Innovate or enervate?

“Welcome to Baden-Württemberg! The research paradise” – so read the poster on the way in to the launch. It may be a local pitch, but change Baden-Württemberg for Europe and it could have been the slogan for the Brussels session to launch and discuss the new Science|Business “manifesto”, Innovation: The Demand Side.

Baden-Württemberg clearly thinks it is already in research paradise. Europe just wants to get there.

The road to paradise being fraught with challenges, there were plenty of ideas on what it will take to make Europe nirvana. For Esko Aho, of the eponymous report, one thing that Europe has to do is to keep the momentum on innovation going. He’s worried that the European Union is too taken up with constitutional reform. “The constitutional efforts must be handled,” said the former Finnish prime minister. “But the Union can only handle one important thing at once. R&D might become secondary. That is the challenge for us.”

High on his agenda is the need to batter Europe into submission so that the whole place is more innovation friendly. To get there, it would be great if governments stopped behaving as if their sole role in life is to control markets, piling on regulation after regulation, and rule after rule. “We need a hybrid economy where the two are working together,” is Aho’s line.

Open up markets. Create standards. Use public procurement to support innovation. Aho talks of getting the right “architecture”. As he puts it “the technology is there, just not the architecture”.

Already worried about China and India, and constantly in awe of the USA, you’d have thought that Europe had enough to worry about. Not so, says Aho, who has just taken up a seat on the board of a new Russian venture fund. With the prospect of a billion dollars to invest, half of it from the Russian government – private money from outside Russia welcome – the fund will, says Aho, be more generous than anything you’ll find in Europe.

When it comes to getting the right architecture Brussels plans to do something about the street furniture, the obstacles that innovators have to navigate as they strive to bring new products to market. Recognising that this is as much an issue of regulation and legal pitfalls, some of the action will come from the Brussels arm responsible for competition.

Dipping a toe into lead markets

Jiri Plecity, a member of the Cabinet of Günter Verheugen, the Vice-President of the European Commission in charge of Enterprise and Industry, told the meeting that they are working on a series of projects to pick up the idea of “lead markets”. This notion arose out of the Aho report, with its criticism that “Fragmented markets disadvantage Europe”. As the report put it “If Europe cannot offer an innovation-friendly market for the creative outputs of its businesses then those businesses will fail to thrive or will go elsewhere.”

The idea that the Commission is developing, Plecity explained, “is to make sure that the environment is conducive to innovation, embraces innovation”. The objective, he said, will be to ensure that “public policy does not slow down innovation bur rather fosters and helps innovation. What we can do as a first step is to make sure that that administrations keep pace with what is going on in innovation rather than slowing it down.”

The projects will not cut across the EU’s Technology Platforms but will seek out a number of areas where tackling such issues as standards and public procurement can clear aside barriers to innovation.

The idea is to look for “impediments that administrations can tackle to the take yup of new ideas and new technologies and the creation of markets,” explained Plecity. “These impediments can be, for example, regulation that hinder the take up of new ideas, lack of standards, or too many standards”.

This approach also differs, said Plecity, in trying to bring everybody together. “In these areas, what can actually make a difference is if all of the people – inside the commission, in administrations in business – sit together and say ‘ we have many different problems and these problems can only be tackled if they are tackled together’.”

The new markets initiative will start with a number of areas of technology as guinea pigs. “We are working on something like six areas,” said Plecity. Among other things, these are thought to include intelligent construction, e-health and intelligent textile. “We are in the process of thinking where we can test this idea best, and where we can really achieve a difference.”

The whole approach is, Plecity admits, an experiment. “It is important to see whether this kind of central focus on innovation policy can work. Then if it can work nothing can prevent us from going farther later on.”

In any case, Plecity explained, trying to eliminate the barriers to innovation by freeing up markets has to happen alongside “horizontal action”.

The idea is to come up with ideas by the end of this year, so that the Competitiveness Council can consider the idea at the beginning of 2008.

‘Too early for concrete ideas’

As yet there is no final plan action for this initiative. “It is too early to be talking about concrete money ideas. We are working on establishing an agenda of actions. And many of them are regulatory actions.” For example, they are looking at issues such as standards, and the possible use of public procurement as a tool.

Will it work? Do we need it? The sole maker of real markets on the panel at the Science|Business event, Jean-Philippe Courtois, president of Microsoft International, described one market that could certainly use of a bit of leading by the nose, “smart homes”. Sure we can add plenty of information technology to our homes, but it takes a lot to bring all of the players together – from equipment makers to the electricians who have to fit the kit.

More obviously nearer to Microsoft’s main game is the business of embedding software into systems. Here Courtois sees possible benefits from developing lead markets. “I like the idea of the dual approach.” You can develop a software platform, and architecture, and you can “define a couple of markets where you want to take a lead. If you combine the two with a very specific economic and business agenda that would be very powerful.”

Courtois also advocated the idea of adapting tax free economic zones, where companies can operate manufacturing operations shielded from local tax demands. India and China both use the concept to attract inward investment. How about a similar concept in Europe.

How about picking a cluster of technologies, or segments of markets, where we can get together to build a virtuous circle with universities, big conglomerates, start-up companies and financial institutions? Some of the biggest barriers to innovation are those between these sectors, said Courtois.

Free zones for innovation

Creating something along the lines of a “Free Innovation Zone” – the “zone” could be geographical or it could be around markets or technologies – could help Europe to tackle some of the problems that get in the way of innovation. For example, one of the problems high on the agenda for Courtois has to be reform in the higher education system. In general, while there may be pockets of activity, as a whole Europe's education simply does not create an innovation friendly environment.

Courtois believes that Europe needs to encourage young researchers to turn their research into new businesses. This process has to start with protecting their research to “create a currency,” through patents for example, that will attract investors. Unlike the US, “we are still in our infancy in Europe,” said Courtois. Very few countries do that.”

“The free zone concept would be a place where we decide that there would be the ability for universities to licence technology,” explained Courtois. The university could use that to create start-ups and attract funds from VCs. As the money rolled in, the universities would use their share of the returns to support research.

You can already see some of this concept in action in some countries. But it is not, said Courtois, true throughout Europe. This is yet another argument for moving away from the idea that it s good enough simply to support good research if you want to make Europe more innovation friendly.