Third European Report on Science & Technology Indicators 2003 · Third European Report on Science &...

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Third EuropeanReport on Science &Technology Indicators

2003

Commun i t y Re sea r ch

Towards a Knowledge-based Economy

The Third European Report on Science and Technology Indicators presents a quantitative picture of where the European Union

stands in relation to research and innovation at the start of the 21st century. With more than 450 pages of graphs, tables and

comparative analyses, the Report relates current trends in European S&T to recent policy developments at the EU level and

in the Member States, and compares the European Union’s performance with that of its main partners. The primary focus of

the Report is on Europe’s transition to the knowledge-based economy. Part I of the Report examines EU investment in knowledge

production, dissemination and absorption using an array of indicators including R&D expenditures, venture capital, education

and human resources. Part II goes on to look at the “output” side in terms of Europe’s performance in knowledge production,

exploitation and commercialisation, where the indicators analysed include scientific publications, citations, Nobel prizes, patents,

high tech trade and measures of science technology linkage.

Price (excluding VAT) in Luxembourg: € 77 (1 volume)

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uropean Report on S

cience & Technology Indicators

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EUROPEAN COMMISSIONDirectorate-General for Research — K - Knowledge-based economy and society; K3 - Competitiveness, economic analysis and indicatorsContact: Mrs Fotini Chiou

European Commission, Office SDME 11/16

B-1049 Brussels — Tel: (32-2) 296 90 26 - Fax (32-2) 296 28 40E-mail: [email protected]

Third European Reporton Science & Technology Indicators

2003

Towards a knowledge-based economy

EUROPEAN COMMISSION

Directorate-General for ResearchKnowledge-based economy and society

Competitiveness, economic analysis and indicators EUR 20025 EN 2003

LEGAL NOTICE:

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information.

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Cataloguing data can be found at the end of this publication.

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EUROPEAN COMMISSION

RESEARCH

Commissioner : Philippe Busquin

Directorate-General for Research

Director General: Achilleas Mitsos

The Directorate-General for Research initiates, develops and follows the Commission’s political initia-tives for the realisation of the European Research Area. It conceives and implements the necessaryCommunity actions, in particular the Framework Programmes in terms of research and technologicaldevelopment. It also contributes to the implementation of the “Lisbon Strategy” regarding employ-ment, competitiveness at international level, the economic reform and the social cohesion within theEuropean Union.

The Directorate K “Knowledge-based economy and society” (Director : Jean-François Marchipont)contributes to the realisation of the European Research Area in the fields of the social sciences, eco-nomic, science and technology foresight, and the respective analyses. To this end, it monitors andencourages science and technology foresight activities, conducts the economic analyses necessaryfor the work of the Directorate-General, and co-ordinates policy as regards the relevant political, eco-nomic, human and social sciences. It prepares the European reports on science and technology indi-cators, and it contributes to the development and implementation of the Framework Programmes inthese fields. It monitors the progress made in the implementation of the Lisbon strategy. It is respon-sible for encouraging investment in research and technological innovation. To this end, it develops poli-cies and measures to improve framework conditions (e.g. Intellectual Property Rights) for privateinvestment and the effectiveness of public financing instruments.

The Unit K3 “Competitiveness, Economic Analysis and Indicators” (Head of Unit: Ugur Muldur)contributes to the Directorate General’s policy conception and analysis. It is also responsible for thedevelopment and implementation of the related research actions in these fields (Action CBSTII of the5th Framework Programme) and ensures the publication of DG reports like the Key Figures : Towardsa European Research Area and the European Reports on S&T Indicators and conducts the ana-lyses necessary for the benchmarking of national policies and the mapping of excellence in economics.The members of the Unit K3 are :Fotini Chiou, Fabienne Corvers, Henri Delanghe, Vincent Duchêne, Angela Hullmann, Kai Husso, MarieJonkers, Dermot Lally, Gaëtane Lecocq, Marianne Paasi, Ian Perry, Viola Peter, Brian Sloan, Bénédictede Smet, Anastassia Vakalopoulou and Lise Vanneck.

Contact : Fotini Chiou : e-mail: [email protected]; tel. (32-2) 296 90 26; fax. (32-2) 296 28 40

URL : www.cordis.lu/rtd2002/indicators/home.html

VII

PREFACE

In recent years there has been an increasing recognition of the vital role played by research in the modern economy. Citizens arebecoming more and more aware of the impact of science and technology on their daily lives. Enterprises appreciate the growingimportance of research and new technologies for their competitiveness. Expert analysts recognize that knowledge is a key driverof growth, employment and improvements in the quality of life. Policy makers are now accepting that measures to stimulateresearch and the exploitation of knowledge must play a more central role in government policies.

This heightened emphasis was particularly visible at the recent summits at Lisbon and Barcelona where EU governmentsaffirmed the status of research policy as a central pillar of Europe’s strategy towards the knowledge-based economy. Researchpolicy will therefore be crucial for Europe in the coming years, and this is the reason why, in the preparatory debate on the futureof Europe, it has been cited among the core missions of the Union.

Meeting these challenges requires nothing less than a restructuring of the research landscape in Europe. This was the reason Ilaunched the initiative on the European Research Area, which had as its core message the need to overcome the traditionalfragmentation and compartmentalisation of research efforts in the EU through better coordination and cooperation.

On the one hand, a greater coordination of national research policies and European policy is needed so that they complementeach other better and form a more coherent whole – a matter which has become all the more pressing with the imminentenlargement of the Union.

On the other hand, there must be a strengthening of cooperation between different research actors across Europe. In this regard,the recently launched 6th Framework Programme for Research and Technological Development will make an importantcontribution – with its innovative structure and new instruments such as networks of excellence and integrated projects. It willprovide a powerful new tool to stimulate cooperation, promote scientific excellence, and integrate and strengthen the EuropeanResearch Area.

In order to improve the coordination and effectiveness of research policies in Europe, it is essential that policy makers have attheir disposal a common information base about European research trends and performances. The European Report on Scienceand Technology plays a valuable role in this respect, providing a shared information resource which presents policy-relevantS&T indicators and analyses. The in-depth analyses in this report are intended to complement the more compact Key Figurespublication which DG Research also produces every year.

This 3rd edition of the European Report has changed in content and layout compared with its predecessor. The new structurefocuses on Europe’s investment and performance in the knowledge based economy, and pivots around the policy challengesemerging from the Lisbon and Barcelona summits. The analyses are generally based on the latest internationally comparabledata, but there is a permanent need to develop new and better indicators, and with this in mind we have tried to introduce someinnovative measures (for example the new composite indicators for the knowledge-based economy).

The messages arising from the report are of critical importance for the future of Europe:

• It is now widely understood that Europe needs to invest more in research, particularly if it is to attain its objective of becomingthe most competitive and dynamic knowledge-based economy in the world by 2010. Results in this report indicate a wideninggap in R&D spending between the EU and the US, and confirm the importance of the Barcelona European Council’s call toraise EU research expenditure to 3% of GDP by the end of the decade. Forecasts presented in the first part of this Reportindicate that, if no major changes are made in national and regional R&D and innovation policies, and the 3% target is notreached, then the gap in 2010 will be much more significant. This is why we need a real and coordinated commitment to thisobjective from all policy makers in the EU Member States.

