Community Research and Development Information Service - CORDIS

Innovation links growth and job creation in the EU

To ensure sustainable economic and employment growth, a lucid, highly-targeted innovation policy is crucial. Growth comes from innovative firms, particularly SMEs. As we enter the third millennium and Europe's industrial and service sectors face increasingly fierce competition...
To ensure sustainable economic and employment growth, a lucid, highly-targeted innovation policy is crucial. Growth comes from innovative firms, particularly SMEs. As we enter the third millennium and Europe's industrial and service sectors face increasingly fierce competition from their traditionally more innovative international rivals, it is vital that policy-makers foster an environment where innovation is encouraged and nurtured. The need to take research out of the laboratory and into the marketplace has never been more pressing, and EU policies and initiatives reflect this accordingly.


The link between innovation, growth and employment is a mainstream characteristic of modern and open economies. A high level of innovation (a new or improved product, equipment or service which is successful on the market (1)) is the key to unlocking the development of firms, both large and small, traditional and high-tech. Furthermore, technological entrepreneurship enhances the competitive base of the economic fabric in our societies by creating new and lasting skilled jobs, mobilising private funding, etc.

The 1998 Commission Report on the competitiveness of European industry highlights the fact that even though Europe's single market is larger than the United States' domestic market, the European Union itself is not as competitive as the US.

European performance in innovation

Although a great many achievements have been realised by European companies, the continuing mixed performance of the Community innovation system is one of the main reasons behind the European economy's lower competitiveness as a whole and, subsequently, of the EU's relative inability, compared to the US, to create new jobs.

In the US, 3% of firms accounted for 80% of job growth between 1991 and 1995. Most jobs are created by a small minority of high-growth firms, often technology oriented. This is especially true for business start-ups and companies which expand with the take-up of new business activities.

Since around two-thirds of EU production and 70% of its jobs are in the services sector, innovation can now be equated less and less to R&D in manufacturing. This phenomenon, at both company and macroeconomic levels, calls, on the one hand, for major adjustments in the management of innovation (at enterprise level) and, on the other, for changes in education and training policies to develop and nurture the necessary human capital in a stable, more knowledge-based economy.

The decisive role played by innovation policy in creating sustainable growth and employment in Europe is now widely recognised, although the concept has only emerged in the past few years. As recently as 1995, European indicators on numbers of researchers, research investment and research results were a matter of concern, when compared to similar figures for the US and Japan. In addition, EU actions were concentrated on exploiting the results of Community-funded research, which represented just 4% of EU research expenditure, thereby limiting the impact generated.

In response to this, EU actions were redirected along the following lines:

the framework - defining, creating and supporting a European innovation policy;
prioritising innovation actions - particularly in the areas of venture capital and intellectual property - mobilising enterprises, optimising policies on industrial competition and reducing red tape.

The framework. Two distinct action lines marked the birth of the new policy. The first was wide consultation and the production of the Green Paper on Innovation, which highlighted Europe's shortcomings compared to its competitors, and proposed concrete actions at the Community level. The second was the establishment of The First Action Plan for Innovation in Europe - agreement on priorities and actions. This defined three major objectives: promoting a true innovation culture, establishing a favourable environment and creating better links between research and innovation.

Prioritising innovation actions. Implementing this new policy of support to innovation has been an ongoing task for the European Commission. The major results have been changes in competition law, simplifying the legal requirements for state aid to research and co-operative research between companies.

In 1997, the Commission adopted a document, Innovation for growth and employment. This reported on the first results of the new innovation policy and also set out priorities for supporting innovative companies. It confirmed that follow up of the innovation action plan was a major priority and opened the way to maximising the impact of the Action Plan by trying to involve Member States, regions and businesses in the creation of a European `innovation dynamic'.

This was followed in 1997 by the launch of I-TEC - an initiative to encourage early-stage investment in technologically innovative SMEs - and in 1998 by measures designed to increase employment opportunities coming from innovation, and to increase venture capital availability. These were complemented by actions designed to simplify the patenting system and to encourage SMEs to safeguard their intellectual property rights. The IPR-Helpdesk and an Internet-based research tool on patents, esp@cenet(r), were introduced as essential elements of these efforts.

