CAMBRIDGE—A quarter-century of sluggish output per worker now threatens Europe’s economic and political foundations. Labor productivity across the continent has climbed at merely half the pace seen in the United States since the late 1990s.
European leaders have begun treating the shortfall as a crisis. Mario Draghi, the former European Central Bank chief, labeled the productivity imperative an existential challenge in his 2024 competitiveness report. He has since joined fellow business and academic heavyweights in launching the Rhine Group, a coalition that points to a stark reality: just four of the world’s fifty largest technology firms call Europe home.
The pressure comes from both directions. America maintains a narrow edge over China in artificial intelligence and other frontier technologies, yet Beijing keeps closing the distance. Chinese applicants now account for 33% of international patents, up from 3% in 2000. The European Union’s share fell from 30% to 16% over the same period.
As a result, much of Europe’s policy conversation revolves around copying the two superpowers. That instinct misses a crucial point. Neither offers a workable blueprint.
Silicon Valley’s venture capital model has produced breakthrough after breakthrough. But it fails at spreading those gains across the broader economy, which determines whether innovation translates into productivity. American output per worker stagnated for the decade before COVID-19 despite relentless technological advancement. Meanwhile, wealth concentration has fueled political dysfunction.
China’s manufacturing-led approach holds equally little promise. European employment already skews heavily toward services. Reviving factory jobs through Chinese-style industrial policy makes little sense outside national security concerns.
The real opportunity lies downstream. Europe has repeatedly proved adept at deploying inventions developed elsewhere. GSM mobile standards powered Nokia and Ericsson. France turned American and British nuclear designs into its dominant electricity source. Germany mastered industrial robots invented in the US.
A distinctly European agenda would prioritize adoption over invention. That means targeting bottlenecks in retail, hospitality, care work, and other service sectors where regulation, finance, and organizational barriers block diffusion. Competitiveness matters less than capability building here.
For AI, the same logic applies. Data centers matter less than access. What counts is whether European firms and workers can apply the technology effectively, wherever the servers sit.
Europe doesn’t need to become America or China. It needs to put technology to work for its own social market model.
