Donald Trump's security policy document presents a flawed assessment of the European Union. The document asserts that open-border policies and so-called "progressive" policies represent an existential risk to European civilization. Yet, this argument rests on a serious misinterpretation of the situation. The actual danger confronting Europe is not societal but technological and economic lag.
The Stark Growth Divide Between the US and Europe
The data reveal a stark picture. From 2008 and 2023, American economic output surged by eighty-seven percent, compared to a mere thirteen and a half percent growth for the European Union. During this time, European income per person fell from over three-quarters to just 50% of the US level. Remarkably, even Mississippi now has a greater average income than several leading EU nations like Italy and France.
Currently, roughly half of the global 50 largest technology firms are US-based, while only four are European.
The Technological Deficit: The Core Question
The growing disparity is driven by stronger productivity growth in the US, fueled by breakthroughs and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have scaled into companies valued at over ten billion dollars, versus just 14 in Europe.
This disparity raises a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, where does Europe stand? Most analysts agree it is largely a contest between two involving the US and China, with Europe entering at a significant handicap.
Root Causes of Europe's Technological Lag
Several key reasons explain this innovation chasm.
- Venture Capital: The United States has a far deeper and agile system for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented rules hamper Europe. A US startup can launch a product under one set of laws to access a market of hundreds of millions. The European Union, despite a bigger population, is divided among twenty-seven separate regimes, creating huge market obstacles.
- Mindset Differences: Views on entrepreneurial failure differ sharply. In some EU nations, business failure was once viewed with penalties, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has weakened its capacity for breakthrough innovation.
A Path Forward: Grounds for Cautious Optimism
In spite of these challenges, there are causes for hope. Policymakers are growing more conscious of the severe threat and have begun to propose substantial change. Notable analyses on EU competitiveness and the single market point to the necessity of major changes.
Given appropriate incentives and regulatory reforms, Europe's strengths might enable much higher levels of commercial innovation.
Europe still possesses significant advantages: skilled human capital, excellent education systems, and world-class research institutions. Coupled with a vast domestic consumer base and substantial household savings, these elements have the potential to unleash a surge of investment and entrepreneurship.
Crucially, even if the EU does not become the leader in developing next-generation technologies, it can still dramatically boost productivity by implementing and tailoring innovations from elsewhere.
A Critical Juncture
Europe now faces a decisive moment. As the saying goes, economic erosion often happens "slowly, then all at once". So far, Europe's slide in innovation has been gradual. However, without bold steps to tackle its structural weaknesses, today's slow erosion could turn into a rapid and permanent decline in global economic relevance.