1999 and beyond: the challenge of globalisation

As business becomes ever more global, the problems faced by European companies become increasingly complex. An Action Plan has been adopted to help EU enterprise meet these new challenges. There are four main themes: To meet the challenge of globalisation, a series of measures has been initiated at enterprise level, in line with the objective of promoting innovation in the service of growth and employment;
At the microeconomic level, a series of benchmarking exercises compares EU industrial innovation performance as a tool to improve competitivity; At the macro-economic level, there is a systematic review of long-term policy strategies, affecting regulatory, economic and budgetary aspects of the creation of an environment to improve European performance as it faces stiffer global competition;
The fourth, and most ambitious initiative covers the philosophy of policy actions to aid enterprise. Identifying the EU's weak points, the Action will attempt to improve competitivity by stimulating investment, encouraging the most efficient use of human resources, enhancing European enterprises' access to world markets and promoting a worldwide regula+C1tory `level playing field'.

It is widely accepted that if these approaches are to succeed, there must be a willingness, on the part of public authorities and entrepreneurs alike, to be flexible and dynamic.

Involving SMEs in the innovation process

Actions to support the innovation process have been part of the European Commission's mandate since 1995, but as we move into the realms of the Fifth Framework Programme (FP5) (1999-2002), the emphasis is radically different to that of its predecessors. For the first time, there is a specific requirement to promote the participation of SMEs at all levels of the innovation process, with measures designed to improve SME access to research, increase mobility of researchers and strengthen industrial protection of results.

Within FP5, it is worth highlighting the specific `horizontal' programme, `Promoting Innovation and Encouraging the Participation of SMEs' (also referred to as `Innovation and SMEs'), which illustrates the coherence of the innovation policy. Within this theme, the co-ordination and support activities covering innovation and SMEs are completely harmonised and are central to all enterprise activity. As a result, the four Thematic Programmes of FP5 each contain SME and innovation cells, the aim being to create a culture of innovation throughout all Community RTD projects.

The Innovation and SMEs programme has three main action lines. The first, `encouraging the participation of SMEs', takes a revamped approach which includes the creation of a `unique entry window for SMEs', a range of aid measures such as exploratory grants, and CRAFT projects. A new action on `technological and economic information' is also planned, which will guide the choice and orientation of SMEs - those with limited or no research resources will benefit most.

The second line, `promoting innovation', directly supports the implementation of the European Action Plan for Innovation. It includes a new generation of pilot and demonstration projects which employ novel approaches in the domains of innovation and technology transfer. It also allows the launch and operation of highly targeted pilot projects, benefiting from a specific budget allocation. This action line includes the development of a Trend Chart on Innovation in Europe, as well as the setting up of a new body, the Regional Innovation Observatory (RINNO) comprising a database on regional innovation policy measures in the EU.

Finally `common actions' bring together information and support services. They include improving the IPR-Helpdesk, offering help on private financing for innovation, and supporting the creation of innovative SMEs, through the LIFT (Linking Innovation, Finance and Technology) and FIT (Financing Innovation and Technology) initiatives. These tools are designed to act as an interface between Community-funded research and private investors.

Other actions include extending and improving the CORDIS RTD information website, and promoting the Innovation Relay Centre Network - which endorses technology transfer at the local and regional level.

The need for a more comprehensive approach to business and innovation in the EU is also reflected in the forthcoming grouping of the Commission's DG responsible for Innovation with the Directorates-General for Industry and SMEs into a new Enterprise Directorate-General. This framework will enable the development of an integrated policy geared to the development of European enterprise.

(1) The term "Innovation" is somewhat ambiguous. The "Green Paper on Innovation", COM(95) 688 final, reviews the definition proposed by the OECD in its Frascati Manual. The most recent definition of technological innovation is in the Oslo Manual published jointly by Eurostat and the OECD in 1997.

Source: European Commission, DG XIII/D.4 - Information and dissemination of scientific and technical knowledge

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