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• However, it is not just about spending more. Where and how we invest in research are also important factors. We need to targetfinancing on those key areas and technologies that will be vital for our future, such as nanotechnology and biotechnology,while at the same time developing new and efficient instruments for supporting research. Industry is particularly well-placedfor channelling more investment into commercially promising research and innovation activities. This is why the EuropeanCouncil has called for raising private R&D to 2/3 of total R&D spending by 2010. The European Commission will try to injectfurther momentum into this process in the form of an Action Plan to boost R&D investment and innovation, based on thelessons learned and best practices from on-going national efforts. It will be presented to the Council and the EuropeanParliament later this year.

• Investing in people will also be crucial for Europe’s future. People both produce and convey knowledge. Researchers inparticular form a key element of the modern knowledge-based economy. While the EU education system currently producesmore S&T graduates than the US and Japan, it still has fewer researchers per capita. Further efforts must be made to attractyoung people to scientific careers, to create more opportunities for highly qualified scientists – especially in the businesssector –, to better exploit the enormous potential of women to provide resources for S&T, and to encourage mobility ofresearchers between countries as well as between university and industry.

• Europe remains a world class scientific power. The EU is now the largest producer of scientific papers, outstripping even theUS. However, its most important challenge remains the exploitation and commercialisation of science in order to boost growthand employment and improve social conditions. This cannot be done simply through greater levels of investment, or thestrengthening of research policy. It also requires the effective coordination of a range of complementary public policies thatcan all contribute to this goal – including taxation, employment, enterprise, competition and education policies, as well asresearch and innovation policies. It is only by the modernisation and integration of its structural policies that the EU can bethe most competitive and dynamic knowledge-based economy in the world.

It is still too early to say whether Europe will meet its ambitious goals in 2010. However, I am convinced that if it continues onthis new dynamic, then, just as it was at the forefront of the industrial revolution at the turn of the 19th century, so it will be well-placed to lead the knowledge revolution in the 21st century.

All policies need to be based upon a vision of the future. My vision is of a Europe that has made the successful transition tobecome the most competitive knowledge-based economy in the world, with better jobs and improved social conditions: aEurope where most employment is in skilled well-paid jobs in knowledge-based sectors; where the majority of production is inhigh tech, knowledge-intensive goods and services; where growth is sustainable and based on clean technologies; whereprotecting inventions is cheaper and easier than anywhere else in the world; where women play an equal part in research at alllevels; where science is the most popular career choice for young people; and where the best researchers and the mostcompetitive firms from across the world want to come and work.

I hope that this Report, by setting out where Europe is in relation to S&T at the start of the 21st century, will provide a solid basisof quantitative and qualitative information on which we can build and strengthen our policies so as to reach this goal.

Philippe Busquin

IX

AUTHORS AND ACKNOWLEDGEMENTS

The Third edition of the European Report on Science and Technology Indicators has been published, at the request of PhilippeBusquin, member of the European Commission in charge of Research and the Joint Research Centre (JRC), by the DirectorateGeneral for Research, Director General Achilleas Mitsos.

Directorate K Knowledge-Based Society and Economy, under the direction of Jean-François Marchipont, was responsible forproducing the report. It was prepared, under the leadership of Ugur Muldur, by members of Unit K3 Competitiveness, EconomicAnalysis and Indicators between 2000 and 2003: Jean Bourlès, Fabienne Corvers, Henri Delanghe, Vincent Duchêne, AngelaHullmann, Kai Husso, Marianne Paasi, Ian Perry, Viola Peter, Brian Sloan and Richard Torbett. Technical assistance wasprovided by Fotini Chiou, Dermot Lally, Timo Hirvonen and Anastassia Vakalopoulou. Bénédicte de Smet, Marie Jonkers,Gaëtane Lecocq and Lise Vanneck were in charge of its layout and provided secretarial support.

Through work under study contracts mainly placed as part of the Common Basis of Science, Technology and InnovationIndicators (CBSTII) section of the Improving Human Research Potential specific programme of the 5th Framework Programmefor Research and Technological Development a number of European institutes and experts contributed significantly to thereport: Luke Georghiou (PREST), Chapter 2, part of Section III on European Research Centres; Geert Steurs (Idea Consult),Massimo Colombo and Paola Garrone (Politecnico di Milano), Chapter 3, section on mergers and acquisitions; Philip Marey,Andries de Grip and Frank Cörvers (ROA), Chapter 4 part on Employment scenarios; Wendy Hansen (MERIT), Chapter 4, parton mobility of S&T personnel; Bart Clarysse, section on SMEs and Dossier II on spin-offs; Rosella Palomba, Dossier III,Women in Science; Robert Tijssen (CWTS), the bibliometric indicators used in Chapter 5; Fulvio Naldi and Ilaria VanniniParenti (Biosoft), Chapter 5, part on patent and publication indicators by gender; Svante Lindquist (The Nobel Museum),Dossier IV on the Importance of Nobel Prizes as S&T Indicators; Rémi Barré, Françoise Laville (OST) and Ulrich Schmoch(Fraunhofer-ISI), the patent indicators used in Chapter 6; Knut Blind, Jakob Edler and Ulrich Schmoch (Fraunhofer–ISI),Dossier V on Patents in Services; Arnold Verbeek and Koen Debackere (INCENTIM-KUL), Dossier VI on S&T linkages.Copies of the full reports prepared by these institutes are available on request.

The authors of this report gratefully acknowledge the guidance given by other staff of DG Research and in particular: MichelAndré, Paraskevas Caracostas, Nicole Dewandre, Fabio Fabbi, Elie Faroult, Marge Fauvelle, Marshall Hsia, Bianca Nativel,Jacques Removille, Christine Tricot and Pierre Valette, and from Eurostat: August Götzfried, Ibrahim Laafia, Jean-Louis Mercy,Richard Ragnarson and Harald Sonnberger.

Also the authors would like to thank the following external experts who played a key role in the reviewing the text of the Report:Luke Georghiou, Wolfgang Glänzel, Dominique Guellec, Wendy Hansen, Sybille Hinze, Martin Meyer, Mario Pianta, BrigittePreißl, Ulrich Schmoch and Robert Tijssen. They would also like to acknowledge the assistance with preparing the final textgiven by Alister Scott and colleagues from The Knowledge Bridge.

The opinions expressed in this publication are those of the authors alone and do not necessarily represent the official positionof the European Commission.

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EDITOR’S NOTE

Much has happened in science and technology since the very first European Report on Science and Technology Indicators sawthe light of day in 1994. Research and innovation policies have evolved considerably, and so too has our understanding ofinnovation and our capacity to measure it.

