Viewpoint: MEP calls for end to ‘trickle-down’ innovation policy

The EU should break away from “trickle-down innovation” and come up with a new system for rewarding innovation, says Belgian MEP Marc Botenga. 

Parliament’s rapporteur for the new EU pharmaceutical strategy and member of the European United Left, Botenga was among the first MEPs to say the Commission should override patents to ensure equal access to COVID-19 vaccines. He also argues the EU should have more scrutiny over how taxpayer money is spent on public-private research partnerships under Horizon Europe.

The Commission’s motive for pooling public and private funds is to spur innovation in green and digital technologies, but for Botenga, the public should be able to impose conditions on what private companies can do with any profits resulting from these public investments. “You are using public money in the joint undertakings without actually deciding where the money is going,” he said.

Horizon Europe public-private partnerships should make non-exclusive licensing a requirement, Botenga believes. The rule was used by the Commission in 2020 when it launched emergency virology and epidemiology research calls after the coronavirus pandemic started. Recipients of the funds were asked to license any resulting intellectual property on a non-exclusive basis and at fair and reasonable terms.

According to Botenga, the EU’s current innovation model is similar to the “trickle-down economics”, proposition popularised by US president Ronald Reagan in the 1980s and also adopted by UK prime minister Margaret Thatcher. This holds that low taxes on businesses and the wealthy stimulate investment and benefits society in the long term. In Botenga’s view, innovation policy in the EU is based on the same premise - that public funds should be used to incentivise companies to innovate, but the public has little influence over the economic outcomes.  

Opposition to this model is not new. Italian economist and former adviser to the European Commission Mariana Mazzucato has been arguing for some time that the financial burden of investments in research and innovation is largely carried by the society, while the resulting profits are privatised.

“I hope there is increasing awareness that the current innovation system is broken,” said Botenga. As the Parliament’s rapporteur on the pharmaceutical strategy, which aims to boost drug discovery, development and manufacturing inside the bloc, Botenga has made the case that rather than reinvesting profits in R&D, big companies are paying shareholder dividends and buying back shares so their value goes up on the stock markets

But Botenga’s views are not embraced by his colleagues in the Parliament. In a debate on the pharmaceutical strategy in May, Botenga’s view that companies should be forced to invest more of their profits in R&D was harshly rebuffed by French MEP François-Xavier Bellamy and other conservatives, with Bellamy commenting, “It's interesting to say that in this house we are defending the Soviet model.”

Other MEPs have warned that attaching conditions to how companies choose to spend their profits and make use of their intellectual property could prompt them to move their R&D outside Europe. 

However, Botenga is adamant the current innovation system would benefit from a change in perspective. “If we [fund] a public-private partnership, make sure you're in the driver's seat, make sure there are conditionalities,” he said. “This doesn't mean that the company will not make a profit.”

Public R&D, private profits

Botenga points to a report by the Centre for Research on Multinational Corporations (SOMO), claiming the US vaccine manufacturer Moderna is planning to account its EU profits in Switzerland, where taxes are low. Moderna also holds patents in Delaware, US, where income from patents is exempt from taxes. This means Moderna is likely to pay little in taxes on the billions of euros it stands to make from the coronavirus crisis.

Critics have decried Moderna’s approach, since the technology for COVID-19 vaccines was developed using public finance. According to the US Department of Health and Human Services, by December 2020 Moderna had received US$4.1bn for vaccine development, clinical trials and manufacturing.

“This is what happens if you don’t put conditionalities,” said Botenga.

The green deal

The Commission wants member states to come up with plans that would align public and private R&D investments with the EU’s new industrial strategy and to get more actively involved in industry partnerships in Horizon Europe, to be able to deliver on its promise to fully eliminate greenhouse gas emissions by 2050.

When it comes to research and industry partnerships, Botenga believes EU money should come with more strings attached so that member states can make sure the private sector gets behind climate goals. "If you don't [put conditions], then basically you do give the freedom to companies to do whatever they want,” he said.

In a renewed attempt to boost investments in research and innovation, the Commission has put forward a pact asking member states to commit to raising total private and public expenditure on research and development to at least 3% of GDP. The EU average is 2.2%, well below the US, Japan, and Korea.

While many see the proposal as a way to strengthen European research and innovation, Botenga says it does not change the principles underpinning EU innovation policy. “We need to get out of the cash machine approach, we need to hold companies accountable,” he said.

Policy makers should come up with new models to reward innovation. Instead of rewarding innovation exclusively based on intellectual property, the EU could come up with other incentives, such as grants and awards. “I think there's some proposals in the intellectual property strategy, there's some proposals in the pharmaceutical strategy, which show that as a real reflection going on,” said Botenga.