“EU is losing the global innovation race”

#losing #global #innovation #race

The diagnosis is presented in the report ‘How to escape the middle technology trap’, by the European Policy Analysis Group, which included reflections by Jean Tirole, professor of economics at MIT and Nobel laureate in Economics in 2014.

“The European Union [UE] is losing the global innovation race”, says Jean Tirole, professor of economics at the North American MIT (Massachusetts Institute of Technology) and Nobel laureate in Economics in 2014. The diagnosis is contained in the report How to escape the middle technology trapa study prepared by the European Policy Analysis Group, in which the economist participated and which includes recommendations for Brussels.

According to the document, European industry “invests less than its peers in R&D”, being “far behind in the field of software and artificial intelligence [IA]”. Furthermore, “its pharmaceutical component is at risk”.

In the words of Jean Tirole, the “total absence” of the European bloc from the list of “the twenty largest technology companies and the 20 largest start-up companies is worrying”, criticizing, on the one hand, the low investment in R&D, and on the other the concentration “on intermediate technologies”.

“For more than twenty years, the same companies, mostly from the automotive sector, have dominated EU innovation activity. We call this the intermediate technology trap”, is mentioned in the document written by the ifo Institute – Leibniz Institute for Economic Research and by IEP@BU – Institute for European Policymaking at Bocconi University.

In an analysis for Jornal Económico (JE), economist Sandro Mendonça says that researchers paint an “unsustainable” Europe in the innovation economy, which “has failed to build future markets”.

“The report argues that current European efforts, although commendable, are insufficient, both in terms of quantity and quality. Important reforms are necessary so that Europe can compete in the value creation space”, analyzes the Associate Professor of the Department of Economics at ISCTE Business School, adding that the document written by economists Clemens Fuest, Daniel Gros, Jean Tirole, .PL Mengel and Giorgio Presidente “criticizes the EU bureaucratic model”.

According to the document, “R&D expenditure of 3% of GDP has been an official EU objective since the launch of the Lisbon Strategy in 2000”. “However, gross domestic expenditure on R&D in the EU is still around 2% of GDP, a figure lower than that recorded in other large economies, such as the USA, Japan and China”, he points out.

The delay compared to other markets, the researchers explain, is not due to less significant spending on R&D. “In 2020, government-funded R&D amounted to €110 billion in the EU (mainly by national governments) and €150 billion in the USA, representing a very similar percentage of GDP, around 0.7%. In other regions of the world, public expenditure on R&D is slightly lower, standing at 0.5% of GDP”, is detailed in the report.

The researchers point out as the main reason for the global transatlantic difference “the lower commitment to R&D by the business sector, whose expenses amount to just 1.2% of GDP in the EU, compared to 2.3% of GDP in the USA”.

Still talking about the document, Sandro Mendonça says that what surprised him most “was the explicit and scathing criticism of the community management style”, based on a “very bureaucratic model”. “The style of making innovation policy is failing. It is controlled by bureaucrats,” he insisted.

“There was room for a more robust innovative effort, even in the allocation that has been implemented. This way of implementing public policy for innovation has been unable to produce results. It has not been able to make the continent dynamic”, he analyzes.

As an illustration of the asymmetry, the Portuguese economist alludes to the large investments in R&D by large North American technology companies.

“If we look at the budgets of the five largest technology companies in the USA, R&D is larger than the entire joint budget of the 27 European Commissions, seven years ago”, exemplifies the economist, who coordinated the report The Futures of Big Tech for the European Commission (Directorate-General for Research and Innovation) published in 2024.

In the case of the largest European economy, German annual investment in R&D is lower than that of Amazon in the same area, he continued.

Turning to the field of national politics, Sandro Mendonça understands that this scenario requires a “convergence” between three departments – Ministry of Foreign Affairs (MNE), Economy and Education, Science and Innovation -, defending a “common agenda” for the portfolios.

The “intermediate technology trap” scenario had previously been raised by China. “Countries that develop later generally have difficulties in industrial modernization and the transition to high incomes, because they do not have their own technological advances after importing, imitating, absorbing and tracking technology”, pointed out, in December, the main academy of country sciences.