This third edition of the Report reflects many of these changes, in its form as well as in its content. Yet its core mission remainsthe same as it was nearly a decade ago: to provide those involved in S&T policy with reliable indicators and comparativeanalyses of S&T trends in Europe. Over the years, feedback from the research community has confirmed that the Reportresponds to a clear need for information, and occupies a special niche. First and foremost, it is of course a European report,centred around S&T trends in the European Union and their relationship to current policy developments at the EU level and inthe Member States. Few other reports of this kind provide this intensity of focus on European issues. Secondly, it is fashionedas a policy-oriented report, rather than a classical compendium of statistics. The Report’s value added derives from exploitingthe work of statisticians and economists and transforming it into a product that can be readily understood by policy users andthat responds to what they want to know about S&T in Europe.

While its aims remain the same, the structure of the Report continues to evolve. The revised structure of the third edition reflectsrecent policy developments in the EU, in particular the heightened emphasis on Europe’s transition to the knowledge-basedeconomy – called for by the Lisbon European Council – and the objective agreed by EU governments at Barcelona of increasingR&D spending to 3% of GDP by 2010. Strongly linked to this is the initiative to create a true “European Research Area”launched by Commissioner Philippe Busquin which aims at a coherent restructuring of the European research system throughgreater coordination and cooperation. Finally, one should mention the emergence of “benchmarking” of research policies – ofwhich indicators are an important component – as one of the tools for implementing the new “open method of coordination” ofpolicies which was established at the Lisbon summit. These developments run like a thread throughout the Report linkingtogether the different sections, acting as a unifying backdrop to the discussion and providing a recurrent focal point for theanalyses.

It had been hoped to publish this third edition sooner than now, but its appearance has been delayed owing to need to devoteresources to a number of new policy activities – including the preparation of the initiative on the European Research Area andthe launching of the 6th EU Framework Programme for RTD, as well as the new exercises in benchmarking and mapping ofexcellence in research. Nevertheless, we have tried in the meantime to provide summary updates of S&T indicators in our KeyFigures publication which now comes out annually, and which we will continue to publish each year. We also plan in the nearfuture to produce some more targeted work on certain themes which we were not able to include in this edition of the Report.

The abiding principles of the Report have not changed. It tries wherever possible to compare the EU with its main globalpartners using official statistics from harmonized international sources. In some cases national sources have been used if nointernational data were available. An effort is also made to highlight methodological issues and disparities where important.Such a report could not have been made without the ongoing efforts of national and international statistical agencies to collectand harmonize data, and in this respect, a special mention should be made of the work of Eurostat, the OECD and the UN (andtheir member countries). Moreover, these same agencies are also responsible for significant improvements in recent years in thequality and range of statistics available for analysing S&T trends.

In addition to exploiting “classical” data from the official statistical system, the Report incorporates some new approaches inthe analysis and measurement of S&T, especially in certain key areas where established indicators are lacking. Some of theseinnovative approaches derive from projects funded from the 5th EU Framework Programme for Research and TechnologicalDevelopment (FP5), under the activity “Common Basis of Science Technology and Innovation Indicators”, which has beenactive in stimulating the development of new S&T indicators.

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Part I of the Report examines Europe’s investment in knowledge, and makes extensive use of classical statistics of R&Dexpenditure, government research budgets, education and human resources in S&T, which respect harmonized definitionsagreed at international level (e.g. those in the Frascati and Canberra Manuals). Part I also includes some complementary materialbased on innovative approaches or new sources of data, including:

• in chapter 2, a section describing the characteristics and recent trends of research centres in Europe;

• in chapter 3, an analysis of the effects of mergers and acquisitions on R&D, in addition to material on international researchjoint ventures, information on the top EU and international companies in terms of R&D spending, and an analysis of venturecapital investment in high tech start-ups;

• in chapter 4, results of a Eurobarometer survey on public knowledge and perceptions of S&T, a section on the migration ofskilled human resources, and an analysis of data relating to women’s participation in research – a theme which is developedin more detail in a dedicated dossier on “women in science” (dossier III).

Part II of the Report goes on to look at the EU’s performance in producing and exploiting knowledge. Indicators of scientificpublications, patents and high-tech trade are analysed in detail. Unlike trade statistics, bibliometric and patent data are notproduced by the official statistical system, but over the last decade they have more or less established themselves as “classical”S&T indicators. Part II also integrates the following new material:

• the results of a pioneering approach for measuring S&T outputs by gender (scientific publications and patents) (chapter 5);

• a dossier on European performance in terms of Nobel Prizes (dossier IV);

• an analysis of input and output indicators relating to two key technology fields, biotechnology and nanotechnology (chapter 6), which responds to the increasing demand of policy makers to evaluate performance in specific domains ordisciplines of critical importance for the future;

• a dossier on patenting in the service industries (dossier V);

• a dossier tracing the linkages between science and technology using indicators of citations to science in patent documents(dossier VI).

Another innovation in this edition is the use of two new “composite” indicators in order to assess the progress of the EU towardsthe knowledge-based economy: one which measures investment in the knowledge-based economy, and the other performancein the knowledge-based economy. The complex, multi-dimensional nature of the knowledge economy means that manyindicators need to be presented in order to cover its different aspects. The aim of these composite indicators is to distil thisinformation so as to obtain an overview, or a “big picture”, of trends across a number of related indicators. The results of thisinnovative measurement approach are presented at the end of chapter 1.

Unlike the previous two editions, the Third European Report on Science and Technology Indicators contains no statistical annex.This was decided partly in an attempt to limit the physical weight and bulk of the report (a common complaint of users whowished to carry it around without risking physical injury), but more importantly in recognition of the advances made in accessto data via the internet. The majority of the data used in the report can now be found quite easily on the websites of Eurostat(http://europa.eu.int/comm/eurostat) and the OECD (www.oecd.org), which offer fuller breakdowns and longer time series,while some of the indicators and detailed studies cited can be accessed on the S&T indicators website of DG Research of theEuropean Commission (www.cordis.lu/indicators).

Finally, we would be happy to receive feedback from readers of the Report so that we can continue to improve our products inthe future, and in order to help us in our ongoing aim of strengthening the link between users and producers of science andtechnology indicators.

