🔗 Share this article

The recent US security policy document presents a misguided assessment of Europe. It claims that unrestrained immigration and what it terms "progressive" agendas pose an existential risk to the continent's identity. However, this argument rests on a fundamental misinterpretation of the situation. The actual danger facing the EU is not cultural but economic and technological lag.

A Glaring Growth Gap Separating Europe and the US

Statistics reveal a sobering contrast. Between 2008 and 2023, American economic output surged by 87%, while a paltry 13.5% growth for the EU. During this period, European income per person fell from over three-quarters to just 50% of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading EU nations like France and Italy.

Today, roughly half of the world’s 50 largest tech companies are US-based, while only four are from Europe.

The Innovation Shortfall: A Critical Question

The growing economic gap stems from stronger productivity growth in the United States, fueled by technological innovation and better use of resources. The scene of global tech leadership is decidedly American. Over the past five decades, 241 US firms have scaled into enterprises valued at over $10bn, compared with only fourteen in Europe.

This gap prompts a pressing question: As the competition for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Most analysts concede it is essentially a two-horse race between the US and China, with European nations starting at a clear disadvantage.

Root Causes of Europe's Innovation Gap

Several key reasons explain this innovation chasm.

• Venture Capital: The US boasts a much more robust and more dynamic network for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that caps the scale of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hamper European business. A American entrepreneur can launch a service under a single regulatory framework to access a market of over 330 million. The EU, despite a bigger population size, is divided among 27 separate regimes, creating significant market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once met with stigma, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in military capabilities has weakened its ability in pioneering research.

A Path Forward: Reasons for Hopefulness

Despite these challenges, there are reasons for hope. European leaders are growing more conscious of the existential challenge and have begun 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, these assets could support much higher degrees of commercial innovation.

The continent still possesses considerable strengths: skilled human capital, excellent schools and universities, and premier labs. Coupled with a large internal market and substantial household savings, these elements have the potential to unleash a new wave of venture creation.

Crucially, even if Europe does not become the leader in creating next-generation technologies, it can still significantly increase economic output by adopting and adapting advancements from elsewhere.

A Critical Juncture

Europe now faces a decisive moment. As the saying goes, decline often happens "slowly, then all at once". So far, Europe's slide in innovation has been gradual. However, if it fails to take bold steps to address its structural weaknesses, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.