\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/08\/GettyImages-165207478-e1724617231752.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
Europe is suffering from an innovation deficit and weak productivity, putting the region\u2019s economy on a path to stagnation unless it changes course, according to Nobel laureate Michael Spence.<\/p>\n
In a Project Syndicate<\/em> op-ed<\/a> on Wednesday, the economist said long-term productivity growth in advanced economies depends on structural change, led by technological\u00a0innovation.\u00a0<\/p>\n \u201cThis is where Europe\u2019s principal problem lies: in a range of areas, from artificial intelligence to semiconductors to quantum computing, the US and even China are leaving Europe in the dust,\u201d he wrote.<\/p>\n Europe\u2019s lagging performance has been going on for years. In 2008, U.S. GDP and the eurozone\u2019s GDP were roughly equal. Now, the U.S. economy<\/a> is about 75% bigger than the eurozone\u2019s<\/a>, according to World Bank data.<\/p>\n To be sure, currency fluctuations have skewed the numbers. Adjusted for purchasing power<\/a>, the EU output fell only 4% behind that of the U.S. over the last 20 years. And even in Europe\u2019s weakest big economy, German consumers are still feeling upbeat<\/a>.<\/p>\n Meanwhile, investors have increasingly recognized an era of \u201cAmerican exceptionalism\u201d<\/a> in the global economy and financial markets. <\/p>\n That\u2019s contrasted with Europe\u2019s growing status as a center of leisure, so much so that overwhelming hordes of tourists have sparked a backlash<\/a> among locals fed up with vacationers clogging streets, running up prices, and occupying homes.<\/p>\n Spence, who is a senior fellow at the Hoover Institution, blamed Europe\u2019s innovation deficit on underinvestment in an already decentralized R&D landscape, incomplete integration of the single market, lack of key infrastructure like computing power, and limited availability of VC and private equity funds.<\/p>\n Europe can overcome these obstacles and has important advantages, such as the talent coming from its universities and a social safety net that provides the economic security needed for entrepreneurial risk-taking, he noted.<\/p>\n Without a new economic vision, however, traditional industrial sectors that are less innovative will continue dominating, while the best and the brightest will migrate to other countries, he warned.<\/p>\n \u201cEurope must decide: it can remain on its current course, which is sure to lead to relative stagnation, or it can chart an entirely new path,\u201d Spence wrote. \u201cThe latter approach is riskier, but it also holds far more upside potential.\u201d<\/p>\n But this choice doesn\u2019t appear to be top of mind among policymakers or voters, he said, urging leaders to offer a clear picture of what the status quo or a new economic vision would bring. <\/p>\n Europe can do this and already found success in targeting new sustainable growth models, he pointed out.<\/p>\n \u201cBut first, Europeans must answer a simple but critical question: What should the EU look like\u2014in terms of innovation, the economy, security, and resilience\u2014in a decade?\u201d<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>High-level insights for high-powered executives. Subscribe to the CEO Daily newsletter for free today. Subscribe now<\/a>.<\/div>\n