U. Muldur

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TABLE OF CONTENTSPREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII

AUTHORS AND ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX

EDITOR’S NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII

CHAPTER 1 FACING THE CHALLENGES OF THE 21ST CENTURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Europe at the crossroads in a changing landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The emerging knowledge-based economy (KBE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Europeans: A world minority with an ageing population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Modernising the social model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Economic challenges: Combining prosperity, stability and dynamism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Economic growth and environmental sustainability? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Europe and the rest of the world: Globalisation, enlargement and governance . . . . . . . . . . . . . . . . . . . . . . . . . 17

Europe’s response to the challenges: The Lisbon strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The knowledge-based economy: How far are we? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Selected bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

PART I. INVESTMENT IN KNOWLEDGE PRODUCTION, DISSEMINATION AND ABSORPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

CHAPTER 2 INVESTMENT IN SCIENCE, TECHNOLOGY AND NEW KNOWLEDGE . . . . . . . . . . . . . . 41

Section I Trends in R&D investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411. Development of total financial resources devoted to R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412. Structure and trends in R&D financing and R&D performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Section II The role of government and public sector in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561. New role, rationale and challenges for government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562. Trends in R&D expenditure financed by government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Section III Government R&D performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651. The changing role of government research centres . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652. Government sector expenditure on R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Section IV The Higher Education sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751. The (r)evolution of the university system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752. Expenditure on R&D by the higher education sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85


DOSSIER I GOVERNMENT BUDGET APPROPRIATIONS FOR R&D: STAGNANT OVER THE PAST DECADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Section I EU and US: no major changes in total government investment between R&D in 1991–2000 . . . . . . 90

Section II Government R&D budget by socio-economic objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101


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CHAPTER 3 PRIVATE SECTOR INVESTMENT IN SCIENTIFIC AND TECHNOLOGICALKNOWLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Introduction: Business sector R&D at the core of interactive innovation process . . . . . . . . . . . . . . . . . . . . . . . . 103

Section I Financing of R&D activities: the role of the business sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041. R&D activities financed by the business sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042. Financing of business sector R&D (BERD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Section II Business sector as performer of R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1091. Importance and dynamics of business sector investment in knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1092. Business sector R&D by industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1143. Business sector R&D (BERD) in the service sector: the role of knowledge intensive services . . . . . . . . . . . . . 120

Section III Strategies and dynamics of international R&D performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1221. R&D and Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1222. R&D Performance of Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1253. R&D in international joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Section IV Business firms as R&D performers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1341. Diversity of business firms and knowledge investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1342. Knowledge investment and size of firms: distribution of Business Expenditure on R&R . . . . . . . . . . . . . . . . . 1343. Top international R&D performers: the role of the giants in knowledge investment . . . . . . . . . . . . . . . . . . . . . . 1384. R&D investment gap between top EU and US international R&D performers . . . . . . . . . . . . . . . . . . . . . . . . . . 1415. The innovation capacity of SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Section V Venture Capital Investment in High-Tech Start-ups: Creation of new R&D performers . . . . . . . . 1491. Typical Activities Financed by the Venture Capital Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1502. Increasing Importance of Venture Capital Investment in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1513. Venture Capital by Stages: creation and expansion of new business activities . . . . . . . . . . . . . . . . . . . . . . . . . . 1554. Venture Capital Investment in high-tech Industries: financing the emerging knowledge based economy . . . . . 1565. European-level policy actions and instruments for financing of high-tech and knowledge based start-ups . . . . 160

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161


DOSSIER II RESEARCH BASED SPIN-OFFS AS A VEHICLE TO COMMERCIALISE TECHNOLOGY 167

Section I Research-based spin-offs, concepts and definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Section II Financial and knowledge resources as environmental determinants of successful spin-off activity 171

Section III Venture nurturing as a necessary complement to a finance and science/techNOLOGY BASE . . . 173

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174


CHAPTER 4 HUMAN RESOURCES IN SCIENCE & TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Section I Human resources in S&T in the EU, US and Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1801. Researchers and other R&D personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1802. S&E graduates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1863. Researchers and S&E graduates: Potential shortages identified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Section II The growing demand for human resources in S&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1921. Education situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1922. Employment situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Section III Expanding the knowledge base by investing in education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2101. Public and private investment in education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2112. Investment in tertiary education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

Section IV Attraction of researchers from abroad: Beyond brain gain and brain drain . . . . . . . . . . . . . . . . . . 2221. Migration between the world regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2232. Emigration of students and researchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2253. Foreign students in the EU: A starting point for attracting researchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2324. Foreign-born S&T employees in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

XV

Section V Encouraging women into S&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2431. Women’s participation in S&T education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2432. Women in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2463. Employment of women . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253


DOSSIER III WOMEN IN SCIENCE: WHAT DO THE INDICATORS REVEAL? . . . . . . . . . . . . . . . . . . . . 257

Section I Measuring gender in science and technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Section II New concepts, initiatives and indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Section III The debate on women in science: Does the evidence confirm general opinions? . . . . . . . . . . . . . . . 265

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268


PART I CONCLUDING REMARKS: POLICY IMPLICATIONS AND PERSPECTIVES . . . . . . . . . . . . . . . 271

The EU and its ambitious goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Investing more and better in the knowledge-based economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

The importance of human resources for S&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

PART II. PERFORMANCE IN KNOWLEDGE PRODUCTION, EXPLOITATION AND COMMERCIALISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

CHAPTER 5 SCIENTIFIC OUTPUT AND IMPACT: EUROPE’S LEADING ROLE IN WORLD SCIENCE 277

Section I Measuring scientific output and impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2781. Measuring scientific performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2782. Influences on scientific production and impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

Section II Global scientific output compared: Europe resumes the lead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2791. Europe: Re-taking the lead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2792. Scientific publishing by field: world trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2853. Active vs. influential – profiles of world regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2874. Case studies: world developments in scientific disciplines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

Section III The scientific specialisation of the EU-15 Member States: Diversity rules . . . . . . . . . . . . . . . . . . . . 294Specialisation profiles by country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Section IV Patterns of scientific co-operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3001. World trends in scientific co-operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3012. EU co-publishing with other regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3033. Internal co-publishing in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

Section V The most actively publishing research institutions in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308European co-publishing top ten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316


DOSSIER IV THE IMPORTANCE OF NOBEL PRIZES AS S&T INDICATORS . . . . . . . . . . . . . . . . . . . . . . 319

Section I Nobel prizes as S&T indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Section II The nobel system: An outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Section III The awarding process: Nominations and evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Section IV Nobel prizes as an indicator of dynamic fields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Section V Nobel prizes as S&T indicators of national merit: Brain drain vs. brain gain . . . . . . . . . . . . . . . . . . 322

Nobel prizes as S&T indicators: Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325


XVI

CHAPTER 6 EUROPE’S TECHNOLOGICAL COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Section I The competition for invention in world markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328Introduction: patents as an indicator of invention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3281. Overview of performance in the different patent systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3292. Technology fields and their dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3363. Patenting by multinational firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3464. A final look at EU patenting performance: the link with research effort and challenges for the future . . . . . . . . 351

Section II Trade in high-tech products: Europe’s performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3541. Main global trends in high-tech trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3542. Europe’s main partners in high-tech trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3583. High-tech trade – the EU and its Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3614. Dynamics and structure of high-tech trade by product group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364

Section III European performance in future technologies – The emergence of biotechnology and nanotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

