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Dr. Arie van der Zwan Directorate General - Research European Commission Brussels Dr. Arie van der Zwan • European Commission (2002-Present) • Ministry of Netherlands Economic Affairs (16 yrs) • Directorate-General for Innovation • DG for Economic Structure, Technology Policy • DG for Industrial Policy • DG for Energy Policy European Research Policy Knowledge based society and Economy Arie van der Zwan European Commission, DG Research Strategic and policy aspects; investment in research Innovation and Competitiveness Workshop Istanbul, 19 April 2004 Content • Europe’s technological (under) performance • Lisbon goals: to become the most competitive and dynamic knowledge based economy in the world • Important issues in Lisbon Process: – the Barcelona 3% objective and action plan – issues for new Member States – the open method of co-ordination (OMC)-cross-country dialogues to formulate strategies for research policies Europe’s sombre technological performance • Can be no denying Europe’s persistently poor technological performance – and the negative impact that has on the overall economy • Many indicators of this under-performance, e.g. – relative weakness of our high-technology and knowledge-intensive sectors – relative slowness to absorb new technologies – inferior rates of labour productivity growth • If Europe continues to under-perform this way, we will never achieve the Lisbon goals: to become the most competitive and dynamic knowledge based economy in the world Why technological under-performance? • Many contributory causes – for example, Europe’s very different mix of industries • with a much smaller high technology sector • with many fewer large companies • Defence oriented R&D • But, a major cause has to be the deep-rooted structural weaknesses affecting our research and innovation systems – research inputs are too low • both financial and human – unfriendly environment for research and innovation – excessive fragmentation of public research Structural weaknesses affecting Europe’s research system • Financial inputs • Human inputs • Unfriendly framework conditions Financial inputs • Europe substantially under-invests in research – less than 2% of GDP and stagnant – compared with nearly 3% in US (also ~3% in Japan and Korea) • EU-US R&D Gap growing from € 71.6 bn in 1995 to € 117 bn in 2000 decreasing to € 111 bn in 2002 – increasing public funding gap from € 17 bn (2000) to € 26 bn (2002) – decreasing business funding gap from € 104 bn (2000) to € 87 bn (2002) • An input gap of that magnitude cannot be bridged – by being more clever – nor by importing technology from others • because of our poor absorptive capacity First policy conclusion: to be technologically competitive, Europe, particularly European business, must invest much more in research) Human inputs • Research is particularly labour-intensive • If our goal is to increase investment substantially, we have to find large additional numbers of researchers • Europe’s career pipeline is however increasingly leaky and made worse by unfavourable demographics – so the future supply of European-trained researchers may be insufficient even to maintain the status quo – and could therefore impede attempts to increase investment in research Second policy conclusion: as we cannot invest more without employing more, we must plug holes in the pipeline and make Europe much more attractive to (third country) researchers Unfriendly framework conditions • Regulatory shortcomings – incomplete internal market, ill-adapted IPR regimes, excessive costs of new company registration, outdated bankruptcy and insolvency laws, unfriendly standards, barriers to mobility of researchers … • Financial weaknesses – underdeveloped venture capital markets, particularly for early-stage finance, relatively weak fiscal incentives … • Networking failures – weak science-industry linkages, weak cross-linkages between innovation actors … • Unfriendly social environment – poor acceptance of new technologies, attitude of the young, weak culture of entrepreneurship … Unfriendly framework conditions (cont’d) • Conditions vary from country to country, but, from an overall European perspective, these unfriendly framework conditions – seriously inhibit business investment in research – reduce absorptive capacity for new technologies, wherever generated – lead to ineffective exploitation of our public research base (Third policy conclusion: it is urgent to improve the framework conditions, but this will require a wide portfolio of policy measures, many outside “research” policy) Fragmentation in public research • Majority of public research in Europe (>80%) is executed in a purely national frame – with rather low levels of co-operation between different countries at either the programming or policy levels • This combination (of fragmentation and compartmentalisation) often results in – much uncoordinated parallel work – wasteful duplication – insufficient