CORDIS Archive

August
1998

Building a platform for knowledge industries

Euroabstracts: Knowledge, rather than machines, is becoming the chief motor for economic success. Indeed some companies have no assets apart from their knowledge.What does this imply for public policy, and R&D policy in particular?

Jorma Routti: Over the past few years, we have seen a new type of company springing up and growing very fast - in fact this is the only sector of industrial companies which is creating new jobs. These new companies are built upon their knowledge: typically they are in telecommunications, electronics, software or biotechnology, but also offer high-technology services to more traditional industry. They have three characteristics which Europe has to take into account if it is to capture a larger part of the value they add. First, they have narrow time-windows, so they must be able to develop products fast. Secondly, their markets are international or global from day one. And thirdly, they require a large initial capital investment.
Bringing technological innovations to market fast puts the premium on research. The public sector therefore has to ensure that the infrastructure that will be able to profit from creative ideas is there. And, with due deference to the principle of subsidiarity, this infrastructure must have a European scale. The intellectual and financial resources needed to capture world markets are often outside the capacities of single countries. We need a system through which innovators can find the best industrial partners, wherever they may be, to take their projects forward.
We also need a European venture capital market which is in a position to support fast-growth firms. It is very encouraging that the EASDAQ and Euro-NM markets have been successfully launched, but they are still minute compared with NASDAQ in the United States, and too great a share of venture capital is still going into the restructuring of traditional companies. At the moment less than 10% of Europe's venture capital goes to high-tech start-ups, as against a much larger share in the US. One role for the public sector, therefore, is to arrange a better interface between research and the financial sector, to create profitable investment opportunities in Europe. This is one aspect of the restructuring of the European Union's R&D policy to meet society's needs.

How is the European Union's R&D policy being changed to meet society's needs more effectively, and which partners are involved?

We aim to link the research community in four directions: we have to improve its relevance to social needs, to policy-making, to industrial competitiveness, and to innovation. In order to solve socio-economic problems, we have to be successful on all these fronts. The structure of the new Fifth Framework Programme around a score of "key actions" is designed to lead to clusters of projects which will tackle problems from different angles. The linkages with the industrial and financial world will ensure that research is carried out not only for its own sake, but with a problem-solving mentality. And an external advisory group for each key action will ensure that the end-users' needs are taken into account.

What role does human resource policy play in creating knowledge-based industries?

The platform we need to build for knowledge-based companies requires attention to education, life-long learning, and proper incentive and reward mechanisms, because while in manufacturing companies the assets can be bolted to the floor, in a knowledge company they are walking around, and could walk out of the door. One of the reasons that the United States has been more successful than us in creating these new growth industries is that it is more efficient at reallocating capital rapidly. But another reason is cultural; it lies in attitudes to and incentives for risk-taking and reward-sharing. This is a challenge for Europe, and part of the answer lies in the educational system.
We cannot predict when a child starts school exactly what their educational needs will be when they start work maybe 20 years later. So we need to teach firstly many new things, and secondly the ability to learn continuously, because we all have to keep on learning after our formal education is over. We need to build as broad a recruitment base as possible for science and technology, because, just as in a football team, you will not come up with your star players unless the game is popular and lots of people are interested in it.
And competitiveness demands that we build a European-minded science and technology base. One very valuable contribution that the EU is making is through sending people to other countries during their student years. This is important in building international research and industrial links, and is also very cost-effective, because it is far cheaper to send a student abroad for a year than to send a staff member with a family, and the depth of language and cultural exchange is deeper too.

What types of industry will be creating jobs in the future?

The main growth area will be in knowledge-based industries. But this is not quite the same as saying that it will only be in these and in service industries where jobs are created. The mainstay of Europe's economy will continue to be in manufacturing, but the products we manufacture will have a higher knowledge content. Already, close to 30% of the value of a car is due to its information technology components. The statistics which show that the service sector is creating most of the jobs are slightly misleading, because when companies farm out ancillary services to sub-contractors, the jobs - cleaning, security or whatever - stay the same, but change their statistical category.
And this trend towards outsourcing applies also to research: there are large European companies that rely primarily on contract research, because it makes them more flexible. There are even large manufacturing companies that sub-contract out part of their manufacturing, and where the suppliers install their own components. What we are moving towards is a sort of `network economy', one that is very much more flexible than the monolithic production companies of yesterday.

Are there any downsides to the new knowledge-based economy?

The disadvantage of this type of development is that it can easily result in a society of winners and losers. There will be winners and losers among individuals, among companies, and among countries. This brings into question how we fight social exclusion and preserve democracy itself. We must maintain the best elements of European social systems, but at the same time it is becoming increasingly clear that the individual must take greater responsibility for many things.

(1) After studying in Finland and California, Professor Routti researched particle physics at CERN before a 15-year stint as Professor of Applied Physics at Helsinki University of Technology. Then for ten years he was President of SITRA, a public think-tank in Finland which used venture capital to launch some 300 science-based companies. He took over as Director General of DG XII at the start of 1996.