EU Competitiveness(2)

Where does the EU stand now?

• Analysis of outcomes of Lisbon objectives : the Sapir Report

• Mid-Term Review of Lisbon Agenda:Facing the Challenge (Report from the High Level Group chaired by Wim Kok)

The Sapir report: findings

GDP and Productivity in EU (US=100)

Source: European Commission, New Cronos database.

Copyright

• © Sapir, 2003

2005

The Lisbon Agenda ‘Revived’

• Focus on two main areas:– Productivity– Employment

Make objectives of social cohesion and environmental protection achievable

- The latter reinforce growth and employment

The Renewed Lisbon Action Plan

• Aims:– EU as a more attractive place

to invest and work– Promoting knowledge and

innovation for growth– Creating more and better jobs

EU as a more attractive place to invest and work

• Extend and deepen the internal market

• Improve European and national regulation

• Ensuring open and competitive markets inside and outside Europe

• Expand and improve European Infrastructure

Knowledge and innovation for growth

• Increase and improve investment in Research and Development

• Facilitate innovation, the uptake of ICT and the sustainable use of resources

• Contribute to a strong European industrial base

Creating more and better jobs

• Attract more people into employment and modernise social protection systems

• Improve the adaptability of workers and enterprises and the flexibility of labour markets

• Investing more in human capital through better education and skills

The Competitiveness and Innovation Framework Programme (CIFP)

•Brings together support programmes towards:–Higher EU productivity– Innovation capacity–Sustainable growth–Environmental concerns

The crucial areas

• ICT Policy support programme (eEurope)

• Entrepreneurship and Innovation

(especially SME geared)

• The Intelligent Energy – Europe Programme

(energy/environment and sustainable

development)

eBusiness Watch (c)

Geographic Differences in e-Business

100

89

88

77

75

68

56

0 20 40 60 80 100

FI

DE

UK

IT

FR

CZ

HU

(for selected countries, based on 10 sectors)

Based on data in % of firms (thus emphasizing small companies).

The index aggregates 16 component indicators

eBusiness Watch (c)

44

57

61

38

38

52

55

-10 0 10 20 30 40 50 60

Revenue growth

Process efficiency

Work organisation

Procurement costs

Product quality

Customer service

Productivity

Negative Positive

Perceived ICT impact on the business

eBusiness Watch (c)

33

40

24

20

37

25

34

30

29

18

22

27

25

24

0 10 20 30 40 50 60 70

Management

Accounting

R&D

Production

Marketing

Logistics

Customer support

Expect high impact Expect medium impact

Read: "Firms representing …% of employment in the sectors surveyed expect that ICT will have a high / medium impact on management / accounting / … in the future."

Base: EU-10, 10 sectors. N = 7237.

Where ICT will have an impact in the future?

EU R&TD Policy

(supporting the Lisbon Agenda)

Contents

• Industrial Policy and Components• Science and Technology Policy

Rationale• Research and Technological

Development Policy in the EU• Innovation Policy• Enterprise Policy

EU Industrial Policy

Industrial Policy

• M. Bangemann (1994): – Industrial Policy ‘should promote adaptation to

industrial change in an open and competitive market’

• Instruments:– Subsidies– Tax breaks– Protection from foreign competition

• Specific versus ‘general’ industrial policy towards the competitive function of the market

• Industrial agglomeration and support for R&D

Industrial PolicyThe analysis of world trends and of Europe’s position highlights the need to:

– adapt its industrial policy– spread the enterprise culture – encourage risk-taking– promote the emergence of innovative

companies able and willing to conquer the world market.

New forms of competition

require:

• the mastery of technologies, • access to global markets, • speed of action, • innovation, and • intangible investment.

EU firms implications

The ambition of European firms should be:

• to improve their competitiveness on all the World's markets, and

• to be present in the leading industrial and service sectors.

Resulting priorities

• rapid adaptation, • active cooperation, and• a sharing of responsibility between

the EU's different economic, social and political players.

Economic rationale for R&D Policy

•Arrow (1962):–Problems inducing market failure for invention processes

•Uncertainty•Indivisibility•Inappropriability

Science and Technology Policy• The USA, Japan and the EU have realised that

an effective research and technological development (R&TD) policy is crucial in order to build up firms’ competitive potential.

