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The recent US national security strategy offers a flawed assessment of Europe. It claims that open-border policies and what it terms "progressive" agendas pose an grave risk to European civilization. However, this argument rests on a serious misinterpretation of the situation. The true challenge confronting Europe is not societal but economic and technological backwardness.

The Stark Growth Gap Separating Europe and the US

Statistics paint a sobering contrast. Between 2008 and 2023, US GDP surged by eighty-seven percent, while a paltry thirteen and a half percent increase for the EU. During this period, European income per person fell from over three-quarters to just half of the US level. Strikingly, even the poorest US state now boasts a higher per capita income than several leading EU nations like Italy and France.

Today, roughly 50% of the global 50 largest technology firms are US-based, while a mere four are from Europe.

The Innovation Deficit: A Critical Question

The growing economic gap stems from superior productivity growth in the US, fueled by breakthroughs and higher total factor productivity. The scene of world technology leadership is overwhelmingly American. Over the past fifty years, hundreds of American startups have grown into companies valued at over $10bn, versus only fourteen in Europe.

This disparity prompts a vital issue: In the race for future industries like AI, semiconductors, and fusion energy, where does the EU stand? Experts widely agree it is largely a contest between two between the United States and China, with Europe entering at a clear disadvantage.

Underlying Factors of Europe's Innovation Gap

A number of major reasons account for this technological divide.

• Financing Ecosystem: The United States has a far deeper and agile network for financing new ventures. The EU has yet to establish a true unified investment market, which caps the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. A US startup can launch a service under one set of laws to access a market of over 330 million. The European Union, despite a bigger population size, is split among 27 different national systems, creating huge market obstacles.
• Cultural Attitudes: Attitudes toward risk-taking vary greatly. In some EU nations, business failure was historically met with stigma, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in defense has eroded its ability in breakthrough innovation.

A Path Forward: Grounds for Hopefulness

In spite of these hurdles, one can find causes for optimism. Policymakers are increasingly aware of the existential challenge and have begun to propose substantial change. Key reports on European competitiveness and the internal market highlight the need for sweeping changes.

Given appropriate incentives and rule changes, these assets could support much higher degrees of commercial innovation.

The continent retains considerable advantages: high-quality human capital, excellent schools and universities, and premier research institutions. Alongside a vast domestic consumer base and high savings rates, these elements could trigger a surge of investment and entrepreneurship.

Importantly, even if the EU does not become the leader in developing cutting-edge technologies, it can still significantly boost economic output by implementing and tailoring innovations from other regions.

A Critical Juncture

The European Union now stands at a critical moment. As the saying goes, economic erosion often happens "slowly, then all at once". So far, Europe's slide in innovation has been gradual. However, without decisive action to tackle its deep-seated problems, today's slow erosion could turn into a rapid and permanent loss of world influence.