competition always to ensure excellence – teams that lack critical mass (Fourth policy conclusion: countries must co-operate more in their research policies and programmes, if we are to make effective use of limited public resources available for research) The Barcelona 3% objective and Action Plan 3 % Action Plan A Systemic Approach • Industry will invest more in R&D in Europe only if it can expect improved returns on investment • A drastic reappraisal of current policies and a major structural change towards more R&D intensive sectors + enhanced innovation in existing sectors • All factors affecting performance of R&I systems need to be addressed e.g. from research to the market place • A broad range of policies need to be mobilised in a coherent way e.g. R&D&I, internal market, competition, Regional, etc. R&D intensity by source of funding&D intensity by source of funding ‘3%’ Objective What is at stake? Long term gains : by 2010 and by 2030 EU-US R&D Gap growing from € 71.6 bn in 1995 to € 117 bn in 2000 decreasing to € 111 bn in 2002 – increasing public funding gap from € 17 bn (2000) to € 26 bn (2002) – decreasing business funding gap from € 104 bn (2000) to € 87 bn (2002) Estimated gains if EU reaches 3% in 2010 – Until 2010 : +0.25% GDP (annual average) +2 million jobs over 2004-2010 – After 2010 : +0.5% GDP every year +400,000 net jobs every year Growth Jobs Productivity Product quality 0% 5% 10% 15% Gains from reaching 3% R&D by 2010 compared to statu quo 2010 2030 Lisbon progress (Spring Report 2004) • Undeniable progress after 4 years but insufficient implementation at MS level • “Improving investments in knowledge and networks” as key priority for 2004 (Growth Initiative) • Spring Council has seized opportunity of economic recovery and the coming enlargement to increase impetus The impetus of Enlargement (Spring Report 2004) • Increased trade & investment opportunities • Good growth potential (av. 4 % p/a) • Experience of reform and commitment to the process in the new MS will increase EU momentum • Accession comes at a critical & timely moment – Mid-Term Lisbon Review [+First report on progress of 3 % Action Plan] Issues and Actions for new MSs (Informal Seminar, Brussels, March ‘03) • Promote R&D in domestic firms: raising their awareness of opportunities, improving their access to capital and raising their profile for investors. • Orientate FDI towards knowledge and R&D: accentuating spill over effects, innovation and capability transfer, linkages with local knowledge infrastructure, etc. • Counter the brain drain: improving the attractiveness of the research career accompanied by actions to address the demand for R&D and technology. Issues and Actions for new MSs (Informal Seminar, Brussels, March ‘03) • Upgrade research infrastructure and rebalance the distribution of large S&T facilities to the benefit of new MSs, to offer domestic opportunities for R&D teams. Establish systemic innovation policies which aim at balanced progress on R&D capability, demand, diffusion and absorption factors, and stronger co-ordination between R&D, education, economic, and other relevant policies. New MSs and the Barcelona Targets • • • • • (3 % Action Plan/ OMC Snapshot) Politically committed to Barcelona objective (R&D intensity targets), but budgetary commitments difficult Public investment decline reversed; many showing substantial growth; New fiscal measures (HU, LV); Participating in OMC 3% Efforts must be sustained The Open Method of Coordination (OMC) What do we mean by OMC? • OMC was introduced at the Lisbon Summit as a “soft” form of European governance – to fill the gap between simple cooperation at MS-level and full legislative integration at Union-level • for use particularly in fields where the prime responsibility for policy-making lies with MS • OMC offers an adaptable voluntary coordination framework that assists MS progressively to develop their own national policies – to tackle common challenges – with the aim of achieving collectively agreed Unionwide goals How does OMC function? • OMC functions through an iterative cycle, involving – at Union-level: the collective setting of Union-wide objectives and a timetable – at individual MS-level: the translation of these common objectives into national action plans and targets – MS collectively: regular multilateral monitoring and collective self-assessment • allowing the cycle to be closed and repeated with progressively increasing intensity • To be effective, the whole process needs support with operational tools – such as foresight, scoreboarding, benchmarking … • particularly to promote mutual learning and selfimprovement OMC-topics • Public research base and its links with industry • SMEs and research • Fiscal measures for research • IPR and research • Public research spending and policy mixes • Human resources and mobility Conclusions: • Absolute need for EU to invest more in R&D • Strategy and goals set by 3% action plan • Cross-country dialogue by OMC