European Commission
EUROPEAN RESEARCH ERA

Luc Soete

Main speaker session 2.2

The report of the Expert Group (EG) on The Role of Community Research Policy in the Knowledge-Based Economy was prepared for the European Commission (EC) Research DG over the first nine months of 2009. The group was asked to review, assess and interpret the existing evidence on the state of the knowledge-based economy in Europe as well as on the effectiveness, in terms of roles, objectives and rationales, of the main existing research policy instruments and to come up with recommendations on how to frame and articulate the Community research policy in the post-2010 period. The Terms of Reference (ToR) of the EG explicitly referred to the need for an economic assessment that would bring forth new ideas, analyses and so-called “evidence-based recommendations for actions”, hence, the dominance in this EG of experts from the academic, business and policy making community with a strong economic background[1].

At the time when the ToR of the EG was written, the policy context was very much dominated by the “available time-slot” for a re-examination of the intervention logic of the Community research policy. The report was to be presented at the end of the mandate of the first Barroso Commission and at the start of the debate on the post-2010 Community policy agenda. At the same time, the group would also be in a position to reflect on some of the new instruments introduced in Community research policy over the last decade. One may think of the European Research Council (ERC) with its research funding allocation based purely on excellence competition, but also of other new, and at first sight successful, top-down EC initiatives such as the Strategic Energy Technology Plan (SET) aimed at the mobilization of research across the EU in energy technology policy[2]. All of this within a framework whereby the Community research policy would play an increased leverage, or “catalyst”, role on national research policies, programmes and systems.

By historical fluke, the EG carried out most of its analysis during the period when the financial and economic crisis was hitting Europe and the world the hardest. To undertake its “evidence-based” assessment on “the state of the knowledge-based economy in Europe” and evaluate “the effectiveness of the main research policy instruments” within this rather exceptional context appeared in many ways an extreme challenge. So from the outset, it is important to highlight the self-imposed constraints, the EG adhered to.

First and foremost, no attempt was made, given the exceptional historical context, to provide up-to-date evidence on the state of the knowledge economy in Europe. There are many EC, OECD and individual member countries’ indicators reports available providing statistical information on the knowledge economy in Europe up to 2007[3]. There are additionally numerous detailed analytical reports, even some carried out by members of the EG for the so-called Knowledge for Growth (K4G) group[4], providing detailed insights on the underlying reasons for the EU-US gap in knowledge investments as well as in scientific performance over the last twenty years. The EG decided to rely on those as well as other secondary data sources and not carry out its own empirical analysis. The main reason being that official indicators data on the relevant period of the financial crisis, the fall of 2008 and the first semester of 2009, are as yet not available, rendering any analysis of the state of the European knowledge economy anno 2009 difficult.

Second, periods of crisis are also ideal moments for more radical reflections on reforms of existing policy tools and instruments. A crisis provides a good breeding ground for “new ideas”; though it quickly becomes apparent that the implementation of these is problematic and as the impact of the crisis softens and the first signs of recovery become visible, the policy discussion shifts back to the old debates within the safe boundaries of  already existing policy tools. Given the crisis period over which the EG had to formulate its reflections, it appeared to the group that those reflections, thoughts and recommendations would have to deal with the changing policy context in a more thorough way. To do so, the EG started its reflective work with an internal discussion brainstorming on the major challenges the European Union would be likely to face over the next ten to fifteen years. These major challenges, grouped under the notion of “drivers” were pulled together under five headings which formed the main sections of the EG report and led, in a final section, to a number of conclusions and policy recommendations[5]. 

The first driver the EG believed had affected European research over the last decade, and was likely to affect it even more over the next ten years, is the trend towards globalization and concentration of research in Europe and the rest of the world. This globalization and concentration trend represents a real challenge for public policies, exacerbating some of the classical tensions and trade-offs that they traditionally have been able to manage. To summarize some of these tensions:

(a)     Research and innovation policies are still developed within a national context, or in the case of the EU, a European context, while knowledge and investment flows are driven by firms’ and individuals’ motives which take place at a global level. By 2025, the EU will represent just over 6.5% of world population, 30% of world production will be produced in Asia, compared to 20% in Europe and Asia will also have become the first world exporter[6].

(b)     The increased globalization of knowledge increases the incentives for firms and talented people to move internationally. In so far as Lisbon was rooted in the idea that the EU’s productivity problems were of an internal structural nature[7], such European competitiveness vision has become increasingly challenged by the way ICT, as a general purpose technology (GPT) has broken down nationally and internationally distinctions between high and low tech sectors[8]. The new challenge is how to deal with the increasing fragmentation of value chains and the increasing heterogeneity of required knowledge inputs. This requires stronger cooperation in R&D with third countries and a stronger focus on the deployment of ICT based technologies.

(c)     Within Europe the drive towards excellence in research demands that ultimately no consideration is given to the country or region of origin of the researcher. However, this may well be considered harmful for countries and regions that are in need of qualified human capital for their own catching up effort and cannot match working conditions and real income levels of richer countries or regions.

