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The recent US national security strategy presents a misguided assessment of Europe. The document asserts that open-border policies and so-called "woke" policies pose an grave risk to European civilization. Yet, this perspective rests on a fundamental misinterpretation of the situation. The true danger facing Europe is not societal but economic and technological lag.

A Glaring Growth Divide Between Europe and the US

Statistics paint a sobering contrast. Between 2008 and 2023, American economic output grew by 87%, compared to a mere 13.5% growth for the European Union. During this period, European income per person dropped from over three-quarters to just half of the American figure. Strikingly, even the poorest US state now has a higher per capita income than several leading European economies like France and Italy.

Currently, roughly 50% of the global 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 stronger productivity growth in the United States, largely due to technological innovation and higher total factor productivity. The landscape of global tech dominance is overwhelmingly American. In the last fifty years, 241 US firms have grown into enterprises valued at more than $10bn, versus only fourteen in the European continent.

This gap prompts a vital issue: As the competition for future industries like AI, semiconductors, and fusion energy, what is Europe positioned? Experts widely concede it is largely a two-horse race involving the United States and China, with European nations starting at a significant handicap.

Root Causes of the Continent's Technological Lag

A number of key factors account for this innovation chasm.

• Venture Capital: The US boasts a much more robust and more dynamic system for funding startups. Europe has yet to establish a genuine unified investment market, which limits the scale of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A American entrepreneur can introduce a service under a single regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is split among 27 separate regimes, creating significant market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, business failure was historically viewed with stigma, whereas in the United States, it is often seen as a badge of experience.
• Military Investment: The US benefits from a deeply integrated 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 Cautious Optimism

Despite these challenges, there are causes for optimism. Policymakers are growing more conscious of the existential challenge and have started to propose substantial change. Key reports on EU competitiveness and the single market highlight the need for sweeping changes.

Given appropriate incentives and rule changes, these assets might enable far greater levels of business-led breakthroughs.

Europe retains considerable strengths: skilled workforce, excellent schools and universities, and world-class labs. Coupled with a vast domestic consumer base and substantial household savings, these elements have the potential to trigger a surge of investment and entrepreneurship.

Importantly, even if Europe does not become the leader in creating next-generation tech, it can still significantly boost productivity by adopting and adapting innovations from other regions.

An Inflection Point

The European Union now faces a critical crossroads. As the saying goes, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. But, if it fails to take bold steps to address its structural weaknesses, today's slow erosion could turn into a rapid and permanent loss of world influence.