Europe in the age of global competition

6 February 2005

Janez Potočnik, European Commissioner for Science and Research, was the keynote speaker at an EPC dialogue, kindly sponsored by Hutchison Whampoa Limited, on "Europe in the Age of Global Competition.” Hans Martens, Chief Executive, European Policy Centre, introduced the following panel discussion with a brief discourse on “The knowledge base and global competitiveness.” The following panel discussion featured Susan Chow, Deputy Group Managing Director, Hutchison Whampoa Limited, Malcolm Harbour, Member of the European Parliament and Michele Barsanti, Director of Government Relations, Honeywell. The meeting was chaired by EPC Senior Advisor, Pavel Telička.Poul Nyrup Rasmussen, President of the Party of European Socialists and former Prime Minister of Denmark offered final remarks. A question and answer session followed. This is not an official record of the proceedings and specific remarks are not necessarily attributable.

Event Report

Speaking on the future of European research and development as a factor for global competitiveness, Commissioner Potočnik emphasised a widespread and growing conviction that global competitiveness and leadership for European business would only be achieved if Europe emerged as a leading economy and as a “society of knowledge.”

European Member States were already furthered research, but the main competitiveness – and societal - challenge was to pool those efforts intelligently: Europe's “knowledge triangle“ - research, education and innovation – had to be exploited. In 2003, the top 500 private R&D spenders in the EU reduced their investment by about 2%, while their non-EU counterparts increased it by 3.9%. Within the EU the biggest industrial R&D sector was the automotive and component market: outside the EU, it was the IT sector. That was what the EU was up against, and it was not good news. The required high-technology adjustment would render the old opposition between competitiveness and social progress “largely irrelevant,” because knowledge was not only the key to competitiveness through enhanced job prospects, but also the key to societal progress through health, environment, and sustainable energy benefits. In other words, building the knowledge society did not involve a trade-off between the three Lisbon pillars of economic growth, social cohesion and environmental protection.

He said the Commission would be working hard this year to adopt a fully revised Community framework for state aid for R&D - one considerably more favourable to initiatives supporting business research efforts. There would also be proposals on R&D fiscal incentives. Guidelines were already being prepared within the Commission and recommendations in key areas would include:

Ø       recruitment, career and mobility of researchers;

Ø       the role of foundations to fund R&D;

Ø       the role of cross-border public procurement that stimulates innovation;

Ø       cooperation and technology transfer between public research and industry.

There was also the “Regions of Knowledge” initiative to support regional authorities, which was geared to bring together SMEs, universities and the necessary business and financial backing and was supported by the EU. Now it was up to EU governments to achieve the 3% research investment action plan, through ambitious but achievable targets.

Meeting the research and knowledge challenges

The knowledge challenge went beyond science, research and innovation, requiring the right policy mix and cross-policy integration with other vital areas of reform, the Commissioner said. Migration was an important first step, with the Council of Ministers set to adopt a Directive for visas for researchers from third countries. There was also a newly-launched Green Paper debate on whether Europe wanted a dedicated migration policy for attracting the best talent - “knowledge workers.” He underlined: “You cannot become the most competitive knowledge economy, if you close your research system for talent from outside.”

The research challenge was “awesome,” with the 2002 target (to increase public and private research investment by 3% of GDP by 2010) so far having only had a marginal effect: overall R&D investment was now 2% of GDP, up from 1.9% in 2002, and still a far cry from those of  the US (about 2.7%) and Japan (over 3%). There was thus an urgent need to make Europe the most attractive place for research investment.

Agreement on the 2007-2013 financial perspectives would be a “moment of truth” for these efforts – the time when EU leaders will choose either “a bucolic Europe, good at redistributing the wealth we have, or a Europe that thrives on knowledge, fosters economic growth and creates sustainable prosperity for a higher number of people.” To achieve the latter would require the necessary resources and the Commission was proposing in the 7th Framework Programme on research (proposals due in early April) to double EU research funding to ten billion euro a year – a pledge which would remain, regardless of the final outcome of the negotiations on financial perspectives.

However, this alone would not make Europe attractive enough to reverse the current trend of “delocalisation” of business research towards other continents, primarily the US and Asia, and the Commissioner said the Lisbon mid-term review highlighted research as an area where the EU could make a big difference by improving growth and job creation as part of the drive for a “knowledge society.” Creating such a society was a goal Commissioner Potočnik said he was determined to achieve: “I am convinced we can do it – and I am also convinced we have no choice.” 

Panel Discussion

In the panel discussion, Susan Chow said Europe’s leaders had set an ambitious goal with the Lisbon Strategy. Europe was already a good place to do business because public policy recognised the need to maintain a healthy private sector to stimulate growth. In the new 25-nation single market of 540 million people, there was an increasing need for transparency, which was essential for business confidence, coupled with a clear legal and regulatory framework. Europe, she said, was already an attractive place in which to invest, but the challenge for public and private institutions was to ensure that education systems kept pace with technological innovations. There was a need for structural reforms to realise economic reforms, with a level playing field and pragmatic, flexible, intelligent regulation both of paramount importance to attract investment in EU’s knowledge economy.

MalcolmHarbour, MEP, said the aims were good and there was no shortage of ideas and initiatives, but, in some areas, the results were conspicuously poor. The Lisbon relaunch amounted to a more clearly-defined strategy and the European Parliament wanted more dialogue between national politicians and MEPs on the economic agenda. The impact of ten new EU countries, some with rapidly-growing low-tax economies, was a significant new dynamic, putting the economies of the existing 15 Member States under even more pressure. The question was to define Europe’s competitive strength. It was fundamentally the depth of Europe’s learning, scientific and cultural background – elements which had to be extracted and turned into profitable opportunities more quickly and more productively. Mr Harbour highlighted the need to encourage more European business start-ups and small companies, pointing out that 75% of new jobs created in the last five years were in companies with fewer than 250 workers. Nearly three quarters of these firms were ready to employ more staff, if the tax and regulatory systems were not so discouraging.

Michele Barsanti acknowledged that the countries growing the fastest were those with the lowest taxation levels. The economic equation was more complex than that, but it was a simple fact that lower taxes spurred growth. He said that Europe’s research and development efforts had to be more directly linked to market needs, a concept already explored successfully in America. Ms Chow agreed it was important not to look at research and development in isolation. But for Mr Barsanti the lack – still – of an EU-wide patent characterised the sort of problems Europe had to overcome to achieve its Lisbon goals. The patent alone would be a massive advance for companies investing in Europe. Another aspect was company funding of student research, which while commonplace in America,  was stymied in Europe because of fears of loss of independence. It came down to a “mentality issue,” he said.

Mr Harbour countered that the point of universities was to be independent: pure research did not necessarily have an applied outcome. But universities should be thinking much more about becoming more entrepreneurial, developing more partnerships for private enterprise. There were also too few young people interested in science and technology.

The debate was summed up by Poul Nyrup Rasmussen, President of the Party of European Socialists, who said Europe simply had to raise its game, basing the Union’s competitiveness on “our highest common denominator.” Investing in research and development was necessary but not sufficient to boost jobs and growth, which also required the modernisation of social systems.More jobs required growth, and growth was only sustainable through reform. “Learn from the success of the Nordic states,” urged Mr Rasmussen, “and observe how the new eastern European EU Member States are catching up.”

Former European Commissioner and chairman Pavel Telička said it was right to acknowledge the difficulties of the Lisbon Strategy, but more change was needed, including a new programme of benchmarking and evaluation of the EU jobs and growth strategy. For Europe’s leaders the challenge now was to develop the political will, the courage, the drive and the ability to put the Lisbon Strategy theory into practice.