1 Economic impact of an increase in R&D intensity in Europe - Recent findings from IPTS work Patrice Laget DG JRC-IPTS STOA Panel Meeting Strasbourg, 07/09/06

2 The impact of the 3% A brief overview of the modelling approach.  What if? A focus on the necessary changes, for the governments and for the industry, that may lead to more funding of R&D.  How to?

3 The works of the SERA unit One objective  To support the implementation of the ERA Four actions  ERAWATCH  Industrial R&I  Human Resources  Foresight

4 The econometric models In a simulation study undertaken for DG RTD by the ERASME team, using an adapted version of the NEMESIS model, attaining the 3% of GDP objective was estimated to have a significant impact on long-term growth and employment. On average, it would raise GDP by 0.5% per year after (Results presented in Investing in research: an action plan for Europe, COM (2003) 226 final).

5 The econometric models The Dutch CPB (Netherlands Bureau for Economic Policy Analysis), in a study for DG Enterprise, used the WORLDSCAN general equilibrium model to simulate the impact of different parts of the Lisbon strategy. In 2025 the increase in GDP resulting from raising R&D expenditures in Europe to 3% of GDP by 2010 and maintaining this level thereafter would be in the range of 3.5 to 11.6%.

6 The econometric models JRC-IPTS has recently initiated an exercise comparing the results of a wider set of models, including QUEST (DG ECFIN), the E3ME (Cambridge Econometrics) and GreenMod (ULB/ECOMOD). The first results for the impact on GDP are within the same ballpark. More importantly, they vary with properties built into the model: to what extent will productivity gains as a result of R&D lead to a reduction of prices and to what extent will they feed into higher wages per hour?

7 The econometric models How many jobs this will generate is unclear. Earlier work of IPTS for the Committee on Employment and Social Affairs of the European Parliament suggests that technological improvements do not harm employment in the long run and could rather lead to an increase in the number of jobs.

8 The econometric models However, most empirical evidence would suggest that overall employment levels in a country in the long term are not much affected by the level of investment in R&D. What it does change, however, is the skills that are needed. This is why support to R&D is accompanied by employment rate and participation targets in the Lisbon strategy

9 The way towards the 3% target Is this a supply side or a demand side issue? The answer depends of the sector. For public R&D, governments, which are the main providers of funds, can do more. But they can also change the framework conditions. For private R&D, the market is the main driver of investments but a right policy mix can help.

10 The Booz Allen Hamilton Global Innovation 1000 Is there a correlation between more R&D funding and better business performance? Several of the top innovating companies have relatively low R&D intensities and some top R&D investors do not enjoy consistent business performance differences with companies that spend less on R&D Evidence indicates that individual companies lose competitiveness as long as they invest below the sector average, but it is not certain that there are always positive returns for any funding above sector average, especially in the short-term. The question is rather in which companies (size, their present level of competitiveness) and in which sectors should private R&D grow.

11 A new policy discourse The Aho report: the best way towards an Innovative Europe is to create a market which provides firms with the incentive to become more research intensive. The Commissioner’s speech at the Centre for European Reform: “If we could propel market demand for new technologies that meet economic opportunities and societal needs, we would go a long way towards reaching the 3% objective.”

12 The EU, the US and Japan

13 The weight of defence R&D

14 Industrial R&D The 2005 EU industrial R&D investment Scoreboard clearly shows that:  The lower R&D intensity in the EU reflects its industrial mix.  Top global EU firms are doing well.  The stock of EU enterprises with medium level of R&D investment is the real issue. It reveals the distribution of industrial R&D by sector, level of investment and localisation of headquarters in the EU. Internet web site where the complete document could be found:

15 Industrial R&D Companies above €35 millions of R&D investment

16 Industrial R&D Top fifty companies

17 Industrial R&D Geographical distribution of the Scoreboard Germany 37% France 19% UK 17% The Netherlands 7% Sweden 6% Italy 4% Finland 5% Spain 1% Belgium 1% Denmark 2% Austria 0% Other countries 1%

18 Industrial R&D Comparison of investments and expenditures CountryBERD (120 billions)Scoreboard (102 billions) Germany31%37% France18%19% United Kingdom16%17% Sweden6% Italy6%4% Netherlands4%7% Spain4%1% Austria3%0% Belgium3%1% Finland3%5% Denmark3%2% Other countries3%1%

19 Industrial R&D A tentative global picture for the EU EU BERD € 120 B Governments & Framework Programme EU Scoreboard Companies € 102 B Affiliates outside the EU Public Research Affiliates of non EU companies € 15 B Other EU companies not in the Scoreboard € 10 B € 76 B € 23 B € 14 B € 20 B € 3 B € 1 B

20 Industrial R&D

21 Industrial R&D

22 Industrial R&D Rapid changes in some key sectors

23 Industrial R&D Rapid changes in some Member States

24 Industrial R&D

25 Public research

26 Public research Distribution of government funding in the EU

27 Public research

28 Public research The paradox of technology transfer The real meaning of the US Bayh-Dole Act –University as broker of exclusive rights to the industry Are European universities underperforming? –Not necessarily if we look beyond official data. Thus, two different approaches but quite similar results

29 Concluding Messages More R&D spending has a positive effect, but at current pace the EU will never get to 3% But, improving the efficiency of the existing framework is important as well For industry the market remains the main driver and the right policy mix can influence it

30 Concluding Messages For universities autonomy and new modes of governance are the next frontier The dynamics of technology transfer needs to be better understood A response to the globalisation of industrial R&D is excellence in academic research

31 Thank you for your interest !