Urgent changes required to plug EU-wide research and development gap
A report investigating the health of European research and development (R&D) has presented an alarming diagnosis, with a pedestrian Europe consistently losing out to more dynamic and innovative international markets. The four-person panel, chaired by former Finnish Prime Minister Esko Aho, presented the results of their three-month study on 20 January. The report was written by Mr Aho, former president of Alcatel Dr Josef Cornu, Professor Luke Georghiou from the Manchester Business School, and former Catalan Minister for Industry, Trade and Tourism, Professor Antoni Subira. Their central thesis was that a Pact for Research and Innovation needs to be created - and quickly - to drive the agenda for an innovative Europe. This would require a major commitment from political, business and social leaders throughout Europe. Prefiguring the spirit of the results, which insist on closer European cooperation, Mr Aho commented: 'We were unanimous about the details and the basic paradigm. There is a large gap between the rhetoric and the reality in Europe. While the Lisbon targets are good, the implementation of them is poor.' 'R&D and innovation are essential. If the EU is weak in these areas, then member countries may have to consider national strategies, and some members are already considering alternative trade routes, which could be disastrous for the EU,' he said. The Pact for Research and Innovation would need to be signed by political, business and social leaders to demonstrate their dedication to an innovative Europe. The Pact will then address four areas of alarm identified by the panel: Firstly, productivity continues to fall behind, with growth rates for labour and total productivity falling behind those of the US for more than a decade - the first time this has happened since 1945. Secondly, productivity growth has not capitalised on the application of information and communication technologies (ICT). Again, in the US, where ICT has been successfully applied, productivity has taken off spectacularly while productivity remains stable in the EU. Thirdly, European firms have lost out as companies have globalised their R&D. The shortfall between EU firms investing in the US and vice versa is stark: up from 300 million euro in 1997 to 2 billion euro in 2002. European firms will typically finance R&D investment in the US, where growth in this sector is at 8 per cent annually. In China, this figure is a massive 25 per cent. Finally, outmoded traditional sectors persist in the EU, as does underinvestment in services R&D - only 0.2 per cent of service sector GDP is invested in R&D, compared to 0.7 per cent in the US. On top of these specific problems is the demographic time-bomb of a shrinking, ageing population. By 2050, almost 30 per cent of Europeans will be over the age of 65. This, coupled with declining interest in research, points to a bleak future unless something is done, and done quickly. Dr Cornu provided an example: 'Many countries in Europe are working on road tolls. EU companies can work in their own markets easily, but not EU-wide. A company that can successfully sell a road toll scheme in one country should be able to do the same across the EU, but it currently can't do this easily. This fragmentation means that EU companies receive one-sixth of the start-up funding from venture capitalists that their US counterparts receive because business plans are focusing on the national, not European level. We need a free economic space, and if we cannot do this, we will remain weak.' To address these four problems, the group proposes five avenues of attack for the Pact to pursue in order to create lead markets in which R&D and innovation can thrive: -A harmonised regulatory environment across the will cut red tape and free company resources, making R&D more attractive; -Defining standards to a high level of performance, and reaching agreements on standards quickly will give companies a platform to work from; -Using public procurement to demand innovative goods and services will both improve public services and provide a commercial lead; -Develop a competitive intellectual property framework, to protect and encourage innovation; -Finally, a cultural shift which welcomes innovation is essential. This means a climate where the desire for innovative goods and services is ubiquitous and innovation becomes natural. The group has identified seven key markets which it thinks should be targeted to develop a R&D society: e-health; pharmaceuticals; energy; environment; transport and logistics; security and digital content. Each area would have a coordinator with significant powers to orchestrate action. The boosting of these sectors would have a knock-on effect on connected industries, nurturing innovation and productivity throughout the economy. Key to meeting these goals should be a trebling of the share of Structural Funding spent on R&D and an overall R&D spending target of three per cent of GDP, although the latter should be seen more as an indicator than a binding target. Mobility of human resources, finances, organisation and knowledge must also be increased, allowing expertise and money to flow easily across structures and for new links to be made, particularly between academic and commercial bodies. As much as ten per cent of the research workforce should move between industry, academia and government every year. In short, the panel proposes a complete reappraisal of the way research and development is conducted in the EU, and how European companies capitalise on innovations. Mr Aho said that, 'In America, business decisions are taken on a win-win basis. In Europe, there is a win-lose perception that someone must lose out in a transaction. We need to change our way of approach so that we, too, develop a win-win attitude. Companies are investing more and more outside the EU due to global competitiveness. They can survive without the EU, but the EU cannot survive without them.' Perhaps controversially, the panel has suggested that more money should be ploughed into established areas of excellence, rather than outmoded or unprofitable sectors of industry, thus making those areas of excellence more competitive, and driving change more quickly. Professor Georghiou stressed that the group's assessment was not simply a projection of decline in the future, but real decline now. 'Many companies have already relocated their R&D activities, and so Europe is being affected now. If these measures are implemented, then the climate to encourage CEOs to move their operations to a competitive Europe will return, and investment could return relatively quickly.' The report was commissioned at the Hampton Court European Council meeting in October 2005.
Countries
China, United States