A. Biotechnology: revolutionary in many respects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3731. Biotechnology: a science-driven set of techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3732. Industries, methods and applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3753. Measuring biotechnology: difficulties prevail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3774. Europe’s efforts to gain ground – financial commitments to foster biotechnology . . . . . . . . . . . . . . . . . . . . . . . 3785. Indicators of the scientific base: the US leads with Europe a close second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3796. Technological uptake – fewer patent applications in Europe than in the US . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3817. Biotechnology – links between basic science and applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3858. Another European paradox? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389B. Nanotechnology: An emerging technology set for economic breakthrough . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3911. Development of nanoscience and nanotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3922. Country performance in nanoscience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3933. Country performance in nanotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3964. Country specialisation in nanoscience and nanotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3985. Collaboration between countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3996. Financial support for nanotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405


DOSSIER V PATENTING IN THE SERVICE SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

Section I The role of patents and other means of property protection for service companies . . . . . . . . . . . . . . 407

Section II Empirical evidence about patenting activities of service companies . . . . . . . . . . . . . . . . . . . . . . . . . . 409

Section III Preliminary conclusions about the role of patents for service companies . . . . . . . . . . . . . . . . . . . . . 412


DOSSIER VI SCIENCE AND TECHNOLOGY LINKAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413

Section I Exploring the links between science and technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Section II How is europe performing in S&T interaction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428


PART II CONCLUDING REMARKS: POLICY IMPLICATIONS AND PERSPECTIVES . . . . . . . . . . . . . . 429

S&T performance: policy developments and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

From science and technology to growth and employment … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431

XVII

ANNEXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433Composite indicators: Methodological annex to chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433Human resources in S&T: Methodological annex to chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435Bibliometric analysis: Methodological annex to chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439Glossary: Country abbreviations and groupings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445Glossary: Other abbreviations and organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446Symbols used in this Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448Commission Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449List of major studies under Common Basis for Science, Technology and Innovaton Indicators (CBSTII) . . . 450List of major research contracts under Common Basis for Science, Technology and Innovaton Indicators (CBSTII) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451

EUROPE AT THE CROSSROADS IN ACHANGING LANDSCAPE

Europe is facing a crucial period in its history. It is confrontedwith a number of major, and sometimes very conflicting,challenges and choices, and the various paths it decides tofollow will crucially affect the future shape of European society and its role in the world:

• Given the increasing competition in a globalised world,will Europe be able to combine higher competitiveness andsocial cohesion?

• In the transition to a ‘knowledge-based society’, will Europebe able to prevent the emergence of a ‘digital divide’?

• In macro-economic policy, will the emphasis of fine-tuningbe on inflation or unemployment? And is a cautious, restric-tive budgetary policy aiming for macro-economic stabilitystill appropriate?

• At what pace will the enlargement of the Union proceed?And what kind of governance model are we going to adopt?Will enlargement lead to more or less convergence betweenEuropean regions?

• In the international order, will we have a continuing Ame-rican leadership or will there be a more multipolar struc-ture? And how important a role will Europe play?

These issues must be addressed against the backdrop of acompletely new environment created by globalisation, tech-nological change and an ageing population, which will havemajor consequences for the fundamentals of the welfare state.Globalisation means that companies, regions, nations andcontinents are competing to attract investment, whichdepends increasingly on the general conditions influencingbusiness competitiveness. Business competitiveness, in turn,relies more and more on the capacity to answer just in time tothe specific needs of customers. This means managing alarger amount of knowledge through the intensive use ofinformation technologies (Rodrigues, 2002). Of courseknowledge per se is not a new asset; it has always been a basisfor human activity. However, what is radically new is the paceof its creation, accumulation and diffusion resulting ineconomies and society following a new knowledge-basedparadigm. Working and living conditions are being redefined;markets and institutions are being redesigned under new rules

and enhanced possibilities for the exchange of information.Moreover, knowledge is not only becoming the main sourceof wealth for people, businesses and nations, but also themain source of inequalities between them. In other words,while knowledge is the key to increased competitiveness, itcould also lead to a reduction in social cohesion and increa-sing economic disparity between regions, countries and con-tinents. And since knowledge is the key resource, the humancapital in which much of it is embodied takes on an ever-increasing importance. This in turn leads us to a crucial ques-tion: to what extent can the input of new, highly-skilledhuman capital compensate for the ageing of European popu-lations?

Europe’s leaders already acknowledge that the transitiontowards a knowledge-based economy involves a fundamentalstructural change, and that all the challenges facing Europeneed to be reconsidered in the light of this new paradigm. Atthe Lisbon European Council of March 2000, they adopted anew strategic goal to transform the Union by 2010 into “themost competitive and dynamic knowledge-based economy inthe world, capable of sustainable economic growth with moreand better jobs and greater social cohesion”1. However, inthis transition to a knowledge-based economy, Europe isalready lagging somewhat behind the US, and can learn a lotfrom the US experience. The aim should not be to imitate theUS, but rather to seek to define the European way to theknowledge-based economy. As the Lisbon Conclusions state:“The Union must shape these changes in a manner consistentwith its own values and concepts of society”2.

Scientific and industrial research, as the main resource for thecreation of new knowledge, is at the core of the transitionalprocess towards the knowledge-based economy and thereforerepresents a crucial input for the strategic goals set at theLisbon Council. This report gives a detailed and analyticaloverview of the main indicators of scientific and technologi-cal research, by comparing the different European countrieswith the US and Japan. The strategy chosen at the LisbonEuropean Council will be a key theme recurring throughoutthe report, but the Lisbon strategy itself is a product of anumber of broader developments. The aim of this first chap-ter therefore is to set the scene for the rest of the report by pre-senting the wider perspective of the global economic, social

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1

CHAPTER 1Facing the challenges of the 21 st century

1 Council doc. 100/1/00 Rev. 1, paragraph 5.2 Lisbon Conclusions, op cit., paragraph 1.

and political context of Europe and the challenges that itfaces.

The remainder of this chapter is structured as follows. Thenext section addresses the first -and probably most striking-issue: the fundamental and unavoidable transition to theknowledge-based economy. The chapter then goes on toanalyse the main demographic, social, economic and politicalchallenges that Europe will face in the coming years. A nextsection examines Europe’s response to these challenges – theLisbon strategy – and its consequences for research policy.The final section then presents the latest indicators on invest-ment and performance in the knowledge-based economy. Itshows how Europe and its Member States have progressed inthe last few years.

THE EMERGING KNOWLEDGE-BASEDECONOMY (KBE)

Knowledge as a strategic asset

Since the beginning of the 1970s, the most advancedeconomies in the world have been undergoing structuralchange, turning them from industrialised economies based onlabour, tangible capital and material resources into economiesbased more and more on the creation, diffusion and exploita-tion of new knowledge. One of the fundamental characteris-tics of this shift is the structural intensification of researchactivities. In the emerging ‘knowledge-based economy’, alsocalled ‘learning’ economy, economic growth depends moredirectly on investment in knowledge, which increases pro-ductive capacity, than on traditional factors of production(Lundvall and Johnson, 1994). In other words, knowledgeraises the returns on and the accumulation of other types ofinvestment (Nelson and Romer, 1996). In a production func-tion where knowledge becomes the primary factor, humancapital and professional skills play an even more essentialrole. Human capital is the key element in the creation of newknowledge and its dissemination and assimilation in broadsectors of industrial, commercial and social life.

