21 Feb 2019   |   Viewpoint

Viewpoint: It’s time to decide on the role of industry in Horizon Europe

The OECD says big-company spending on R&D is more important than ever. EU policy makers must resolve how to work with industry in their next R&D programme.

Richard Hudson

Richard L. Hudson, Editor-in-chief & Vice Chair of the Board, Science|Business

Policy conferences can be deadly affairs – but once in a while, a fact you hear at such an event pings in the brain. This was it, for me: 42 per cent of all civilian R&D in the world is done by just 200 multinational companies – more than government spends (37 per cent).

The source was the OECD, whose analysts gave a briefing 20 February on R&D statistics to European Commission staff. The point, in highlighting that number:  government spending, on average around the world, has yet to recover from the 2008 crash – and reduced spending power limits the ability of government to steer the direction of the far-bigger business R&D.

Of course, depending on your personal ideology, you could argue that’s a good thing:  If you really believe in Adam Smith’s invisible hand of the market, then you probably think private capital should decide by itself how it spends its own money.  And anyway, haven’t governments around the world been pushing companies to increase their R&D spending? That’s why they get R&D tax credits. Far from bemoaning the reduced spending clout of government, perhaps we should be celebrating the success of tax policies intended to stimulate business spending.

The problem: Most people in the developed world, voting patterns suggest, don’t actually want untrammelled free-market behaviour from big companies. They expect their governments to prohibit unsafe cars or chemicals, to regulate drug development, to find ways to avoid unnecessary pollution or encourage renewable energy. Those are all policy objectives – and while some of them can be handled by regulation or prosecution, a softer and subtler tool is in R&D policy.

But how can government apply this tool? The conventional method, since at least World War II, has been to subsidise companies that agree to do R&D in the desired direction – even more so, if they agree to do it with public sector partners such as university researchers. That’s how, as a society, we have speeded the development of cheaper solar cells and new cancer therapies. (We’re only talking here about civilian research. In military R&D of course, the relationship is more often straightforward: government orders, and industry delivers.)

The Framework approach

This subsidised, collaborative approach has been the underpinning of European Union Framework Programmes since the beginning, in the early 1980s. The very first programmes were designed to stimulate something that politicians decided they wanted: a stronger industrial base for computing and communications technologies. So they passed out grants to a small group of six companies at the core of it, to subsidise their R&D: Alcatel, Bull, Siemens, Ericsson, Philips and ICL. The fact that only a few of those companies remain as thriving, independent entities might suggest that this wasn’t a very successful policy.

But the EU persisted – a testimony in part to the growing public anxiety about our technological future, and in part to the European Commission’s political skill at negotiating the conflicting demands of its member states.  So the Framework Programme has grown mightily, to nearly €13 billion a year. And it has had plenty of successes. It has helped developed Ebola vaccines, advanced AIDS therapies, and sounded the alarm about antibiotic resistance. It has helped make airplanes fly more quietly and efficiently, and has helped develop the world’s second biggest earth observation system for farmers, environmentalists and navigators (GPS works on it.)  And it has greatly advanced understanding of climate change.

Now, the Commission is experimenting with several new R&D tools to steer industry. It is planning a new “blended finance” programme mixing loans, grants and equity. It is planning new investment vehicles with the European Investment Bank and Fund.  It is identifying “missions”, such as curing cancer, around which to organise future private-public partnerships.

But it’s all still very woolly. In debate over its new programme, Horizon Europe, the political attention has shifted towards boosting small company development and supporting fundamental research. A few politicians argue that big companies should not get any money out of the programme at all. They are on the political fringe.

Yet, for several reasons, the future of industry involvement in Horizon Europe remains uncertain. Eight months after the programme’s formal proposal, we still don’t know exactly how big industry R&D collaborations will work, for what specific topics, or even how much money is on the table. Under current planning, we are unlikely to get those answers until later this year, at the earliest.

Big companies like to plan. We have seen, in the Brexit fiasco, how little appetite they have for political uncertainty: they leave. If the EU wants multinationals to stay in the Horizon game, the uncertainty needs to end.

So it isn’t just budgetary problems that could undermine government’s ability to steer private R&D. There are plenty of political obstacles, as well. For the sake of our technological future, the uncertainties in Brussels should be ended.

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