Remedies required quickly if Europe is to reach ambitious R&D and economic targets

Europe is in danger of missing its highly touted targets of increasing R&D spending and strengthening its knowledge-based economic muscle unless it doubles annual growth in R&D investment. A new publication by the European Commission reports that the gap in R&D expenditures between the European Union (EU) and the US is widening, while the growth rate of investment in the knowledge-based economy is actually declining.

The report — Key Figures 2003-2004 on Science, Technology and Innovation —is a call to action by EU member states, particularly the top economic nations referred to as the EU-15. It asserts that the annual growth rate for R&D must quickly reach 8% instead of the average 4.5% achieved between 1997 and 2002 if it hopes to reach R&D spending of 3% of gross domestic product by 2010. Gross expenditures on R&D in 2001 for the EU-15 were 1.98%.

“The Union’s priority for the next 12 months must be to stimulate investment in knowledge and innovation alongside faster structural changes in order to boost productivity and employment,” states the report.

The target of 3% R&D-to-GDP was established at the Barcelona Summit of 2002, while the 2000 Lisbon Summit of 2000 set out a strategy illustrating that Canada is not alone in establishing stretch targets for innovation. The Lisbon Strategy declared that the EU by 2010 would be transformed “into the most competitive and dynamic knowledge based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion”.

While some countries — Sweden and Finland — have R&D intensities above 3%, most fall far short and the majority show few signs that they have the will to make the necessary investments. Some of its key observations conclude that:

* the EU fails to convert its scientific excellence and highly qualified personnel into commercially successful innovations;

* Large, R&D-intensive European firms are increasingly investing in non-European nations, namely the US and several Asian countries;

The EU-15 generates fewer patents with a high economic value than the US. These so-called Triadic patents are those registered with the European Patent Office, the US Patents and Trademarks Office and the Japanese Patent Office.

As in Canada, the performance of the business sector pulls down overall EU performance. When R&D is examined as a percentage of value added of industry, business in the the EU-15 had an R&D investment performance in 2000 of 1.61%. That compares to Japan (3.3%) the US (2.55%) and Canada (2.0).

Growth rates in business sector R&D fluctuate wildly from country to country. On the top end of the scale, business sector R&D in Lithuania grew nearly 60% between 1997 and 2001while at the bottom, Slovakia decreased by 12.5%. The EU average is 5.6% compared to 5.5% for the US and 2.2% for Japan.

Like most industrialized nations, the EU is pinning its innovation hopes on the knowledge production and absorption of smaller firms. The report illustrates that for both public and private investment in R&D for smaller firms, Japan and the US are well ahead of most European nations. For private venture capital (VC) financing, the EU-15 lags well behind the US, even when the dramatic decline in US VC investment is taken into account. It also notes that exit strategies for VC investment in EU member states are not well developed.

To obtain the full report, go to: http://europa.eu.int/comm/research/era/pdf/indicators/ind_kf0304.pdf

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