This article is published in collaboration with the World Economic Forum.
- Jean Tirole, Nobel Prize Laureate at Toulouse School of Economics, together with ERC President Maria Leptin, explain why Europe must take urgent action to address the major economic growth gap with the US and China.
- Research and innovation have been identified as key areas to reignite sustainable growth and drive productivity.
- European leaders need to adopt strategies that prioritise disruptive R&D and create conditions for innovators to thrive.
The European economy requires urgent action to tackle the increasing gap with the US and China in terms of economic growth. For the first time since the Cold War, Europe “must genuinely fear for our self-preservation”, according to former European Central Bank (ECB) President Mario Draghi. With this warning in his recent report The Future of European Competitiveness, he called for a unified response or else Europe would face “slow agony”. With the changing of the guard in the US, he subsequently warned that the “sense of urgency” is even greater.
Draghi highlighted three key areas of action to reignite sustainable growth. The first, and in his view the most important, is reducing the persistent disparity in innovation between Europe and its competitors.
R&D and innovation are the main engines of growth in advanced economies. A starting point for Europe to reverse the trend of falling behind the US and others would be to recognise this. The EU invests less in R&D than its competitors. This is mainly due to low private sector investment, which amounts to 1.3% of GDP, compared with 2.4% in the US and 1.9% in China.
A key reason for the gap in business R&D is Europe’s focus on mid-tech industries, characterised by moderate R&D intensity, in contrast with the US’s shift toward high-tech sectors. The EU is stuck in a “middle technology trap”, not only in terms of innovation investment, but also in terms of innovation output, with fewer patents in key fields such as ICT, pharmaceuticals, biotechnology and electronics. The EU dominates in automotive technology patents, reflecting a long-standing specialisation that hampers progress in cutting-edge fields. Overcoming this requires public intervention to foster disruptive research and boost cutting-edge industries.
How can Europe foster disruptive research and innovation?
European Commission President Ursula von der Leyen stated that the new Commission would put research and innovation at the heart of the EU economy. To effectively bridge the gap with the US, the EU innovation policies must support industries with high transformative potential and the emergence of new sectors, and acknowledge the critical role of startups – rather than focusing on incremental improvements to mature technologies. This also means reinforcing the competitiveness of European science by stepping up investment in curiosity-driven frontier research that enables breakthroughs. These boost our economies and improve people’s lives worldwide.
Since its launch in 2007, the European Research Council (ERC) has become the strongest force for the competitiveness of European science within the EU Horizon Europe programme. The ERC is known for backing scientific excellence thanks to its rigorous, unbiased evaluation process, its autonomous governance in the hands of leading scientists and scholars, and its reluctance to sprinkle money across many recipients and to force consortium buildup rather than accompany promising individuals.
In addition to earning recognition from the scientific community, the ERC has also demonstrated that the research it funds helps Europe break free from the mid-tech trap. More than 40% of ERC-funded research was subsequently cited in patents. Almost 70% of these citations are in patents covering fields at the science-to-technology frontier – such as biotechnology, pharmaceuticals, ICT, organic fine chemistry and semiconductors. Many companies – created with the involvement of, or based on the results from, ERC-funded scientists – have received EU-funding from the European Innovation Council (EIC). These two- to six- year-old start-ups are active in tech-intensive sectors, such as quantum or biotechnology. In the context of the technological path dependency of the EU innovation system, these new firms could be drivers for advancing high-tech industries.
These examples may lead to the conclusion that European science is good at generating great ideas and nurturing innovative start-ups, and that Europe just needs to reinforce its ability to translate research results into commercialisation and scale-up companies.
But ERC-funded research represents only a small fraction of research in Europe. Besides, there is still only a small number of European universities among the top world-leading research universities. The EU also lags behind in the number of high-impact scientific publications. Even the ERC is not realizing its full potential, because it is unable to back many top-rated researchers, purely due to its budget constraints.
This widespread perception that Europe is good at science but lacks the ability to transform scientific advances into marketable innovations, has led European policy-makers to focus on supporting valorisation measures, mainly in existing technologies and industries, and to neglect disruptive innovation. More broadly, the creation of a dynamic environment that drives productivity and ensures growth and prosperity is hindered by several factors. They include a segmented innovation system, fragmented consumer and labour markets, labour market regulations that are inappropriate for a start-up environment, financial market regulations favouring debt instruments, relatively few world-class universities, an obsolete industrial system, low R&D intensity, or difficulties in scaling up start-ups.
European leaders must create conditions for innovators to thrive
Putting research and innovation at the heart of the EU economy with a long-term outlook is imperative to help securing tomorrow’s breakthroughs and drive growth. But even if Europe invested significantly more in fundamental research, generated disruptive innovation and reinforced the ability to translate research results into commercialisation, it would not be enough to turn around the decline of our economy. The problems of Europe go far beyond that, as Draghi’s analysis clearly shows.
Closing the productivity gap with the US and China can be achieved only if European leaders will also refocus collective efforts. They need to adopt strategies that prioritise disruptive R&D, replace growth-hampering regulation by smart regulation, reform EU governance, streamline decision-making, cut bureaucracy, and create conditions for innovators to thrive and the European economy to flourish.
Source: European Research Council | News & Events | News (https://shorturl.at/cXIdJ)