Donald Trump's security policy document offers a misguided assessment of the European Union. The document asserts that open-border policies and what it terms "progressive" agendas pose an existential threat to European civilization. However, this argument rests on a serious misreading of the situation. The true danger confronting Europe is not societal but economic and technological backwardness.
A Glaring Economic Gap Between Europe and the US
Statistics reveal a sobering contrast. Between 2008 and 2023, American economic output surged by 87%, compared to a paltry 13.5% increase for the European Union. During this period, EU GDP per capita fell from over three-quarters to just 50% of the US level. Strikingly, even the poorest US state now has a greater average income than several leading EU nations like Italy and France.
Currently, about half of the world’s 50 largest technology firms are American, while a mere four are from Europe.
The Technological Deficit: The Core Question
This widening disparity is driven by superior efficiency gains in the United States, largely due to breakthroughs and higher total factor productivity. The landscape of global tech dominance is overwhelmingly US-centric. In the last fifty years, hundreds of American startups have scaled into companies valued at more than $10bn, compared with only fourteen in Europe.
This gap prompts a vital issue: In the race for future industries like AI, semiconductors, and fusion energy, where does Europe positioned? Most analysts agree it is essentially a contest between two involving the US and China, with European nations starting at a clear disadvantage.
Root Causes of Europe's Technological Lag
Several major factors explain this technological divide.
- Financing Ecosystem: The United States has a much more robust and agile system for financing new ventures. Europe has yet to establish a true capital markets union, a factor that limits the scale of emerging companies.
- Bureaucratic Hurdles: Complex and divided rules hinder European business. A US startup can launch a product under a single set of laws to access a consumer base of hundreds of millions. The EU, despite a larger population, is split among 27 separate systems, creating huge market obstacles.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In some EU nations, business failure was once viewed with stigma, whereas in the United States, it is often seen as a badge of experience.
- Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Reasons for Hopefulness
In spite of these challenges, there are causes for hope. Policymakers are growing more conscious of the existential challenge and have started to advance substantial change. Notable analyses on European competitiveness and the internal market point to the need for sweeping reforms.
With the right policies and regulatory reforms, these assets could support much higher degrees of commercial innovation.
Europe still possesses considerable advantages: skilled human capital, excellent education systems, and premier labs. Coupled with a vast domestic consumer base and high savings rates, these elements have the potential to unleash a new wave of venture creation.
Importantly, even if Europe does not become the leader in creating next-generation technologies, it can still dramatically boost productivity by implementing and tailoring innovations from other regions.
An Inflection Point
Europe now stands at a decisive moment. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, the continent's technological decline has been steady. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a rapid and permanent loss of global economic relevance.
