by Fernando Napolitano, President and CEO of Newest
The late Paul Johnson, a British historian, concluded his voluminous A History of the American People on a note of success for the world’s oldest democracy and with a premonition for its future: “the story of America is essentially one of difficulties being overcome by intelligence and skill, by faith and strength of purpose by courage and persistence. … Looking forward to its future, the auguries are that it will not disappoint an expectant humanity”.
The January 6 2021 assault on the Capitol Building in Washington DC was a reminder that democracies are fragile constructs. To an international observer, the spiral of political events in the US is worrisome, undermining the credibility and reliability of critical intuitions such as the justice system.
The five cornerstones of a democracy are the electoral process and pluralism, a functioning government, political participation, a politically informed culture, and the protection of civil liberties. Strikingly, according to the 2022 Democracy Index of the Economist Intelligence Unit (EIU), the United States as a “flawed” democracy ranks number 30 in the world, losing four positions compared to 2021. It scores 7.8 on a scale of 1 to 10. There are 22 “Full democracies” such as Germany (ranked 14, 8.8 score), the UK (18 and 8.3) and France (22 and 8.1). The six million Danes have the best performing democracy in the world, scoring 9.8.
US optimists trust the resilience of American democracy while others, in a more dejected manner, believe that the US might survive bad policies but not a bad character. The US has mighty corporations, plays a pivotal role in capital markets, hosts leading universities and innovation centers, holds a reserve currency and spent close to $1 trillion on military expenses in 2022, nearly 40 percent of total military spending worldwide. The US 2024 presidential elections matter to the rest of the world, possibly more than to Americans themselves.
A country blessed by nature for the abundance of its resources, the US tends to be timidly internationalist, and protectionist. Biden’s Build America, Buy America Act requires that all materials used in infrastructure projects are produced in the United States. Trump era tariffs have remained unchanged, and today tariffs on imports are the highest since 1930. The August 2022 Inflation Reduction Act, promoting green energy, is also protectionist.
In his article in the December 2023 issue of Foreign Affairs, Fareed Zakaria noted that, "in an April 2023 speech, Biden’s national security adviser Jake Sullivan criticized “much of the international economic policy of the last few decades.” Sullivan blamed “globalization and liberalization for hollowing out the country’s industrial base, exporting American jobs, and weakening some core industries.” This perspective has merit because many Americans lost their jobs to offshoring practices, so that statements like “a foreign policy for the middle class” resonate with voters. In that, former President Trump and President Biden are aligned.
On the global scene, the United States remains the indispensable nation. Its economy is engineered to grow, and that requires both foreign markets and incoming foreign direct investments. The US economy, equal to the eurozone in 2008 at current prices, has since become twice as large as the eurozone. Of the top ten world companies by market capitalization, nine are American, with a cumulative worth of $13 trillion, 7 times Germany’s stock market capitalization.
The European Union is a work in progress. As a union of sovereign states, critical policies are primarily issued in response to an impelling drama. Currently its rhythms do not keep pace with the urgencies of global affairs. Paradoxically, as Europe gears up for the June 2024 general elections an isolationist US might precipitate a healthy, constructive crisis. A new vision for a European Union of caliber, gravitas and the necessary weight in respective sectors is simply not there. The type of abrupt US policy change that occurred during the Trump presidency would find EU member states vasty unprepared.
Ursula von der Leyen, President of the European Commission, set out her vision in “My Agenda for Europe 2019-2024”. Laudable themes include a European Green Deal, an economy that works for people, a Europe fit for the digital age that protects the European way of life, a stronger Europe in the world through fair and free trade, and observing the highest standards of climate conscientiousness. These themes are necessary and popular, resonating with voters. Yet they lack the bite and aggressiveness of those who want to stand out and stand strong between the two rival behemoths, the US and China. Europe must concentrate on the scale and the scope of geopolitically relevant industries and, while not popular, on a separate European Defense system complementary to NATO.
Europe must be swift in its rise and not hide in introversion. It is also time for courageous leadership by the private sector, academia and NGOs. They possess crucial knowledge and must speak up and inspire, providing a fact-based vision to promote a healthy industrial policy debate. That should start with the consolidation of industrial players in relevant industries. Geopolitically relevant players should strive to lead in the most important technologies such as digital, biotech, energy, finance, space, cybersecurity, and defense. Scale and size do matter.
While market capitalization fluctuates daily, it nonetheless provides a clear understanding of the facts at play. Europe’s role model is Airbus, $120 billion (bn) in market capitalization (MC) and ranked 102 in the world. It rivals its US competitor Boeing head-to-head, at $150 bn in MC and ranked 78th. What is also strategic about Airbus for future European consolidation endeavors is its governance on the basis of distributed management models, allowing France and Germany to avoid leadership and headquarter infighting. With that template in mind, Europe must go beyond the national champion logic in all other geopolitical relevant industries. All are subscale.
European Union’s largest company by MC is Danish Novo Nordisk, $441 bn and number 16 in the world thanks to its blockbuster weight loss drugs. It has overcome luxury good LVMH, now number 18 with $407 bn in MC. In oil and gas, French Total at $158 bn in MC and number 102 compares unfavorably to US Exxon Mobil at $400 bn in MC and number 20 in the world. The US bank JP Morgan Chase capitalizes at $465 bn and is number 14 in the world, whereas the largest bank of the European Union is BNP Paribas, capitalized at $68 bn and number 181 in the world. In defense contractors, the top 3 in the world are of course American, with capitalizations well north of $100 billion. The French group Safar capitalizes at $75 bn and is number 201 in the world. In semiconductors, US NVIDIA leads with $1.2 trillion in MC and number 6 in the world, compared to Dutch ASML at $290 bn in MC and number 27 in the world.
Again, size matters. According to Fareed Zakaria’s article, “In 2023 the United States has attracted $26 billion in venture capital for artificial intelligence startups, about six times as much as China, the next highest recipient. In biotech, North America captures 38 percent of global revenues while all of Asia accounts for 24 percent.” So, America leads and thrives, in its own league. Europe could also and should do accordingly. Its achievements do make its citizen proud, not least the fact that from1945 to the present is the longest period of peace Europe has ever known. Furthermore, the Union has the assets and ingredients to become a muscular and active geopolitical player. Among the many routes, a focus on industry consolidation, with enabling and appealing policies in support, is a realizable and even indispensable path to such success.
A final thought on the large contingent of European students, managers, professors, scientists and experts that reside in the US, and contribute to its well-being and success. These talents would be responsive to and enticed by a new narrative and policy on Europe’s geopolitical industrial consolidation. Such a vision would unchain enthusiasm and values that are part of the ethos in America where they live: earning a reputation, honor, country, and merit. That ethos should be properly supported, through better work environments and commensurate rewards. Such a purposeful Europe is worth the personal investment of its expectant population, and would create a stronger union that, with its orphan Britain, will be a better ally and friend to the US.
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