However, new knowledge elements and their successfulexploitation have always been the source of great economicprogress in the past. The importance of knowledge for eco-nomic growth has been recognised in much economic thin-king and writing in the last two centuries. Economists, justlike historians, have always been aware of the crucial impor-tance of knowledge accumulation for long-term growth (seefor example the work of classical economists such as Marxand Schumpeter). According to Abramovitz and David, theimportance of intangible investment even grew substantiallyin the long term. In the second half of the 19th century, growthof physical capital per hour worked accounted for two-thirds

of labour productivity growth; at the end of the 20th century itrepresented only one fifth of it (Abramovitz and David,1996).

What is new now is the pace of knowledge production anddissemination. There has been a fundamental change in thenature of knowledge production, accumulation and diffusionprocesses, and this has had much more than just technical oreconomic implications. Without pretending to be exhaustive,one could describe the transition to a knowledge-based eco-nomy under three headings (Lundvall, 2001; Rodrigues,2002; Soete, 2002; Viginier, 2002):

• the impact of new key technologies on the process ofknowledge production, accumulation and diffusion, andconsequently also on economic growth;

• the intensification in the production, diffusion and imple-mentation of technological, organisational and institutionalinnovations;

• the widespread impact of the transition on almost allaspects of society.

Impact of new key technologies

New technologies and their successful dissemination havealways had an important impact on economy and society.Three new key technologies are nowadays at the core of thetransition to a knowledge-based economy. Firstly, there arethe Information and Communication Technologies (ICT),which already came to the fore in the 1980s. More recently,biotechnology has shown a huge potential and widespreadimpact on many domains of economic and social life. A thirdkey technology for the 21st century is nanotechnology. Thesekey technologies have revolutionary characteristics. Techni-cally speaking, a ‘key technology’ is one that gives rise tonew technologies and deeply influences existing ones; inother words, they may have a ‘horizontal’ effect on manyindustry sectors, with consequences for the whole economy.It can be a catalyst for radical technological progress, leadingnot only to substantial changes in firms’ innovation processes,but also having a significant impact on society. ICT, bio- andnanotechnologies seem to possess all the characteristics ofkey technologies in that they may prove to be strategicallyinfluential in terms of new products, processes, and employ-ment.

Indeed, ICT already plays a prominent role as a basic meansfor the collection, storage and dissemination of (codified)knowledge. It makes human communication and knowledgeexchange far less dependent on constraints of time and space.It increases the efficiency of knowledge production and thusspeeds up its accumulation. Bio- and nanotechnologies toohave a deep ‘horizontal’ impact across practically all indus-tries. They are generating technologies incorporated into abroad range of products and processes, like new nanoscalesemi-conductors that will revolutionise the computer indus-try. Moreover, these key technologies seem increasingly to

Chapter I - Facing the challenges of the 21st century

2

interact with each other, forming new fields and new applica-tions like bioinformatics (e.g. IT providing tools for genesequencing) or nanobiotechnology. Their increasinglycommon use in many scientific and technological fields hasled to a blurring of technological boundaries, making it moreand more difficult to distinguish between these technologiesand redefining products and innovation processes.

Thus, the upswing in the use of these key technologies hassignificantly changed the perception of the innovationprocess over the past decade. Generally speaking, manyauthors now consider innovation capability less in terms ofthe ability to discover new technological principles, than theability to exploit systematically the effects produced by newcombinations within the existing stock of knowledge (Davidand Foray, 1995). Access to state-of-the-art knowledgebecomes increasingly important, enabling innovators to drawupon the work of other innovators. In the knowledge-basedeconomy, the science and technology system is evolvingtowards a more complex ‘socially distributed’ structure ofknowledge production. As Soete put it, the former system wasmuch more based “on a simple dichotomy between, on theone hand, deliberate learning and knowledge generation(R&D labs and universities) and, on the other hand, activitiesof production and consumption where the motivation foracting was not to acquire new knowledge but rather to pro-duce or use effective outputs” (Soete, 2002, p. 38). In theknowledge-based economy, this dichotomy is (partially) col-lapsing. In other words, there is now a proliferation and amuch greater diversity of ‘learning organisations’ with theproduction and absorption of knowledge as explicit goals(David and Foray, 1996; Smith, 2002).

Technological, organisational andinstitutional innovations

It is clear then that the emergence of a ‘knowledge-basedeconomy’ is much more than a temporary intensification inthe production of technological innovations in a few sectors.A wider change is taking place in all sectors of activity, fromservices to manufacturing, and even agriculture, under thepervasive effect of new key technologies. Technologicalinnovations are invading all sectors of the economy andmodifying our lives. Moreover, this change is not only tech-nological, but also includes fundamental institutional andorganisational innovations since it reshapes the rules thatdetermine how companies, businesses, institutions and mar-kets operate, due to the new possibilities of exchanging andexploiting knowledge. Knowledge management becomes akey component of corporate strategic management, activatingthe relationship between marketing, research and production,

and modifying the way organisations function. Beyond theseorganisational innovations, the extension during the 1990s ofintellectual property protection to new actors and new typesof knowledge appears to have been a crucial institutionalinnovation, since it made investments in new high-tech pro-ducts and companies much more attractive3. In the US, it sup-ported -and even stimulated- the development of software andbiotechnology industries, the market in high-tech shares andthe creation of start-ups by university researchers. In this con-text, the development in the US of an effective venture capi-tal market, which can provide additional or complementaryresources for investment in knowledge creation and accumu-lation, appears to have been a crucial institutional innovationin the 1990s, and shows a greater readiness by the privatefinancial sector to invest in new, knowledge-based activities.

From a knowledge-based economy to aknowledge-based society

Obviously the transition to a knowledge-based economy hasmany technological, economic and institutional dimensions.But there is more: the transition is having a significant impacton almost all aspects of society and represents a very complexprocess. It requires new competencies, is changing workingand living conditions and having an effect on inequalitiesbetween population groups.

In a knowledge-driven economy, the availability of well-edu-cated human capital is crucial. Even if ICT offers huge poten-tial for accessing competitive knowledge, there are wide localvariations in the local capacity or competence to access,understand and use such knowledge. Thus, new technologiesenable a higher ‘new’ growth path only if they are coupledwith long-term availability of highly skilled manpower -notonly scientists and engineers, but more generally so-called‘knowledge workers’. Doubtlessly, this is having importanteffects on how labour markets function, and on education andtraining policies. Too little investment in human resourcesoften becomes a limiting factor in relation to innovation andeconomic success (OECD, 1998).

