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The recent US security policy document presents a misguided assessment of the European Union. The document asserts that open-border policies and so-called "woke" agendas represent an grave risk to the continent's identity. Yet, this argument rests on a serious misreading of the situation. The true challenge confronting Europe is not societal but technological and economic backwardness.

The Stark Growth Divide Between the US and Europe

The data paint a stark contrast. From 2008 and 2023, American economic output grew by eighty-seven percent, while a paltry thirteen and a half percent growth for the European Union. Over this period, EU GDP per capita fell from over three-quarters to just half of the US level. Remarkably, even the poorest US state now boasts a higher per capita income than several leading European economies like France and Italy.

Today, roughly half of the global 50 largest technology firms are US-based, while a mere four are European.

The Technological Shortfall: A Critical Problem

This widening disparity is driven by superior productivity growth in the United States, largely due to breakthroughs and higher total factor productivity. The scene of world technology leadership is decidedly American. Over the past fifty years, 241 US firms have grown into companies valued at more than $10bn, compared with just 14 in Europe.

This disparity prompts a vital question: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, where does Europe stand? Experts widely agree it is essentially a contest between two involving the United States and China, with Europe entering at a significant handicap.

Underlying Factors of Europe's Technological Lag

A number of major factors account for this innovation chasm.

• Venture Capital: The US boasts a far deeper and agile network for financing new ventures. Europe has yet to establish a genuine capital markets union, which caps the growth potential of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A American entrepreneur can launch a product under one regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is split among 27 different national regimes, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward risk-taking differ sharply. In some EU nations, business failure was once met with penalties, whereas in the United States, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has weakened its ability in pioneering research.

A Path Forward: Reasons for Hopefulness

In spite of these challenges, one can find reasons for optimism. European leaders are increasingly aware of the severe threat and have begun to propose serious reform. Key analyses on EU competitiveness and the single market highlight the necessity of sweeping changes.

With the right policies and regulatory reforms, Europe's strengths might enable far greater levels of business-led breakthroughs.

Europe retains considerable advantages: skilled human capital, excellent education systems, and world-class research institutions. Alongside a vast domestic consumer base and substantial household savings, these foundations could trigger a new wave of venture creation.

Crucially, even if the EU does not become the leader in creating next-generation technologies, it can still dramatically increase productivity by adopting and adapting innovations from other regions.

A Critical Juncture

Europe now stands at a decisive crossroads. To paraphrase a famous line, economic erosion often happens "slowly, then all at once". So far, the continent's technological decline has been gradual. However, if it fails to take bold steps to tackle its structural weaknesses, today's slow erosion could give way to a rapid and permanent loss of world influence.