State aid reform vital in boosting Europe's R&D, says Kroes
Competition policy and state aid reform have a central role to play in boosting Europe's capacity for innovation and entrepreneurship, says EU Competition Policy Commissioner, Neelie Kroes. Speaking at a conference on the role of risk capital in innovation and research, which took place in Berlin on 22 April, Ms Kroes explained that a better targeted state aid policy, better coordination of public intervention in Europe, and a change in the way state aid rules define the relationship between public and private research entities will help tap the innovative talent of the EU. 'Increasing research and innovation is clearly a shared objective of the Union,' stated the Commissioner. 'State aid rules must be adapted so that public intervention can play its part. But this has to be done with great care, in order not to destroy the benefits of competitive markets. It has also to be done in partnership with Member States so that not only the substance, but practice and procedures too, become more efficient and better targeted,' she added. As Ms Kroes explained, if the EU is serious about boosting research and innovation for growth and jobs, it has to look at what markets can deliver before trying to 'fix things through governmental intervention.' 'Natural pressures in the market create incentives for firms to come up with new ideas, products and services, because they can gain market share and make profits,' said Ms Kroes. 'So my first message is both simple and clear: companies competing in a fair and free market environment will naturally be spurred on to innovate and become more efficient, generating lower priced, better quality goods for consumers. And competition policy is primarily about guaranteeing a fair and free market environment so that all this potential can be released.' However, continued the Commissioner, the markets alone cannot always deliver efficient outcomes and therefore public intervention can be necessary and justified in order to both meet specific objectives which the markets alone are not delivering, and to encourage changes in markets so that these objectives can be delivered naturally in the future. Member States must therefore fine-tune their intervention to what the requirements of their economies, and use state aid in a proactive way by targeting market failures. Often, normal market conditions mean that small, innovative (and thus risky) businesses do not get sufficient access to risk capital funding 'In these circumstances, the state is sometimes the only actor able to cover the risks of failure and to change the incentives for investors,' explained Ms Kroes. 'The same applies to research and innovation. It is well known that the results of research and development [R&D] often have the nature of public goods, meaning that anyone can potentially use and copy them. For that reason, firms may refrain from investing in research since they fear they will not be able to profit from the results of their investments. In such situations, intervention may be justified to change the incentives present in the market. Such intervention can be at national or European level; it can be regulatory - for example through upholding intellectual property rights - or financial,' she added. Since the EU research budget currently only accounts for around six per cent of total public expenditure on research, it is of strategic importance that action is coordinated at European and national level, believes the Commissioner. It also needs to be targeted in order to improve the EU's market economy and make it work more efficiently. The Commission intends to address these issues in an Action Plan to be presented in the near future, which will include proposals for a series of specific measures. The first concrete issue, stated Ms Kroes, is to make state aid rules simpler and more user-friendly. 'More use could be made of block exemption regulations, which authorise granting aid without it being notified to the Commission,' she said. 'In relation to research and innovation in particular, I am in favour of broadening the Block Exemption Regulation on small and medium enterprises, to increase the scope for aiding young innovative enterprises.' According to the Dutch Commissioner, the Research and Development Guidelines are also in need of a serious update. At present, the Guidelines focus on a linear, three-stage approach to research, yet it appears increasingly beneficial to allow Member States to distinguish between activities that are closer to the market and activities that are really pure research. Indeed, firms are naturally stirred to engage in research and innovation activities that can bring rapid commercial results. It therefore makes more sense to help these activities less and focus instead on activities that relate to pure research or 'pre-competitive' innovative activities. The relationship between public and private entities conducting research must also be looked into, believes Ms Kroes. 'Universities and research centres are increasingly behaving like normal market participants and it is important to clarify how state aid rules should apply to them, while at the same time taking due account of the fact that close collaboration between public research organisations and industry is one of the objectives of European research policy,' she explained. Finally, concluded the Commissioner, the rules concerning aid for risk capital need to be addressed in order to encourage increased flexibility and availability of risk capital, especially for young innovative small and medium sized enterprises (SMEs).