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? 0% 5% 10% 15% Product quality Productivity Jobs Growth 2010 2030 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 Gains from reaching 3% R&D by 2010 compared to statu quo

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 Union-wide 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 self-improvement

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