Donald Trump's security policy document offers a flawed view of Europe. The document asserts that open-border policies and what it terms "progressive" policies pose an existential threat to European civilization. However, this argument rests on a serious misinterpretation of the situation. The true danger facing the EU is not societal but technological and economic backwardness.
A Glaring Growth Gap Separating Europe and the US
Statistics reveal a sobering contrast. From 2008 and 2023, US GDP grew by 87%, while a paltry 13.5% increase for the EU. During this time, EU GDP per capita dropped from over three-quarters to just half of the American figure. Remarkably, even the poorest US state now has a greater average income than major European economies like France and Italy.
Today, roughly 50% of the world’s 50 largest technology firms are US-based, while a mere four are European.
The Innovation Shortfall: The Core Question
This widening economic gap is driven by superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly US-centric. Over the past fifty years, 241 US firms have scaled into companies valued at over $10bn, compared with just 14 in the European continent.
This disparity raises a vital question: In the race for future industries like AI, semiconductors, and fusion energy, what is Europe positioned? Most analysts agree it is largely a contest between two involving the US and China, with European nations entering at a clear disadvantage.
Underlying Factors of the Continent's Innovation Gap
A number of major reasons account for this technological divide.
- Financing Ecosystem: The US boasts a far deeper and more dynamic system for funding startups. Europe still lacks a true capital markets union, a factor that limits the scale of new firms.
- Bureaucratic Hurdles: Complex and divided rules hamper European business. A American entrepreneur can launch a product under one regulatory framework to access a market of hundreds of millions. The European Union, despite a larger population size, is split among 27 different national regimes, creating significant internal barriers.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, business failure was historically viewed with stigma, whereas in the United States, it is often considered a valuable lesson.
- Military Investment: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's chronic underinvestment in defense has eroded its capacity for pioneering research.
The Road Ahead: Reasons for Cautious Optimism
In spite of these challenges, there are reasons for optimism. European leaders are increasingly aware of the severe threat and have started to propose serious reform. Key analyses on EU competitiveness and the internal market highlight the necessity of major changes.
With the right policies and rule changes, these assets could support much higher levels of business-led breakthroughs.
Europe still possesses considerable strengths: high-quality workforce, excellent schools and universities, and world-class research institutions. Alongside a vast domestic consumer base and substantial household savings, these foundations could trigger a surge of investment and entrepreneurship.
Crucially, even if Europe does not become the leader in developing cutting-edge tech, it can still dramatically increase productivity by adopting and adapting advancements from elsewhere.
A Critical Juncture
Europe now faces a critical moment. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, Europe's slide in innovation has been gradual. But, if it fails to take bold steps to address its deep-seated problems, today's gradual weakening could give way to a rapid and permanent loss of global economic relevance.
