🔗 Share this article

The recent US national security strategy offers a misguided view of the European Union. The document asserts that open-border policies and so-called "woke" policies represent an existential threat to the continent's identity. Yet, this perspective is based on a serious misreading of the situation. The true challenge confronting the EU is not cultural but technological and economic backwardness.

The Stark Growth Divide Separating Europe and the US

The data reveal a sobering picture. Between 2008 and 2023, American economic output surged by 87%, compared to a mere thirteen and a half percent growth for the EU. Over this period, European income per person fell from over three-quarters to just half of the American figure. Strikingly, even Mississippi now boasts a higher per capita income than several leading European economies like France and Italy.

Today, roughly half of the world’s top fifty technology firms are American, while only four are European.

The Technological Deficit: A Critical Problem

This widening disparity is driven by stronger productivity growth in the United States, largely due to breakthroughs and better use of resources. The landscape of world technology leadership is overwhelmingly American. Over the past fifty years, 241 US firms have grown into companies valued at more than ten billion dollars, versus just 14 in Europe.

This gap raises a pressing question: In the race for future industries like semiconductors, AI, and fusion energy, what is the EU positioned? Experts widely concede it is essentially a two-horse race involving the US and China, with Europe starting at a significant disadvantage.

Underlying Factors of Europe's Innovation Gap

Several key factors explain this innovation chasm.

• Financing Ecosystem: The US boasts a far deeper and agile system for financing new ventures. Europe has yet to establish a genuine unified investment market, a factor that caps the growth potential of new firms.
• Bureaucratic Hurdles: Complex and divided rules hinder European business. A American entrepreneur can launch a service under one regulatory framework to access a consumer base of hundreds of millions. The EU, despite a bigger population size, is divided among twenty-seven separate systems, creating huge internal barriers.
• Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was once viewed with penalties, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The US benefits from a deeply integrated academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.

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 existential challenge and have begun to propose serious reform. Notable reports on EU competitiveness and the single market point to the need for sweeping reforms.

With the right incentives and regulatory reforms, Europe's strengths could support much higher degrees of business-led breakthroughs.

Europe still possesses significant advantages: skilled workforce, top-tier education systems, and world-class research institutions. Coupled with a vast domestic consumer base and high savings rates, these foundations have the potential to unleash a new wave of investment and entrepreneurship.

Importantly, even if the EU does not become the leader in creating next-generation technologies, it can still dramatically boost economic output by implementing and tailoring advancements from other regions.

An Inflection Point

The European Union now stands at a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, Europe's slide in innovation has been steady. However, without decisive action to address its structural weaknesses, today's gradual weakening could give way to a rapid and permanent loss of world influence.