🔗 Share this article

Donald Trump's national security strategy presents a misguided view of Europe. The document asserts that open-border policies and what it terms "woke" policies pose an grave risk to the continent's identity. Yet, this perspective rests on a serious misinterpretation of the situation. The actual challenge confronting the EU is not cultural but technological and economic backwardness.

The Stark Growth Divide Between the US and Europe

Statistics paint a sobering picture. From 2008 and 2023, US GDP surged by eighty-seven percent, while a paltry thirteen and a half percent growth for the European Union. During this time, European income per person fell from over three-quarters to just half of the US level. Strikingly, even the poorest US state now boasts a greater average income than major European economies like France and Italy.

Today, roughly 50% of the global 50 largest tech companies are American, while a mere four are European.

The Technological Shortfall: 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 global tech leadership is overwhelmingly US-centric. Over the past five decades, hundreds of American startups have scaled into companies valued at more than $10bn, versus just 14 in the European continent.

This disparity raises a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, where does the EU positioned? Experts widely agree it is largely a contest between two involving the US and China, with Europe starting at a clear handicap.

Underlying Factors of Europe's Innovation Gap

A number of key factors explain this innovation chasm.

• Venture Capital: The US boasts a far deeper and more dynamic network for funding startups. Europe has yet to establish a true capital markets union, which limits the scale of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A American entrepreneur can launch a service under a single regulatory framework to access a consumer base of hundreds of millions. The EU, despite a larger population, is divided among 27 separate regimes, creating significant internal barriers.
• Mindset Differences: Views on entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was historically met with penalties, whereas in the US, it is often considered a badge of experience.
• Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in defense has eroded its capacity for breakthrough innovation.

A Path Forward: Reasons for Cautious Optimism

Despite these challenges, one can find reasons for hope. European leaders are growing more conscious of the existential challenge and have started to propose serious reform. Notable analyses on European competitiveness and the internal market point to the need for sweeping reforms.

With the right policies and regulatory reforms, Europe's strengths could support far greater degrees of commercial innovation.

The continent still possesses considerable strengths: high-quality workforce, excellent schools and universities, and world-class labs. Coupled with a large internal market and high savings rates, these elements have the potential to trigger a new wave of venture creation.

Importantly, even if Europe does not take the lead in creating cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring innovations from elsewhere.

An Inflection Point

The European Union now faces a decisive moment. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. But, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible loss of global economic relevance.