Donald Trump's security policy document presents a misguided assessment of the European Union. It claims that open-border policies and so-called "woke" policies represent an existential risk to the continent's identity. Yet, this argument is based on a serious misinterpretation of the situation. The actual challenge facing the EU is not cultural but technological and economic backwardness.
A Glaring Economic Gap Between the US and Europe
The data paint a sobering contrast. From 2008 and 2023, US GDP surged by 87%, while a paltry thirteen and a half percent increase for the European Union. Over this period, European income per person fell from 76.5% to just 50% of the American figure. Strikingly, even Mississippi now has a greater average income than major EU nations like Italy and France.
Currently, roughly 50% of the world’s 50 largest technology firms are American, while only four are from Europe.
The Innovation Deficit: The Core Question
The growing disparity is driven by stronger productivity growth in the US, largely due to technological innovation and higher total factor productivity. The landscape of global tech dominance is decidedly American. In the last five decades, hundreds of American startups have grown into companies valued at over ten billion dollars, versus just 14 in Europe.
This gap prompts a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and fusion energy, what is the EU stand? Most analysts agree it is largely a two-horse race between the US and China, with Europe starting at a significant disadvantage.
Root Causes of Europe's Technological Lag
A number of key reasons explain this technological divide.
- Venture Capital: The United States has a much more robust and more dynamic network for funding startups. The EU still lacks a true capital markets union, which limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Complex and divided regulation hinder European business. A US startup can introduce a product under a single regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a bigger population size, is divided among 27 separate systems, creating huge market obstacles.
- Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in defense has eroded its capacity for breakthrough innovation.
A Path Forward: Reasons for Cautious Optimism
In spite of these hurdles, there are causes for hope. European leaders are increasingly aware of the severe threat and have begun to propose substantial change. Notable analyses on EU competitiveness and the internal market point to the necessity of major changes.
Given appropriate incentives and rule changes, these assets might enable much higher degrees of business-led breakthroughs.
Europe retains considerable strengths: high-quality workforce, top-tier schools and universities, and premier labs. Alongside a vast domestic consumer base and high savings rates, these elements could unleash a surge of venture creation.
Importantly, even if Europe does not become the leader in developing cutting-edge technologies, it can still significantly increase productivity by implementing and tailoring innovations from other regions.
An Inflection Point
The European Union now faces a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, Europe's technological decline has been gradual. But, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could give way to a sudden and irreversible decline in global economic relevance.