(d)     The financial and economic crisis is likely to further exacerbate those globalisation and concentration trends. Compared to other regions in the world, the remaining fragmentation of European national markets, particularly in services, increases the uncertainty of the expected rate of return to R&D investments in Europe, and hence represents today an even bigger impediment to an increase in Europe of private investment into R&D.

Because of these growing tensions, it is important that European research policies, and Community policies in particular, fully take on board the implications of globalization and concentration, and develop institutional solutions addressing some of those tensions. Chapter 2 of the EG’s report is devoted to spelling out the evidence of these trends, reviewing the challenges and suggesting a few solutions.

The first recommendation of the EG addresses these growing tensions. It calls for a renewed commitment to knowledge investments from Member States in the difficult fiscal years to come. Not just in basic or industrial R&D but in all components of knowledge investments including higher education and lifelong learning, and the deployment of ICT-based innovations and applications in services[9]. While public commitment and financial efforts can indeed be translated into clear targets, such as the 2010 Barcelona 1% public R&D funding target or the 2% higher education target, private efforts should rather be considered as the result: a reflection of the success of the public effort, making the country or region attractive to private knowledge investment. In this sense, Lisbon asked too much from the private sector and too little from governments, in some cases offering an alibi for governments to put the burden of knowledge investment, as in the 3% Barcelona target, on the private sector. For the EG, the post-Lisbon strategy must address this weakness by asking for a clear commitment over the difficult fiscal years to come for more support from governments.

At the same time, such voluntary attempts at increasing the “rate of technical change” in Europe, will ultimately depend on better coordination between research policies and innovation and competition and other internal market policies. The institutional separation at the level of the European commission between research and innovation and between research and progress on the internal market particularly in services also made the Lisbon strategy less credible for the private sector. As argued above, the financial crisis makes the fragmentation of national markets for final products and in particular for services, an even bigger impediment to any increase in private investment into R&D, regulatory differences in Europe increasing the uncertainty on the expected rate of return on such investments.

The second driver the EG considered in more detail was the notion of Societal Challenges (often referred to as “Grand” Challenges). The notion of Societal Challenges, which the EG preferred to use, applies to major social problems that cannot be solved in a reasonable time and/or with acceptable social conditions, without a strong and, in the European case, coordinated input requiring both technological and non-technological innovation, and at times, though not necessarily always, advances in scientific understanding. In a way the central issue here is at the opposite end of the previous one. Can resources, not just research but also procurement, and other investment and deployment resources be shifted across European stakeholders to more productive “societal use” i.e. to influence not only the rate but also the direction of technical change and innovation?

Attempts at doing so will imply a non-neutral allocation process with respect to areas for focus and sectors. However, departing from neutrality is always dangerous since it implies guessing future technological and market developments. So the central question addressed by the EG was the “programme design”: i.e. how to make such large mission-oriented programmes less vulnerable to government failures such as wrong choices and winner-picking. A Societal Challenge dimension would, in other words add a new objective to public policy, whereby research and innovation are seen not as ends in themselves, but as a means to a wider goal, defined as a societal benefit. The aim is to foster those activities that have greatest impact on achieving the societal challenge, and not necessarily to increase research and improve innovation across the board. In contrast to existing policies, this approach implies a focus which is neither horizontal nor sectoral, but defined by the societal challenge, i.e. involving a mix of different sectors, markets and other actors that can bring about the changes needed to achieve the challenge. The relevant actors include of course private companies in various sectors, but also institutions involved in innovation in the public sector as well as public services, and in setting demand side and regulatory and market frameworks that support innovation.

The second set of recommendations of the EG deals therefore with the question on how to achieve compatibility between such “grand” societal top-down initiatives and a more market-driven resource allocation logic that would allow for “multiple decentralized experiments”. Being non-neutral in identifying a broad agenda is compatible and coherent with being neutral vis-à-vis specific applications. A first principle is relatively straightforward: it is crucial to be non-neutral in identifying a very broad agenda while being neutral vis-à-vis specific applications and approaches. Other principles for mitigating distortions created by the provision of subsidies to favoured firms, industries, and other organized interests are quite straightforward. In practice the EG follows the line here as set out in the Lund declaration. Meeting the Societal Challenges will require amongst others: strengthening frontier research initiated by the research community itself and taking a lead in the development of enabling technologies in particular along the lines of the so-called lead-market initiative such as in the case of “green technologies”. Attention should be given here to measures that can enhance the effectiveness of both public and private research and development investment in the wide and diverse array of “green” technologies facilitating knowledge sharing, adaptation and diffusion of innovations.    

The third driver considered by the EG, is the need for Community research policies more based on so-called merit-based competition than collaboration across the EU. Such competitive schemes should be applied to support high quality recruitment at universities, at Research and Technology Organisations (RTOs) as well as in Ph.D training schemes. The various recommendations under this heading aim at strengthening the basis of basic research and innovation at European universities and RTOs through Community policies. The EG considers amongst others the ERC here as a main source of funding research for universities and RTOs, and urges the EC to implement the recommendations of the ERC review panel[10].

