Donald Trump's security policy document presents a misguided view of the European Union. The document asserts that open-border policies and so-called "progressive" agendas represent an grave risk to the continent's identity. However, this argument is based on a serious misreading of the reality. The actual danger facing Europe is not cultural but economic and technological lag.
The Stark Economic Divide Separating the US and Europe
Statistics reveal a sobering picture. From 2008 and 2023, American economic output grew by eighty-seven percent, while a mere thirteen and a half percent increase for the EU. During this time, EU GDP per capita dropped from over three-quarters to just half of the US level. Strikingly, even the poorest US state now has a greater average income than several leading European economies like France and Italy.
Today, roughly half of the global 50 largest technology firms are American, while only four are European.
The Technological Deficit: The Core Problem
This widening disparity stems from stronger efficiency gains in the US, largely due to breakthroughs and higher total factor productivity. The landscape of global tech leadership is decidedly American. In the last fifty years, hundreds of American startups have grown into enterprises valued at more than $10bn, compared with just 14 in Europe.
This gap prompts a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Most analysts agree it is essentially a contest between two involving the United States and China, with Europe entering at a significant disadvantage.
Underlying Factors of the Continent's Technological Lag
A number of major factors explain this technological divide.
- Venture Capital: The United States has a much more robust and agile system for financing new ventures. The EU still lacks a true capital markets union, a factor that caps the growth potential of new firms.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A US startup can introduce a product under one set of laws to access a market of hundreds of millions. The European Union, despite a larger population size, is divided among twenty-seven different national regimes, creating huge market obstacles.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was once met with stigma, whereas in the US, it is often considered a badge of experience.
- Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.
The Road Ahead: Grounds for Cautious Optimism
Despite these challenges, one can find causes for hope. European leaders are growing more conscious of the severe threat and have started to propose substantial change. Notable reports on European competitiveness and the internal market highlight the need for sweeping changes.
Given appropriate incentives and rule changes, Europe's strengths might enable far greater degrees of business-led breakthroughs.
The continent still possesses considerable strengths: skilled workforce, top-tier schools and universities, and world-class research institutions. Alongside a large internal market and high savings rates, these foundations have the potential to unleash a surge of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in developing cutting-edge tech, it can still significantly boost productivity by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now faces a critical moment. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. But, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.
