Donald Trump's security policy document presents a misguided assessment of the European Union. It claims that open-border policies and what it terms "progressive" agendas pose an existential threat to European civilization. However, this perspective is based on a serious misinterpretation of the reality. The true danger confronting the EU is not cultural but technological and economic backwardness.
A Glaring Growth Gap Between the US and Europe
Statistics reveal a stark contrast. From 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent increase for the EU. During this period, European income per person 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 major European economies like France and Italy.
Today, about half of the world’s 50 largest technology firms are US-based, while only four are from Europe.
The Technological Deficit: The Core Problem
This widening disparity is driven by superior productivity growth in the United States, largely due to breakthroughs and higher total factor productivity. The scene of world technology leadership is overwhelmingly American. In the last fifty years, hundreds of American startups have scaled into enterprises valued at over ten billion dollars, versus just 14 in Europe.
This disparity prompts a pressing issue: As the competition for future industries like AI, semiconductors, and quantum computing, where does Europe stand? Most analysts concede it is largely a contest between two involving the US and China, with European nations entering at a significant disadvantage.
Root Causes of the Continent's Technological Lag
Several major reasons explain this innovation chasm.
- Financing Ecosystem: The United States has a far deeper and more dynamic network for funding startups. Europe has yet to establish a true capital markets union, a factor that caps the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A American entrepreneur can launch a product under a single regulatory framework to access a market of over 330 million. The European Union, despite a bigger population, is split among twenty-seven separate regimes, creating huge market obstacles.
- Mindset Differences: Views on entrepreneurial failure differ sharply. In parts of Europe, business failure was historically met with penalties, whereas in the United States, it is often considered 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 ability in breakthrough innovation.
A Path Forward: Grounds for Cautious Optimism
In spite of these challenges, one can find reasons for hope. Policymakers are increasingly aware of the existential challenge and have begun to propose substantial change. Notable analyses on EU competitiveness and the single market highlight the necessity of sweeping reforms.
Given appropriate incentives and rule changes, these assets could support far greater levels of business-led breakthroughs.
Europe retains considerable advantages: skilled workforce, excellent schools and universities, and world-class research institutions. Alongside a large internal market and high savings rates, these elements could trigger a new wave of investment and entrepreneurship.
Importantly, even if Europe does not become the leader in creating cutting-edge technologies, it can still dramatically increase economic output by implementing and tailoring innovations from other regions.
A Critical Juncture
The European Union now faces a critical moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, Europe's slide in innovation has been steady. But, without bold steps to tackle its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of global economic relevance.