However, speaking about more investment in humanresources definitely goes beyond the general trend towardshigher qualifications or re-skilling. Education and trainingpolicies need to emphasise particular forms of (new) knowl-edge and new combinations of intangible assets, new skillsand new competencies. Digital knowledge, polyvalence,social and management competencies, quality consciousnessand creativity are some of the characteristics that are becom-ing crucially important. A fundamental change in the waywork is organised is taking place and workers are facing anincreasingly unstable environment. As Schienstocks put it,


3

3 During the 1990s, the European and American patent offices have been progressively enlarging the concept of ‘invention’ that may be protected by a patent,including new fields like life sciences. Since 1995, the US Patents and Trademarks Office (USPTO) allows applications for patents on gene sequencing. Duringthe 1990s, there has been a progressive recognition, in the US and to some extent in Europe, of the right to patent software (computer programme without any‘physical embedding’). In the last few years, the intellectual protection has also been extended to ‘business methods’ (Viginier, 2002, p. 148-152).

“the average worker is confronted with new tasks and prob-lems and has to develop new skills and competencies morefrequently than ever before” (Schienstocks, 2001, p. 165).Therefore, to be able to cope with new problems and differentsituations, they need to learn how to learn.

Increasing pressure for more adaptability has – at least – twoimportant consequences. Firstly, it leads to a greater indivi-dualisation of work in the labour process, and consequently tomore generalised flexibility and multifaceted working condi-tions (Castells, 1996). This requires new working arrange-ments that may improve workers’ quality of live, but, at thesame time, may lead to increased job insecurity. This newtrade-off between job flexibility and insecurity will be animportant challenge for employment policies. Secondly, thereis the emerging danger of growing social exclusion. Sinceeducation and knowledge are key resources giving peopleaccess to flexibility and wealth, they also constitute the mainsource of inequalities between them. Slow learners, amongthem the unskilled, handicapped and elderly, will have moredifficulties keeping up with the new, rapid pace of change. Itis a huge – but unavoidable – task for education and trainingpolicies to build a ‘learning society’ as a pre-condition tohaving a knowledge-based society (Lundvall, 2001).

In other words, while there is reason to be optimistic about thehuge potential benefits from developing human resources incombination with new technologies and new forms of organi-

sations, one should, however, be aware that the knowledge-based society may not be sustainable if left to itself. Its effectson multiple fields must be dealt with through a multi-dimen-sional and combined effort at the European, national andregional level. Moreover, in different areas Europe is facinggreat challenges and also seems to be ill-prepared to adaptsuccessfully to the rapidly changing landscape. Demo-graphic, social and economic challenges need to be reconsi-dered in the light of this fundamental transition. Let us moveon to the demographic challenges.

EUROPEANS: A WORLD MINORITY WITHAN AGEING POPULATION

Against the background of this fundamental transitiontowards a knowledge-based economy, the demography of theEuropean continent, and particularly its future populationtrends, are likely to have a very significant impact on thefuture of Europe. Europe’s policy-makers must take accountof two important developments: the unprecedented low shareof Europeans in the total world population on the one hand,and the ageing of the European population on the other hand.

In demographic terms, Europe has always represented a sub-stantial part of humanity. From the dawn of Christianity to the


4

Figure 1.1 European share of world population, 1950-2050 (%)

Source: DG ResearchData: United NationsNote: Europe = EU-15 + EFTA + Candidate Countries + Other Europe (see glossary of country grouping in Annex)

Third European Report on S&T Indicators, 2003

3.6

5.56.2

11.8

10.5

9.3

8.17.0

4.94.4 4.0

7.7

11.8

13.4

21.3

19.3

17.1

15.2

10.59.4

8.5

22.9

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

EuropeEU-15

0

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10

15

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end of the 18th century, Europeans accounted for between15% and 20% of the world population (between 9% and 13%in the case of the 15 EU Member States). By way of excep-tion, the share increased in the 19th century to 28% on the eveof the First World War. Only in the second half of the 20th cen-tury did a structural and, according to certain experts, irre-versible decline take place. Whereas in 1950 Europeans stillrepresented almost a quarter of humankind, they now accountfor only 13% of the global population, a unique phenomenongiven long-term trends. With regard to future trends, the fore-casts of international institutions in this respect are pointingin the same direction: whatever the scenario, in the first halfof the 21st century the relative decline of Europe’s populationwill continue, and it will even fall to below 10%. In 2050,Europe will account for less than 8% of the world population,with the present 15 Member States of the European Unionrepresenting barely 4% of the world population.

The population trend in other regions of the world is quite dif-ferent. North America, whose share of the world populationwas practically insignificant until the beginning of the 19th

century, has increased from slightly more than 3% in 1820 to13.8% in 2000. The general opinion is that it will stabilise ataround 13.5% by 2050. By contrast, Asians have always con-stituted the vast majority of the inhabitants of the earth. Twothousand years ago, around 75% of the world’s populationlived in Asia. This percentage declined slightly over subse-quent centuries, reaching 65% in 1700 and 55% in 1950.

From this date, the proportion of Asians of the total popula-tion began to increase. Today Asians are estimated to accountfor around 59% of the world’s population. This is expected tobe more or less unchanged by 2050.

This quantitative change could have significant repercussionsin qualitative terms. Will the economic and political weight ofEurope suffer as a consequence of its demographic weightloss? Whatever the answer, it is not possible to consider thefuture of Europe without taking account of this variable.

In addition to the overall decline, there is a marked ageing ofEurope’s population. The forecasts are unequivocal and incomplete agreement (figure 1.2). Europe is not only the con-tinent with the highest proportion of over 65s in the popula-tion, it will also have the fastest rate of ageing over the nextfew decades. This phenomenon may also be present in otherregions of the world, but nowhere is it as marked as inEurope. The proportion of the elderly (65 and over) in thetotal population in Europe will have doubled to reach some28% in 2050 (29% for the EU-15). By 2010, for the first timein its history, the European Union will have more elderly (65and over) than young (0-15) people.

This chapter is not aimed at discussing the underlying demo-graphic and socio-economic factors that explain the ageingphenomenon. It is important, nonetheless, to highlight thelong-term consequences of ageing for the European Union.They are discussed under four headings.

New, bipolar demand patterns

The ageing of the population changes the very nature of thedemand for consumer goods. In the second half of the 20th

century, the development of domestic markets and mass con-sumption were mainly stimulated by an increase in thenumber of families and their combined incomes. Therefore,the mass market which was developed in the West was untilrecently geared mainly to demand from the young. As a resultof ageing, the rate at which families are established will con-tinue to slow down, although this trend would be offset bymass immigration of young people. The mode of consump-tion over the next decade will probably be defined increas-ingly by the elderly. Even more likely, it will be geared to abipolar mass market divided between two groups of con-sumers with very different needs: on the one hand the elderlyof whom most are natives; and on the other hand youngpeople with very varied geographical, ethnic and socio-eco-nomic backgrounds.


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Figure 1.2 Proportion of the elderly(65 and over) in the total population by

continent, (2000-2050) (%)

Source: DG ResearchData: United NationsNote: for legend, see glossary of country grouping in Annex.


