Europe must innovate out of the crisis, Brussels urges

Françoise Le Bail, European Commission Director-General for Enterprise and Industry

“What the crisis will bring is a stronger need for innovation, to make companies more competitive,” said Françoise Le Bail, the European Commission’s Director-General for Enterprise and Industry, in an interview. “It reinforces the need for innovation – for strong innovation policy. “

Examples of that approach are coming thick and fast from Brussels this Autumn.  

• A broad series of measures, grouped under the so-called Lead Markets Initiative,  is taking shape after more than two years of gestation by Commission staff.  The aim is to remove obstacles to the growth of new markets in six sectors, including low-carbon building construction, electronic patient records in hospitals, and biodegradable products. The Commission has been forming steering committees, identifying regulatory initiatives and starting work to create new technical standards. It is a announcing a call for grant proposals this Autumn, of  €2.9 million, to create new networks for public procurement in Europe.  
• Last week, it announced a new policy to support the growth of innovation “clusters” in regions across Europe. It noted that, with more than 2,000 existing clusters across the EU, government efforts are too diffuse and uncoordinated, and suggested several corrective measures. ”We would like to manage to have more clusters which are able to compete in a global world, and we are adopting support measures to promote our analysis,” said Le Bail.
• At a news briefing two weeks ago, EU Science and Research Commissioner Janez Potoĉnik called on public authorities and companies not to slash R&D spending in response to the economic crisis. “Putting a brake on private and public R&D investment at this time would be a major mistake,” he said.

The new urgency for innovation policy in Brussels is intended to counteract any cyclical drop in innovation-related activities. Historically, the growth rate of corporate R&D spending slows in a recession, and protectionist regulation that can stifle new products or services increases.  

Already, Commission data suggest, R&D spending by major US multinationals started slowing last year as the credit crunch began there in August 2007. European companies hadn’t yet responded as quickly – but there are fears they may do so now. The Commission has, since 2000, made a rise in public and private R&D spending an important goal of its so-called Lisbon Strategy to create more jobs and growth.

Mrs. Le Bail cited the Lead Markets Initiative, or LMI, as an important, developing strand of the Commission’s pro-innovation efforts. She said that, at a review of the initiative next year, the Commission may consider expanding the efforts to include additional market segments beyond the six already chosen.

The LMI originated from a January 2006 report on EU innovation policy by three experts, led by former Finnish Prime Minister Esko Aho.  The idea was simple: To recreate the stellar success of Europe’s mobile-phone industry – led by Finland’s Nokia – in other parts of the economy.

Key to that success, goes the analysis, was coordinated, pan-European action by regulators, industry officials and researchers to encourage the growth of the sector. Radio frequencies were allocated and auctioned to the new systems. Technical standards for the new phones were agreed upon, permitting a Europe-wide market to emerge. The main theme: To create the conditions for a new market to emerge, by removing barriers to its growth rather than directly subsidising it. The approach has been called “demand-side” innovation policy. In January 2008, endorsing the Aho approach, the Commission officially launched the Lead Markets Initiative, naming six emerging technology sectors as guinea pigs for the experiment.

Since then, Commission staff have been working on the project. Among the actions so far:

• The Commission is publishing a €2.9 million invitation for proposals to set up networks of public procurement officials across the EU, one for each of the six sectors. The aim is to encourage government contractors to build demand for the six new  technologies into their purchasing specifications. The Commission aims for three or four of these networks to be underway by next May.
• Broad steering committees, also involving industry trade associations, have been formed for each of the six sectors. Their aim is to identify concrete actions – for instance, starting work on new technical standards or changing regulations – that could be taken to create the new markets.
• In the  “e-health” sector, the Commission pushed through a recommendation for interoperability standards for patient record systems. That’s a first step towards making it possible for hospitals and doctors across Europe to share health data electronically – either to speed treatment, cut administrative expenses, or assist medical research. At present, the data-entry systems for patient records differs from country to country, and even from hospital to hospital within the same country.  If the EU was the first market with common standards, it would create a new global market opportunity for industry – and make healthcare more efficient.
• In “bio-based products”  the Commission has agreed on so-called mandates for the main European standards-setting body, CEN, to start developing standards for green engine lubricants and biodegradable plastics. With the strong green sensitivities of European consumers pulling demand, the Commission sees such a growth of new recyclable, biodegradable products as an important new market opportunity for Europe’s chemical and textile industries.
• In “sustainable construction” – low-carbon building methods -  the Commission in May proposed a new regulation for construction products and plans a directive on energy-consumption standards of buildings in November.

What’s not in the Commission’s list of actions, however, is big new sums of money to make the lead markets successful  – and that has been a frequent source of criticism of its initiatives. When LMI began, several existing funding programmes were declared part of the LMI politically – but control over the money for them remains with the divisions of the Commission that were already working on them.  That leads some critics, especially in industry, to suggest that the LMI was political window-dressing.

Le Bail refuted that – saying the focus of this new strand of innovation policy has always been about regulations, standards and other coordinating actions, rather than about splashing out new subsidies for industry or research. “If the idea was about money, nobody would have followed us,” she said. “It’s about systems, organisation.”

“The Lead Markets Initiative created a lot of expectations,” said Le Bail. “A number of people were thinking this was going to bring a lot of money.  It is a bit more complicated than that. It’s about our trying to overcome obstacles to innovation.”