can find reasons for optimism. European leaders are increasingly aware of the severe threat and have begun to advance substantial change. Notable reports on EU competitiveness and the internal market point to the need for sweeping changes.
Given appropriate incentives and regulatory reforms, Europe's strengths could support much higher levels of business-led breakthroughs.
Europe still possesses considerable advantages: skilled human capital, top-tier schools and universities, and world-class labs. Alongside a large internal market and high savings rates, these elements have the potential to trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in developing cutting-edge technologies, it can still dramatically increase economic output by implementing and tailoring innovations from other regions.
An Inflection Point
The European Union now stands at a critical moment. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, Europe's slide in innovation has been gradual. But, if it fails to take bold steps to address its deep-seated problems, today's slow erosion could turn into a rapid and permanent decline in world influence.