Europe North-America Oceania

World Asia South-America Africa

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5

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2000 2010 2020 2030 2040 2050

The resulting increasing pressure onpublic finance and the provision ofwelfare services

The impact of the ageing process is already being felt in termsof public finance. The slowdown in the rate of increase in theworking population and the increasing dependency rate of theelderly population over the next few decades will not belimited to the European continent. It will occur in most indus-trialised countries, but the repercussions for public financeswill be more severe in Europe than elsewhere. On the onehand, European countries currently have the highest depen-dency rates in the world. Whilst on the other hand, comparedwith other continents, the European social model provides forrelatively broad state coverage in terms of social security(unemployment, healthcare and pensions).

These effects on public expenditure are expected to be signi-ficant. Some calculations project an increase in retirementexpenditure under European public schemes from 3% to 5%of GDP over the period 2010-2050, with increases in someMember States to as much as 6% (Netherlands), 8% (Spain)and 12% (Greece)4. For the majority of European countries,this means at least a 50% increase between now and 2050 inthe proportion of GDP spent on pensions. In terms of health-care, increases of 1% to 3% of GDP are forecast over the sameperiod (European Commission (2001d); European Commis-sion (2001b)). Will it be possible to sustain this pressure withannual economic growth of 2% to 3%? What are the implica-tions in terms of social security? Will Europe be able to com-bine such an extended social protection system with budgetdeficits restricted to less than 3% of GDP?

Mass immigration and labour marketsreform as solution?

Faced with a shrinking working population, the vast majorityof European countries will be forced to resort to mass immi-gration of skilled young people. Some forecasts point to thescale of such a movement. The highly reputable DeutschesInstitut für Wirtschaftsforschung in Berlin estimates that by2020, Germany will have to bring in one million youngpeople of working age each year simply to maintain its poten-tial labour force. Many other European countries supply fig-ures on the same scale in relative terms. In Japan, mention hasbeen made of bringing in around 500 000 Koreans per yearfor the same reasons (Drucker, 2001; OECD, 2001).

In Europe, disregarding the large population movements at theend of the Roman Empire, migration on this scale is a uniquehistorical phenomenon and creates therefore unprecedentedchallenges. It is leading to a widespread feeling of unease,sometimes expressed in the success of nationalistic parties in

certain European countries. The arrival of large groups ofimmigrants will pose major challenges to European societies,among other things in terms of political representation, inte-gration and social cohesion. Moreover, the scarcity of skilledyoung people also makes it necessary to increase the overallemployment rate to optimise the use of the existing labourforce. It is essential in particular to create new types of jobs ortake measures in order to keep in employment persons rea-ching the end of their career, or to reintegrate them into thelabour market, particularly the most highly skilled. Thisrequires drastic adjustments in the labour market in order toeven out as far as possible the potential imbalances betweenthe supply of and demand for human capital.

… and / or increased productivity?

Even if there is a substantial improvement of the participationrate and massive immigration of young human capital, theageing process means that it is essential in the coming yearsthat there be drastic increases in productivity. This is neces-sary if economic growth, high standards of living and socialcohesion of the population are to be improved or even merelymaintained them at current levels. In mature economies, as isthe case in the European Union, the main engine of produc-tivity is technological progress. This necessity of an increasein productivity in the working population requires greaterattention and a massive allocation of resources to two crucialand closely interlinked areas:

• the generation and assimilation of new knowledge, thesource of future competitiveness;

• education and training of human capital.

In the area of scientific and technological research, even ifinvestment in public and private research were to beincreased significantly, it is also crucial that there beimproved co-operation and co-ordination between the privateand public sectors. The training of human capital generating,assimilating and disseminating new knowledge and enablingit to be turned into innovations requires not only the alloca-tion of sufficient resources but also a structural reorganisationof education and training systems. This implies not onlyimproved training of young people, but also the extension ofsuch training to cover an individual’s entire career throughlife-long training. It will become more and more important toreduce the rate at which human capital becomes obsolete.From a political point of view, such an allocation of resourcesis likely to be subject to pressure from an electorate moreinclined to support healthcare and pension programmes thanthe training of young people or scientific research (Holtz-Eakin, 2000). A very relevant question is how far the politicalleaders will be able to reconcile the wishes of an increasinglyelderly electorate with the crucial need for resources to sti-mulate productivity.


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4 By way of comparison, 5% of GDP is roughly the proportion of resources that Europe spends on education, at all levels and including all sources offunding, private as well as public.

MODERNISING THE SOCIAL MODEL

Wealth, health and education as publicgoods

Europeans are an ageing minority in global terms, but com-pared with other continents they are wealthy and highly edu-cated. Europe, “the driving force for economic developmentand modernity” (Landes, 1998) has acquired considerableassets and benefits during its long history of economic pros-perity and the development of social well-being. Even if onetakes into account substantial differences between its differ-ent social welfare systems, Europe, compared with other con-tinents and regions in the world, benefits from a high level ofwealth and education, and, via social transfers, from a highdegree of social cohesion.

The European Union is the region with the highest ‘humandevelopment’ levels in the world (figure 1.3). Because indi-vidual well-being requires much more than economic wealthalone, the ‘Human Development Index’ combines the threebasic dimensions of human development: leading a long life

in good health, being well-educated and having access to theresources necessary to enjoy a decent standard of living. InWestern Europe, the average income per person (in purchas-ing power standard) is five times higher than that of a citizenof Asia (excluding Japan) or South America, and nearlytwelve times higher than that of a person in Africa. Moreover,within the EU-15, per capita GDP is converging between theMember States, indicating convergence in the standards ofliving of the European countries (European Commission(2001/1b)). Finally, European citizens appear to constituteone of the best-educated populations on earth, and benefitfrom the highest standards of living.

Beyond individual well-being, a sufficiently high level of percapita wealth also enables collective services to be providedin the public interest. In a democratic society with a prosper-ous and stable economy, the State can act as arbiter in the(re)distribution of the wealth produced. Through publicspending on the social security system, it has mechanisms atits disposal to guarantee a minimum level of social protectionfor the population as a whole and, in particular, the groupsmost vulnerable in socio-economic terms. Within the EU-15,18% of the population in 1996 had an income below thepoverty line5. This figure would rise to 26%, increasing


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5 According to the Eurostat definition, this is the proportion of the population with an income, after tax and social transfers, equal to or less than 60% ofthe average of the country concerned (European Commission (2001/1b)).

Figure 1.3 Human development index worldwide (1999)

Source: DG ResearchData: World Bank, World Development Indicators 2001 and 2002.Note: The Human Development Index (HDI) is a composite indicator summarising three basic indicators of human well-being: life

expectancy at birth, gross schooling rate and per capita GDP (at purchasing power standard). These three indicators get equalweight within the HDI. Figures by region/continent are population-weighted averages. (See glossary of country groupings inAnnex).


0.48

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