Romano Prodi with Wim Kok.
hile the 2004 report from the Commission to the Spring European Council highlighted progress in many areas, the overall conclusion is that Member States must do more to meet their commitments to the Lisbon targets. Jobs have been created; industrial sectors have been deregulated; the knowledge economy is becoming a reality; and sustainable development is being placed at the core of new policies – but not enough and not quickly enough, says the report.
The mid-term review of progress on the Lisbon strategy is due in spring 2005. With this in mind, the Spring European Council called for a high-level group to contribute to the review. Chaired by Wim Kok, the former Prime Minister of the Netherlands, the group is made up of 13 independent figures representing all stakeholder groups. It will make proposals on how to inject fresh stimulus into the Lisbon strategy and greatly improve the delivery of the Lisbon targets. The Commission will take up these proposals in the mid-term review report.
While the group will consider the Lisbon strategy overall, covering the economic, social and environmental aspects, it is likely they will pay particular attention to the bottlenecks and blockages to its progress. A key worry is that the commitment to raise investment in research to 3% of European GDP by 2010 will not be met. As Commissioner Philippe Busquin reported in the run-up to the Spring Council, although the results so far are positive, more measures are needed to improve private-sector investment in research. This issue was taken up at a recent informal Competitiveness Council, held in Ireland, where ministers, Commissioners and representatives from industry and the sciences discussed the matter in greater depth, identifying the bottlenecks to private investment and proposing remedies.
Masters of our own destiny
A background paper(1), prepared by the Presidency for that informal Council, emphasises that policy-makers must not be distracted by the red herring of ‘deindustrialisation’; the idea that Europe is losing high-skilled manufacturing jobs to other countries because of falling trade barriers and outsourcing. While Europe is seeing a relative decline in manufacturing’s contribution to GDP, this is mainly the result of desirable productivity gains in the manufacturing sector – the real level of manufacturing output has not fallen.
In the past, the productivity of European firms lagged behind that of the USA, but today this gap has largely closed in the manufacturing sector. Future productivity gains must come from research and innovation by European companies – and this is an area where Europe still trails behind the United States.
Firms in the USA do more research. The report identifies two reasons for this: first, the environment for research in Europe is not attractive to enterprises because of lack of skills, few tax incentives, and the quality of research – drawbacks that increasingly lead companies to outsource research abroad. A second reason is the low level of competition within Europe where, because of entrenched barriers to competition that protect enterprises, there is little incentive to compete through innovation. Companies can be profitable without investing in research and innovation, it has little pay-off for them, and thus they see little need for it.
Therefore, concludes the report, the low level of private investment by European companies is not the main cause of poor productivity, but rather a symptom of the wider problems; weaknesses in the research environment and a lack of competition. It recommends that policymakers should not be distracted by treating simplistic supply-side symptoms, but rather leverage progress by concentrating on removing these more fundamental structural barriers to effective implementation of the Lisbon agenda.
Investments for leverage
Accepting that there are no quick fixes, the Competitiveness Council emphasised that the challenge is not to redesign the Lisbon agenda but to achieve speedier implementation and better execution. The EU and national governments must create a regulatory environment for business that encourages fair competition based on innovation. To do this they should regulate the common ‘floor’ factors of environmental protection and workers’ and consumers’ rights, rather than intervening in the ‘ceiling’ factors, where companies compete with each other. Improved productivity in Europe will not be won by protecting existing industries from competition from lowercost economies – it requires a business environment that helps industry restructure into the higher-skilled activities appropriate to a dynamic, knowledgebased society.
Europe produces more scientists and technologists than the US, but we can neither keep them here nor attract others to replace them. Industry leaders at the informal Council emphasised that location is a crucial factor for jobs in research and innovation. Companies work increasingly in networks with academic research centres and other innovative companies. The creation of such knowledge communities is a prime inducement for innovative companies to relocate, so Europe must develop such communities to attract and retain researchers – as the US has done so effectively.
This means that academia-industry links must be reinforced and achieve a critical mass, and they must be business-led to ensure research priorities are aligned with the needs of industry. The mobility of researchers within Europe has to be improved and actions are needed to attract and facilitate research talent from outside Europe to work here.
The high-level group’s deliberations will take place in the context of a general reorientation of policies behind the Lisbon agenda that their recommendations will help to shape. The Commission is proposing to devote a greater proportion of the Structural Funds to building research and innovation capabilities, particularly in the new Member States. A doubling of research funding is proposed for the new Seventh Framework Programme, which will be reoriented behind the Lisbon agenda. In particular, the emphasis on ‘poles of excellence’, joint technology platforms and the funding of research infrastructures are priorities that, along with the proposed European Research Council, would help build the ‘knowledge networks’ identified by the Competitiveness Council. This will encourage the private sector to look to innovation for competitive advantage, as well as providing the dynamic research environment to attract and retain the science and technology skills that Europe needs.
(1) Available at http://www.eu2004.ie/templates/document_file.asp?id=11787