• Compared with its leading rivals Europe is at a disadvantage on three fronts:– Lower resources and resource growth– A fragmented, uncoordinated policy– Less efficient take-up of research results

An EU R&TD Policy

• 1974– EU Council decides on a common policy in

the field of science and technology

• Policy scope: – Coordinate the relevant policies of member

states– Implement research programmes and

projects of common interest

Policy Objectives

• 1977:– Securing long term supply of

resources– Promoting internationally competitive

economic development– Improving living and working

conditions– Promotion of environment and nature

Focus and instruments

• EC support criteria:– Cost too high for single nation– EC program good chance to compete

internationally– Cases with real potential (e.g. new energy

sources)– Need for standardization of information systems

• Since 1984– Main policy instrument: The Framework Programme

(since January 2007: FP7)

The European Research Area

• 2000 – priorities:

– Networks and centres of excellence– Strengthening SME technologies– Improving research infrastructure

(electronic networking)– Human resource development– Science and citizens

Research and Innovation

• Research policy focus:– Developing new knowledge– Application of new knowledge– Framework conditions for research

• Innovation policy focus:– Transforming knowledge into

economic value and commercial success

European Innovation Policy

• Lisbon and knowledge and innovation for growth

• 2002 Barcelona European Council goal:– to increase EU research investment

from 1.9% of GDP to 3% of GDP by 2010

– Increased share of private funding for R&D, from 55% to 2/3

Requirements for Member States

• Reform and strengthen public research and innovation systems

• Help develop supportive financial markets

• Create attractive education, training and career conditions

Commission Action focus

• 2005– Step up dialogue with stakeholders to

identify regulatory barriers to research and innovation

– Adopt a more research and innovation-friendly State aid regime

– Support actions on improving the IPR system, and its effective use

Commission Action focus...

– Support, monitor and further develop actions under the research human resources strategy

– Promote the use of public procurement to stimulate research and innovation

– Provide guidance to promote an optimal use of R&D tax incentives

EU Patent System

Patents in Europe

For an enterprise operating on an open market, intellectual property like:

• patents, European Patent Office• trade marks and • licences

Patents in Europe

are tools for:

• protecting and capitalising on the results of its research and creativity

• negotiating favourable terms for technological cooperation and,

• possibly, even dominating the market.

Inefficiencies• The imbalance between the US and

Europe in terms of the number of patents and volume of royalties is growing

• particularly in research-intensive sectors, notably– information technology, – pharmaceuticals, – biotechnology.

Inefficiencies

• American SMEs and universities benefit from cheap and swift patent facilities.

• In Europe, the high cost and complexity of the procedures for obtaining effective protection throughout the single market scare many SMEs and universities away from taking this course.

View of EU’s progress• ‘Science, Technology and Innovation” shows that

R&D intensity (R&D expenditure as % of GDP) in Europe has stagnated since the mid-nineties, while major competitors such as Japan, China or South Korea have been able to increase substantially their R&D effort, shaping a world where knowledge is more evenly distributed than ever before. Moreover, the R&D investment deficit against the US has remained constant over recent years. In particular, the low level of business R&D in the EU remains worrying.’

Source: The European Commission (Key Figures), 2007

Reasons of EU lower business intensity of R&TD

• EU manufacturing and most services more research-intensive

• Business R&D intensity (business R&D expenditure as % of GDP): 1.13 % in 1995 vs. 1.19 % in 2003.

Issues:– Evolution towards service economy growing

weight for low R&D intensity services sectors.– R&D intensity predominantly determined by high-

tech and medium-high-tech industries;– US benchmark about 20 % higher (in EU it would

imply a business research intensity of 1.27 % of GDP instead of current 1.17 %)

R&D intensity in comparative terms

Bibliography

• Sapir et al, 2003. An Agenda for a Growing Europe

• Guellec, D. and B. van Pottelsberghe de la Potterie, 2007. The Economics of the European Patent System. Oxford: OUP.

• Competitiveness and Innovation Framework Programme

• Key figures on Science, Technology and Innovation