Donald Trump's security policy document offers a misguided view of the European Union. The document asserts that open-border policies and so-called "woke" policies pose an existential risk to European civilization. Yet, this argument is based on a fundamental misreading of the situation. The actual challenge confronting the EU is not cultural but economic and technological backwardness.
The Stark Economic Gap Separating the US and Europe
The data paint a stark picture. From 2008 and 2023, American economic output grew by eighty-seven percent, compared to a paltry 13.5% increase for the European Union. During this period, European income per person fell from over three-quarters to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than several leading EU nations like Italy and France.
Currently, about half of the world’s top fifty tech companies are American, while only four are European.
The Innovation Deficit: A Critical Question
The growing economic gap stems from superior productivity growth in the United States, fueled by 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 grown into companies valued at over $10bn, compared with only fourteen in Europe.
This disparity raises a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Experts widely concede it is largely a two-horse race between the US and China, with Europe entering at a clear disadvantage.
Underlying Factors of Europe's Technological Lag
A number of key reasons explain this technological divide.
- Financing Ecosystem: The US boasts a far deeper and more dynamic system for funding startups. Europe has yet to establish a genuine capital markets union, which caps the growth potential of new firms.
- Regulatory Fragmentation: Complex and divided rules hinder Europe. A US startup can launch a product under one regulatory framework to access a market of hundreds of millions. The EU, despite a bigger population size, is split among twenty-seven separate regimes, creating huge internal barriers.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was historically viewed with penalties, whereas in the US, it is often considered a valuable lesson.
- Military Investment: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Grounds for Cautious Optimism
In spite of these challenges, there are causes for hope. European leaders are growing more conscious of the existential challenge and have begun to propose substantial change. Notable analyses on European competitiveness and the single market point to the necessity of major changes.
With the right policies and rule changes, Europe's strengths might enable much higher levels of commercial innovation.
Europe still possesses significant advantages: skilled workforce, excellent education systems, and world-class research institutions. Coupled with a vast domestic consumer base and substantial household savings, these elements could trigger a new wave of venture creation.
Importantly, even if Europe does not take the lead in developing cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring advancements from elsewhere.
An Inflection Point
The European Union now stands at a decisive crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. But, without decisive action to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of world influence.
