🔗 Share this article

The recent US security policy document presents a flawed assessment of the European Union. The document asserts that open-border policies and so-called "woke" policies represent an existential risk to European civilization. Yet, this perspective rests on a serious misinterpretation of the reality. The actual danger facing the EU is not cultural but economic and technological lag.

A Glaring Growth Gap Between the US and Europe

The data paint a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, compared to a mere 13.5% growth for the European Union. During this time, EU GDP per capita fell from 76.5% to just half of the American figure. Remarkably, even Mississippi now boasts a higher per capita income than major EU nations like Italy and France.

Currently, roughly half of the world’s top fifty technology firms are US-based, while only four are European.

The Technological Shortfall: The Core Question

The growing economic gap stems from stronger productivity growth in the US, fueled by breakthroughs and better use of resources. The scene of world technology leadership is decidedly US-centric. In the last five decades, 241 US firms have grown into companies valued at more than ten billion dollars, versus just 14 in the European continent.

This gap raises a pressing question: In the race for tomorrow's sectors like AI, semiconductors, and quantum computing, what is Europe positioned? Experts widely agree it is essentially a two-horse race involving the US and China, with European nations entering at a significant disadvantage.

Root Causes of the Continent's Technological Lag

A number of key factors explain this technological divide.

• Venture Capital: The US boasts a much more robust and more dynamic system for financing new ventures. Europe still lacks a true capital markets union, a factor that limits the growth potential of emerging companies.
• Bureaucratic Hurdles: Complex and divided regulation hinder European business. A American entrepreneur can introduce a product under one regulatory framework to access a consumer base of over 330 million. The European Union, despite a bigger population size, is divided among twenty-seven different national systems, creating huge market obstacles.
• Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, business failure was once met with stigma, whereas in the US, 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 eroded its ability in breakthrough innovation.

A Path Forward: Reasons for Hopefulness

In spite of these hurdles, one can find reasons for hope. European leaders are increasingly aware of the existential challenge and have started to propose serious reform. Key reports on EU competitiveness and the internal market highlight the need for sweeping reforms.

Given appropriate incentives and regulatory reforms, Europe's strengths could support much higher degrees of commercial innovation.

Europe still possesses considerable advantages: skilled human capital, top-tier education systems, and world-class labs. Alongside a large internal market and high savings rates, these foundations could trigger a surge of investment and entrepreneurship.

Importantly, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly increase productivity by adopting and adapting innovations from other regions.

An Inflection Point

The European Union now faces 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. However, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of global economic relevance.