Donald Trump's security policy document presents a misguided assessment of the European Union. It claims that open-border policies and so-called "progressive" policies pose an existential risk to the continent's identity. Yet, this argument rests on a fundamental misreading of the reality. The actual danger facing the EU is not cultural but economic and technological lag.
A Glaring Growth Divide Between the US and Europe
The data paint a sobering picture. From 2008 and 2023, American economic output grew by 87%, compared to a mere thirteen and a half percent growth for the EU. Over this period, European income per person dropped from over three-quarters to just half of the American figure. Remarkably, even the poorest US state now boasts a greater average income than several leading EU nations like France and Italy.
Currently, roughly 50% of the global 50 largest technology firms are US-based, while only four are European.
The Technological Deficit: A Critical Question
This widening economic gap stems from superior productivity growth in the United States, largely due to breakthroughs and higher total factor productivity. The scene of world technology leadership is decidedly American. Over the past fifty years, 241 US firms have scaled into enterprises valued at more than ten billion dollars, versus only fourteen in Europe.
This disparity prompts a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe stand? Most analysts agree it is largely a contest between two between the US and China, with European nations starting at a significant disadvantage.
Underlying Factors of the Continent's Technological Lag
A number of major factors account for this technological divide.
- Financing Ecosystem: The United States has a far deeper and agile system for financing new ventures. Europe has yet to establish a true capital markets union, which caps the growth potential of emerging companies.
- Regulatory Fragmentation: Complex and divided regulation hinder European business. A American entrepreneur can introduce a service under one regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is split among twenty-seven different national regimes, creating huge internal barriers.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was historically viewed with stigma, whereas in the US, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its ability in breakthrough innovation.
The Road Ahead: Reasons for Cautious Optimism
Despite these hurdles, one can find reasons for optimism. Policymakers are growing more conscious of the severe threat and have started to propose substantial change. Notable analyses on EU competitiveness and the internal market highlight the need for major reforms.
Given appropriate incentives and rule changes, these assets could support much higher levels of commercial innovation.
Europe still possesses considerable strengths: skilled human capital, excellent schools and universities, and world-class research institutions. Alongside a large internal market and high savings rates, these elements have the potential to trigger a new wave of venture creation.
Importantly, even if Europe does not become the leader in creating next-generation technologies, it can still significantly increase economic output by implementing and tailoring innovations from elsewhere.
A Critical Juncture
The European Union now faces a decisive moment. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's technological decline has been steady. However, if it fails to take bold steps to address its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.
