Donald Trump's security policy document presents a misguided view of the European Union. It claims that open-border policies and so-called "progressive" policies pose an existential threat to European civilization. However, this argument rests on a serious misinterpretation of the situation. The true danger facing Europe is not societal but technological and economic lag.
A Glaring Growth Divide Separating the US and Europe
Statistics paint a sobering picture. From 2008 and 2023, US GDP grew by 87%, while a paltry 13.5% growth for the EU. 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 boasts a higher per capita income than several leading European economies like Italy and France.
Today, roughly 50% of the world’s 50 largest tech companies are American, while a mere four are from Europe.
The Technological Deficit: A Critical Problem
This widening disparity is driven by superior productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech dominance is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have grown into enterprises valued at more than $10bn, compared with just 14 in Europe.
This disparity raises a pressing issue: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, what is the EU stand? Most analysts agree it is essentially a two-horse race between the United States and China, with Europe entering at a significant handicap.
Root Causes of Europe's Technological Lag
Several major factors explain this technological divide.
- Financing Ecosystem: The US boasts a much more robust and more dynamic system for funding startups. Europe still lacks a true capital markets union, a factor that caps the scale of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hinder European business. A US startup can introduce a service under one set of laws to access a consumer base of hundreds of millions. The EU, despite a larger population size, is split among twenty-seven separate regimes, creating significant internal barriers.
- Mindset Differences: Attitudes toward risk-taking 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 badge of experience.
- Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its ability in pioneering research.
A Path Forward: Reasons for Cautious Optimism
In spite of these hurdles, one can find reasons for hope. European leaders are growing more conscious of the severe threat and have begun to advance serious reform. Key reports on EU competitiveness and the internal market point to the need for sweeping changes.
With the right incentives and rule changes, Europe's strengths could support much higher degrees of business-led breakthroughs.
Europe retains significant strengths: high-quality human capital, excellent schools and universities, and world-class research institutions. Alongside a vast domestic consumer base and substantial household savings, these foundations could unleash a surge of investment and entrepreneurship.
Crucially, even if the EU does not take the lead in developing next-generation tech, it can still dramatically increase economic output by adopting and adapting innovations from other regions.
A Critical Juncture
The European Union now faces a decisive crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been steady. But, without bold steps to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible loss of global economic relevance.
