The innovation gap grows wider

Cutting public budgets for research and development is shortsighted.

EU member states’ desperate desire for stronger economic growth and much smaller public deficits is causing many to lose all sense of priorities. The UK is probably the most glaring example. Its coalition government has been seeking across-the-board budget cuts of 25% except in the health service and overseas aid – and there are bound to be cuts in the ring fence’s wire around even those two sectors. Several hundred scientists and researchers protested outside the UK’s finance ministry on 2 October to issue the extremely timely reminder that cuts in public research and development (R&D) budgets are a good way of forfeiting future growth and competitiveness.

Science and R&D in the UK is world-class, as it is in Germany. Ironically, as concern mounts about the threats of budget cuts, the Nobel Committee in Stockholm issued not one but two reminders of British strength last week by awarding the prize for medicine to the British developer of the test-tube baby and the physics prize to two relatively young researchers working at Manchester University. That both were born in Russia hammers home the importance of keeping borders open for third-country talent and of developing a cocktail of incentives to capture it.

The UK and its EU partners are struggling to maintain what is still a relatively strong position in the global innovation stakes. As the European Commission emphasised last week in its proposals for forging an ‘Innovation Union’, the EU27 needs more entrepreneurial innovation, less fragmentation of effort and a great deal more drive to exploit the commercial opportunities for innovative products and ideas provided by the single market. We have here another example of the Union failing to use its greatest economic asset as it should. The result will be less job creation and less prosperity.

This is not news. The Commission has been trying to highlight the need to raise the innovation game for more than a decade. The external walls of the Berlaymont could be fully layered with the thousands of pages of proposals for boosting performance issued during this period. Last week’s effort seeks to be more strategic than its predecessors. Sadly, many of its varied and ambitious calls to action may well be silenced in national capitals by the sound of axes chopping into public budgets.

The Commission could have tried a little harder to make the case for its priority recommendation – that governments should step up investing on research and innovation rather than settle for protecting existing budgets. The target of spending 3% of gross domestic product (GDP) on R&D first made its appearance in the Lisbon Agenda of 2000. Failure to bring it within reach – we are at 1.9% – has caused the deadline to be extended from 2010 to 2020. We are told that success by that year could create 3.7 million jobs and increase annual GDP by close to €800 billion by 2025.

The numbers are arguable, but not the need for action to close the ‘innovation gap’ between the EU and the US and Japan, and to shape up to deal with China’s rapid muscle-building. The supporting document issued with the Innovation Union proposal offers little comfort. The EU is well behind the US in spending on education and has only 27 universities in the world’s top 100, compared to the US’s 55. Business investment in R&D in the US is nearly twice as large a share of GDP as in Europe. Overall public and private spending in Japan is well above 3% of GDP and around 2.76% in the US. The Commission’s annual innovation scoreboard offers a crow’s-nest view that indicates that the innovation gap between the EU and the US is seriously wide, despite some moderate narrowing since 2004, but it is even wider with Japan. The EU still runs ahead of China, but not for long – Beijing has cut the margin by 30% in four years and at this pace will have closed it altogether in five.

Naturally, there are vast differences in investment and innovation performances between member states. In eight countries, business invests less than 0.2% a year in R&D; only in Sweden and Finland is business spending more than 2%. These two countries, together with Germany, Denmark and the UK, are the Union’s innovation leaders according to the Commission. Usefully, the Commission has pointed to the Finnish example of confronting a severe recession in the early 1990s, including a 12% plunge in GDP, while at the same time raising public R&D funding by 70% over four years. The subsequent gains of strong growth and global competitiveness in mobile communications were not an accident.

It is far from satisfactory that the EU should have only five innovation leaders out of 27 member states. It is quite possible that the UK will fade into the category of innovation followers. Which will leave only one large member state to act as an innovation locomotive, able to exploit the single market, exercise even greater power over the Union’s economy and face up to the US, Japan and China. That member state recently exempted R&D spending from an €80bn savings package. It is Germany.

John Wyles is the chief strategy co-ordinator at the European Policy Centre in Brussels.