With respect to the “governance of universities”, the EG is critical of the current Higher Education governance systems across EU which do not allow sufficiently for specialization and diversity. While the autonomy of universities is not a panacea to overcome all their problems, European universities need to evolve towards greater abilities and responsibility to craft their own quality assurance mechanisms, rather than relying on centralized and standardized governments control systems. Despite some recent deregulation in several countries, legal structures and prevailing funding policies still tend to severely limit the autonomy of universities, including in the selection of students, financing of education, usage of funds for different purposes within the research and education field, the recruitment or compensation of professors, and so on. In the 21st century, universities need to act with greater speed in transforming themselves into modern, professional organizations, based on an understanding of their core skills. Differentiation inevitably requires room for specialisation in multiple directions. Students must be able to select what suits their needs and aspirations most and universities must be able to select the students that fit their profile. Universities also need to be able to define and choose between various options how to define their core business and develop unique combinations of higher education, research and also specific relations and outputs of relevance to society, as laid out in the concept of the “Knowledge Triangle”.

A series of recommendations are also made with respect to the trend towards open innovation, considered by the EG as a fourth key driver. The recommendations deal amongst others with the costs of the lack of a harmonized European patent, the need for the creation of new firms and the growth of young firms and the importance of open innovation as new organisational principle for public-private research and innovation collaboration. The current crisis might well lead to an increased offshoring and outsourcing of private R&D: a more rapid relocation of certain parts of R&D (in particular development) to cheaper locations in new MS and emerging countries with a strong scientific base. However, there is also likely to be increased “national  outsourcing” of private R&D from large firms to small firms with an increased specialization and the incumbents’ large private R&D labs playing increasingly a new local role as “open”, more systemic innovation infrastructure[11]. “Open” also to public participation from universities and public research institutes. In the report, the EG discusses at much greater length the way “openness” accelerates innovation by being potentially faster, cheaper or less risky than purely internal development processes, and enhancing the creation of new knowledge. If the crisis is accelerating this trend, the impact might overall be positive. However, this will crucially depend on the nature of the partnerships emerging. If the motivation and underlying reasons for such “open” partnerships is internal cost reduction and finding easy and quick ways to benefit from the efforts of others, it is unclear whether those benefits will emerge.

The final fifth driver considered by the EG is the one of regional specialisation and cohesion policies. Can a spatially-blind ERA still be a “cohesive” ERA? At European level, the large regional disparities in innovation potential have barely reduced over time. Such disparities represent a problem not only for cohesion policy, but also for innovation policy itself. If innovation inevitably follows a natural pattern of concentration, and if competing on a world basis implies the need for excellence, it will be important to keep persistent regional disparities in mind, and address the concrete risk that some research and innovation policies may actually worsen, rather than improve the situation. A number of concepts have been introduced (or rediscovered) in the policy debate at European level, which appear particularly relevant in order to design a better policy trade-off between excellence and cohesion. The EG focuses in particular on the design of place-based, smart specialization policies. The search for smart specialization patterns concerns an essentially entrepreneurial process in which the new knowledge produced relates to what appears to be the pertinent specialisations of the region. Public policies have an essential role to play: one of encouraging entrepreneurs both in the private and public sectors (universities, RTO’s, more broadly higher technical education) to find their own way and help them to coordinate and be connected to each other in this discovery process.

Some concluding comments:

The global financial crisis represents in many ways a window of opportunity for more radical reflections on the relationship between Community and national research policies. The new instruments such as the ERC and the EIT introduced as new Community research policy tools well before the crisis, take on a new meaning providing over the years to come the most direct instruments to restructure the fragmented European research landscape. As the fiscal pressures in each MS increase, the question of raising the efficiency of national research funding agencies, of higher education and public research funding are likely to be raised in many countries. It is in other words now that the various European Technology Platforms, ERA-nets, etc, just as in the case of SET plan will have to illustrate not just their particular strategic advantages in terms of common European goals but also their financing advantages through an effective pooling of resources.

But for those opportunities to be realized it will be essential, that the key governance issues are not just discussed but also solved so as to allow these approaches to flourish[12].  For the EG, the crisis opportunity for the further deployment of those new instruments, including the use of articles 169 and 171 of the Treaty, will only be successful if they illustrate their particular European valued added, also through their administrative flexibility and best practice governance. Only then will they play a central structuring role for a new, post-crisis augmented ERA as argued by the EG. Possibly meaner and leaner given the dramatic financial constraints in some countries but more effective and truly European than ever before. This raises crucial challenges with respect to the governance of those Community agencies, something the EG has also gone in detail in specifying. If those are not addressed as an issue of absolute priority, the crisis shock might well go the other way: questioning increasingly the valued added of Community research and allowing a future ERA based much more on MS’ national efforts at attracting research talent within their own borders.

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