Donald Trump's security policy document offers a flawed assessment of Europe. The document asserts that unrestrained immigration and so-called "woke" policies represent an existential threat to the continent's identity. However, this argument rests on a serious misreading of the situation. The true challenge confronting Europe is not societal but economic and technological backwardness.
A Glaring Economic Gap Between the US and Europe
Statistics paint a stark picture. Between 2008 and 2023, US GDP grew by 87%, compared to a paltry thirteen and a half percent growth for the EU. Over this period, European income per person fell from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now boasts a greater average income than major European economies like Italy and France.
Today, about half of the world’s 50 largest tech companies are American, while only four are from Europe.
The Technological Shortfall: A Critical Question
This widening disparity stems from stronger productivity growth in the United States, largely due to technological innovation and higher total factor productivity. The scene of world technology dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have grown into companies valued at more than ten billion dollars, compared with just 14 in Europe.
This disparity prompts a vital question: In the race for future industries like AI, semiconductors, and fusion energy, what is the EU stand? Most analysts concede it is essentially a two-horse race involving the United States and China, with Europe starting at a significant handicap.
Root Causes of Europe's Innovation Gap
Several major factors explain this technological divide.
- Venture Capital: The United States has a far deeper and agile system for financing new ventures. The EU still lacks a genuine unified investment market, a factor that limits the scale of emerging companies.
- Bureaucratic Hurdles: Complex and divided rules hinder Europe. A American entrepreneur can launch a service under one set of laws to access a consumer base of hundreds of millions. The EU, despite a larger population, is split among twenty-seven separate systems, creating huge internal barriers.
- Mindset Differences: Views on risk-taking vary greatly. In some EU nations, a startup's collapse was once met with penalties, whereas in the United States, it is often considered a valuable lesson.
- Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.
The Road Ahead: Grounds for Hopefulness
Despite these challenges, one can find causes for hope. European leaders are increasingly aware of the severe threat and have started to propose substantial change. Notable reports on European competitiveness and the single market point to the necessity of sweeping changes.
Given appropriate policies and rule changes, these assets could support much higher levels of commercial innovation.
Europe retains significant strengths: high-quality human capital, excellent schools and universities, and premier research institutions. Coupled with a large internal market and substantial household savings, these foundations could trigger a new wave of investment and entrepreneurship.
Importantly, even if the EU does not become the leader in creating cutting-edge technologies, it can still significantly increase economic output by adopting and adapting advancements from elsewhere.
An Inflection Point
The European Union now faces a critical moment. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's technological decline has been gradual. But, without bold steps to tackle its structural weaknesses, today's gradual weakening could turn into a rapid and permanent decline in global economic relevance.
