EC Director-General of Research and Innovation, Robert-Jan Smits, Says Innovation Union Shows Europe Has Gotten Message about Innovation-Based Economic Growth

Last Friday, February 18^th, Robert-Jan Smits, European Commission (EC) Director-General of Research and Innovation, gave a presentation on Europe’s new “Innovation Union” strategy, which is one of seven flagship initiatives of the Europe 2020 strategy for a smart, sustainable, and inclusive economy. The Innovation Union plan contains over thirty action points designed to:

• Turn Europe into a world-class science performer;

• Remove obstacles to innovation—including expensive patenting, market fragmentation, slow standard-setting, and skills shortages—which currently prevent ideas from getting to market quickly ; and

• Revolutionize the way Europe’s public and private sectors work together, notably through Innovation Partnerships between European institutions, national and regional authorities, and business.

The core thrust of Director-General Smits speech was that, “Europe has come to realize that research and innovation are the key for advanced economies both to remain competitive and to secure social and economic progress.” Smits described the Innovation Union as, “a bold, integrated, strategic approach, steered at the highest political levels by European Prime Ministers, which aims to bring together supply measures like R&D funding with demand measures such as regulation, public procurement, and standards-setting to address Europe’s grand societal challenges, while spurring market deployment of innovative products.”

Director Smits forcefully reiterated that despite the recent economic crisis and tight public finances across the continent, European governments have recognized that they, “Must preserve investment in research and innovation which are the main sources of future growth, while introducing the necessary structural reforms and improving the effect of public funding.” Smits observed that this “is first time that Europe has implemented a counter-cyclical investment policy in support of research and innovation during an economic downturn,” and which seeks to raise European R&D intensity (that is, R&D investment as a share of GDP) to 3 percent by 2020. Smits called the development “new and novel,” and said that Europe, “will cut budgets where we need to cut, but invest where we need to invest,” a message U.S. policymakers would be wise to heed.

Smits pointed to Germany as a country that has ramped up investments in innovation despite the tough economic climate. Smits noted that, “Germany will spend €12 billion ($16 billion) this year on innovation, which represents an increase of 7.2 percent compared to Germany’s investment in 2010, and an increase of 54 percent since 2004,” saying that, “The German government had made a choice for the future: a choice for the knowledge economy.” Smits also observed that, “A significant portion of large European companies have actually increased their research expenditure in the midst of the crisis.” In fact, according to the European Commission’s 2010 “EU Industrial R&D Investment Scoreboard,” while overall R&D investment by European companies did fall modestly in 2009, R&D investment by U.S. companies fell by twice as much. On investment, Smits closed with a message U.S. policymakers would be wise to emulate, saying, “Europe is committed to restoring macroeconomic stability in a way which does not undermine medium-term growth potential by cutting into its knowledge and innovation infrastructure.”

Director-General Smits also outlined a number of steps Europe will put in place through its Innovation Union strategy to improve framework conditions for and remove barriers to innovation in Europe, with the goal of “making Europe the world’s most attractive environment for R&D, innovation, business investment, and entrepreneurship.”

Supporting entrepreneurship: By the end of 2011, the European Commission seeks to put in place an EU-wide venture capital (VC) scheme and scale-up finance facilities for risk capital. The goal is to remove barriers to cross-border operation of venture capital markets and create an internal market for VC in the EU. Smits also noted that, by year-end 2011, the European Commission hoped to create its own version of the United States’ Small Business Innovation Research (SBIR) program, in order to promote the take up and use of innovative products and services.

Create an E-Bay for European Patents:  By year-end 2011, the EC wants to establish conditions for an EU-wide knowledge market, aimed not only at facilitating the exploitation of knowledge but also at giving rise to important new sources of revenue, which can be reinvested into research and innovation. Smits described this as, “An E-Bay for patents and licensing, where holders of intellectual property rights (IPR) can engage with entrepreneurs who are keen to commercialize it.” Smits also noted that the Commission will present options for setting up an intellectual property rights valorization instrument at the European level by year-end.

Standards: Noting that, “If you have the standards, you have the markets,” Smits affirmed that the EC would this Spring modernize the European standardization system, including speeding up standards-setting, particularly in the ICT sector, to get research results into the markets faster.

Public procurement: Noting that public procurement accounts for 17 percent of European-wide GDP, Smits announced that the Commission itself and European countries would collaborate to deploy public procurement systems in a much more sophisticated way to boost Europe’s research and innovation system. Smits said, “Instead of choosing each time the cheapest contractor, the European Commission and its countries  should choose the most innovative ones.”

R&D Efficiency and an EU Internal Market for R&D: In addition to increasing European R&D intensity to 3 percent by 2020, Smits said Europe would place a major focus on boosting returns on R&D investment. Quipping that, “Historically we’ve done a better job of turning euros into knowledge than turning knowledge into euros,” Smits said efforts would be made to streamline otherwise overlapping research initiatives across European countries. Also, Smits said Europe was committed to developing a fully-operational internal market for European research by 2014, including the free circulation of researchers, scientific knowledge, and technology.

Grand Challenges: Smits identified several Grand Challenges the European Innovation Union was committed to solving by 2020, through a series of large-scale European partnerships. The first grand challenge Europe will address is active and healthy aging, including a goal to add two additional healthy years to the life expectancy of Europe’s citizens. This challenge is particularly exigent, Smits said, because Alzheimer’s alone costs Europe 1 percent of its GDP annually. Other large-scale European innovation partnerships will follow in the areas of resource efficiency, agriculture, and the  next-generation Internet:

Learning from Others: Smits noted that Europe, “Will take full account of the international context to learn from and to cooperate with other advanced countries such as the United States and to monitor and benchmark our progress regularly against major trading partners and emerging economies.”

Director-General Smits closed by welcoming EU-US cooperation and partnership around science, technology, innovation, and grand challenges, observing that “Europe has a lot offer.” But he also noted that Europe had “gotten the message” that “innovation is key to economic and employment growth” and “would be a tough competitor” for innovation-based economic growth in the future.

This is but one more example of foreign countries and regions raising their innovation game and increasing their ability to compete for the highest-value-added sectors of economic growth. It only underscores the message that the United States must get serious now about restoring the competitiveness, innovation, and productivity engine of the U.S. economy, including both by making the U.S. the world’s most tax-friendly environment for R&D, innovation, and business investment and making robust investments in the innovation infrastructure of the U.S. economy, including federal R&D investment, better funding innovation-supporting agencies such as NSF, DARPA, NIH, the PTO, and the FDA. While putting public finances on a long-term stable and sustainable footing is an important goal, there is no issue more urgent for U.S. policymakers right now than restoring the competitiveness of the U.S. economy.