Europe must concentrate R&D investment, or fall behind

It's as good as official. Spreading R&D investment thinly across Europe makes no economic sense, according to research by the European Investment Bank published this week.

This finding may have a bearing on the European Institute for Innovation and Technology (EIT) as it considers how to set up its greatly anticipated knowledge and innovation communities (KICs).

The decision whether to make them clusters based in one single geographical location, or in several co-locations, has yet to be taken.

Similarly, countries in Europe intent on using R&D money as a tool for regional regeneration for areas with obsolete heavy industry and high unemployment should perhaps think again.

“Public support aimed at spreading R&D evenly across all of Europe’s regions or to create innovative centres where none existed before may thus be economically wasteful,” the EIB said in a statement publicizing the study by its economist Kristian Uppenberg.

His report also puts the spotlight on large companies, whose involvement in R&D is far more important to boosting Europe as a centre for innovation than small and medium size ones.

“If Europe is to succeed in raising its overall R&D intensity towards the levels seen in the U.S. and Japan, it will need to accept that large firms and existing innovative clusters will play a leading role in this expansion,” the bank said.

Uppenberg concludes that Europe is falling further behind the United States in R&D funding and may never close the research gap unless it increases R&D investment, especially in the services sector.

So much for the bold ambition of the Lisbon strategy, signed by heads of state and government back in 2000. The Lisbon strategy states taht R&D spending should rise from around 1.5 per cent to 3 per cent of gross domestic product by 2010, by which time the EU should become the most innovative place in the world.

Not a hope, Uppenberg argues.

He urges Europe to re-double its efforts, especially in the field of services. “Data covering the services sector is far from complete. But it appears that if Europe cannot close its R&D gap with the U.S. in services, the overall R&D gap is likely to widen rather than narrow as the share of services in total value added grows,” said Uppenberg.

His study makes chilling reading, especially as the effects of recession begin to bite hard on this side of the Atlantic. With the short-term woes spreading across the continent, Bank president Philippe Maystadt put the study in perspective.

“We are all understandably preoccupied at the moment with short-term measures to boost aggregate demand and to keep the economic wheels turning. But this study reminds us that Europe’s growth difficulties did not start with the current crisis and that we should not lose sight of our long-term challenges,” he said.

Uppenberg’s study was published by the Centre for European Policy Studies (CEPS), a Brussels-based think tank. The European Investment bank was set up in the 1950s as the long-term lending arm of the EU.

Last year it signed loans to support R&D by public and private entities totaling €7.1 billion, taking its total lending for R&D in the European Union and partner countries in the past five years to €31.2 billion.

Click for more information from the EIB.

Click for more information about CEPS.