🔗 Share this article

The recent US security policy document presents a flawed view of Europe. The document asserts that unrestrained immigration and what it terms "progressive" policies pose an grave threat to European civilization. Yet, this argument is based on a serious misreading of the reality. The true danger facing Europe is not societal but economic and technological backwardness.

A Glaring Economic Divide Separating Europe and the US

The data reveal a stark contrast. From 2008 and 2023, American economic output surged by 87%, compared to a mere thirteen and a half percent growth for the EU. During this time, European income per person fell from 76.5% to just 50% of the American figure. Strikingly, even the poorest US state now has a higher per capita 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 Innovation Shortfall: The Core Problem

This widening economic gap is driven by stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly American. In the last fifty years, 241 US firms have scaled into companies valued at more than $10bn, versus only fourteen in the European continent.

This disparity raises a pressing issue: In the race for future industries like semiconductors, AI, and fusion energy, where does Europe stand? Experts widely agree it is largely a two-horse race involving the US and China, with Europe starting at a significant disadvantage.

Root Causes of Europe's Technological Lag

Several major reasons account for this innovation chasm.

• Venture Capital: The United States has a far deeper and agile system for funding startups. Europe has yet to establish a true unified investment market, which caps the growth potential of emerging companies.
• Bureaucratic Hurdles: Complex and divided rules hinder Europe. A US startup can launch a service under a single regulatory framework to access a consumer base of over 330 million. The European Union, despite a bigger population, is split among twenty-seven separate regimes, creating huge market obstacles.
• Cultural Attitudes: Views on entrepreneurial failure differ sharply. In parts of Europe, business failure was historically met with stigma, whereas in the United States, 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 defense has eroded its capacity for pioneering research.

A Path Forward: Grounds for Hopefulness

In spite of these challenges, there are causes for hope. European leaders are growing more conscious of the existential challenge and have begun to propose substantial change. Key analyses on European competitiveness and the single market highlight the need for major changes.

With the right incentives and regulatory reforms, these assets could support far greater levels of business-led breakthroughs.

Europe retains considerable strengths: skilled human capital, excellent schools and universities, and premier research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements could unleash a surge of venture creation.

Importantly, even if Europe does not take the lead in creating cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring advancements from other regions.

An Inflection Point

Europe now stands at a critical crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, the continent's technological decline has been steady. But, without bold steps to address its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.