Donald Trump's security policy document presents a flawed assessment of Europe. It claims that open-border policies and what it terms "woke" policies pose an existential risk to European civilization. However, this perspective rests on a fundamental misreading of the reality. The actual danger facing Europe is not cultural but technological and economic backwardness.
A Glaring Growth Divide Between Europe and the US
The data reveal a sobering contrast. Between 2008 and 2023, US GDP surged by 87%, compared to a mere thirteen and a half percent increase for the EU. Over this period, EU GDP per capita dropped from over three-quarters to just 50% of the US level. Strikingly, even Mississippi now has a greater average income than several leading EU nations like Italy and France.
Today, roughly 50% of the world’s 50 largest tech companies are US-based, while only four are European.
The Innovation Deficit: The Core Question
This widening disparity stems from stronger efficiency gains in the United States, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is decidedly American. Over the past five decades, 241 US firms have scaled into companies valued at over $10bn, versus just 14 in the European continent.
This disparity prompts a pressing question: As the competition for future industries like AI, semiconductors, and fusion energy, where does the EU stand? Most analysts concede it is essentially a contest between two between the United States and China, with European nations starting at a clear handicap.
Root Causes of Europe's Innovation Gap
Several major factors account for this technological divide.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that caps the growth potential of new firms.
- Regulatory Fragmentation: Complex and divided regulation hinder Europe. A American entrepreneur can launch a product 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 huge internal barriers.
- Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse 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 innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has weakened its capacity for pioneering research.
The Road Ahead: Reasons for Hopefulness
Despite these hurdles, there are causes for optimism. European leaders are increasingly aware of the severe threat and have begun to propose substantial change. Notable reports on European competitiveness and the internal market highlight the necessity of major reforms.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable far greater degrees of business-led breakthroughs.
Europe still possesses considerable strengths: skilled workforce, top-tier schools and universities, and world-class research institutions. Alongside a large internal market and high savings rates, these elements could unleash a new wave of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in developing cutting-edge tech, it can still significantly boost productivity by implementing and tailoring innovations from elsewhere.
An Inflection Point
Europe now stands at a decisive crossroads. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, the continent's technological decline has been gradual. However, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.
