Lisbon Agenda: the EU Fails to Deliver on R&D Promises
Bruno van Pottelsberghe | Bruegel | February 2008
Europe is well on the way to fall short of the ambitiously formulated targets of the Lisbon Agenda of 2002. We remember: all EU member states wanted to increase R&D expenditure from an average 1,8% of GDP in the late 1990s to 3% of GDP by 2010. Two thirds of this was to be funded by the business sector while the rest was to be funded by governments. However last year, the total expenditure for R&D still stood below 2% and has now been stagnating for the past twenty years. Meanwhile, China has overtaken the EU with regard to business funded R&D intensity.
Instead of pursuing EU-wide or country-level aims for business R&D intensity, which political decisions can, at best, only indirectly influence, the EU member states should work diligently to raise their contribution to 1%. Only Sweden, Finland and Austria approach the one percent mark. Sweden and Finland are the only countries to reach the goal of having 2% funded by the business sector. Some of the remaining countries even reduced their expenditure, a fact which explains why the EU-27 average actually dropped by 0,05%. This was also the case for Japan and the US, the R&D front-runners; however in both countries the decrease was compensated by private investment. Industrial structure and technological specialization are especially crucial to achieve high levels of business R&D intensity. Countries that have specialized in tourism, services or food exhibit lower R&D performance than countries which are famous for their engineering, biotechnology, and pharmaceutical industries. If one takes the degree of specialization into consideration statistically, the R&D performance of countries such as Japan and Finland may not appear as high. Only the USA and Sweden then continue to display a remarkably high R&D intensity.
The USA and Sweden must therefore benefit from other factors that encourage funding from the private sector. Recognizing these factors could be of fundamental significance for the sake of future EU policies. Obviously, one basic "motor" for business funded R&D investment is economic return on investment. Particularly within large and highly integrated markets, investments seem to pay off. Contrary to the USA, which profits from a linguistically uniform market and standardized regulations, the EU still suffers from the lack of integration of the European market. The European patent system is emblematical of this. It is laborious and fragmented into single, national regulations and hinders the innovation process. An additional factor is the efficiency of academic research: academic research fosters new ideas that eventually flow into the business sector. The implementation of these ideas in new products and means of production also requires intensive practical research. Higher public spending on academic research in Europe could therefore serve as a magnet for business funded R&D investments.
This summary was prepared by the Atlantic Community editorial team from "Europe's R&D: Missing the Wrong Targets?" by Bruno van Pottelsberghe, and published here in the Bruegel Policy Brief.
Related material from the Atlantic Community:
- The Multinationals New Competition
- Europe's Old Age Seems More Like the Prime Time of its Youth
- Don't Blame the Welfare State for US-EU Productivity Gap
