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Pc 2010 06 Innovation

Pc 2010 06 Innovation

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Published by: Bruegel on May 19, 2011
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ISSUE 2010/06JUNE 2010
Europe will only be able to meet the global competition challenge if it excelsin research and innovation by fostering the development of firms and institu-tions that are global leaders in their fields. This requires action to boost basicresearch, to develop young, innovative companies, and to reform patents.On basic research, the European Union needs to raise standards throughmonitoring and encouragement, introduce more merit-based competition,and help researchers to be more mobile across borders.To support young, highly innovative companies, the EU should further theintegration of venture capital markets and introduce a programme for publicfunding of projects to commercialise high-risk innovative ideas.On patents, the EU should abandon plans for a three-layer system of national,EU and European patents, and should make patenting more affordable, espe-cially for start-up companies.This document was prepared as a contribution to the Belgian EU Presidency. Itwill be presented to the Informal Competitiveness and Research Council, 15-16July 2010, Brussels. Mathias Dewatripont is Chairman of the Solvay BrusselsSchool of Economics and Management. André Sapir and Bruno van Pottelsbergheare Senior Fellows at Bruegel. All three are also Professors of Economics at theUniversité Libre de Bruxelles. Reinhilde Veugelers is a Senior Fellow at Bruegeland a Professor at the Katholieke Universiteit Leuven.
+32 2 227 4210info@bruegel.org
and innovation at the global level by fosteringthrough merit-based selection the development of firms and institutions that are global leaders intheir fields – will Europe be able to meet the globalchallenge. Emphasising excellence and merit-based competition does not have to come, how-ever, at the expense of the remaining Europe 2020priority: inclusive growth and its attendant con-cern for territorial cohesion, which aims to givemember states and regions the opportunity totake part in the quest for excellence. In otherwords, Europe can have both world-class researchand innovation, and cohesion provided it uses twodifferent instruments to meet the two objectives:EU-wide merit-based selection for the former andcohesion policy for the latter.Based on the three principles spelled out above,this Policy Contribution makes concrete propos-als in three interrelated areas:Basic research and in particular the role of uni-versities;The creation and development of young, inno-vative companies;A patent system that underpins the growth of innovative firms.
It has become increasingly clear that the disap-pointing European growth performance of the last30 years is closely linked to Europe's research per-formance. Applied research and innovation mustbe based on solid basic research, and the con-nection between university research and patent-ing has been empirically documented
. The
Dewatripont, Sapir, van Pottelsberghe, Veugelers
‘It has become increasingly clear that the disappointing European growth performance of thelast 30 years is closely linked to Europe's research performance. Applied research andinnovation must be based on solid basic research.’ 
1. Máire Geoghegan-Quinn,EU Commissioner forResearch, Innovationand Science, 'PreparingEurope for a newrenaissance: howscience can help restoresustainable prosperity',speech to the EuropeanResearch Area BoardConference, Seville,Spain, 6 May 2010.2. See for example PhilippeAghion, MathiasDewatripont, CarolineHoxby, Andreu Mas-Colell and André Sapir(2010) ‘The Governanceand Performance of Research Universities:Evidence from Europeand the U.S.’,
, vol. 25/01.
aresearch and innovation strategy, which will be apart of the Europe 2020 strategy, and whichshould be endorsed by the European Council at itsOctober 2010 summit. The Commissioner forResearch, Innovation and Science will propose:To re-focus Europe’s research and innovationpolicies on the 'grand challenges' facingsociety, such as climate change and ageingpopulations;To create the conditions for a more dynamicEurope, “where excellent research improvesknowledge capital and leads to innovation insuccessful and dynamic businesses”
.This policy contribution is addressed to the July2010 informal Competitiveness Council(Research), under the Belgian EU Presidency. Wetake as a starting point the Commission's broadaims and make concrete suggestions for boostingEuropean research and innovation, based on threeessential principles:Giving primacy to excellence and merit-basedselection of projects at European level;The importance of the single market forresearch and innovation;Removal of barriers that hinder dynamicrestructuring.The principle of giving primacy to excellenceshould be seen in the context of two of the threepriorities of the Europe 2020 strategy, namelysmart growth and sustainable growth, seen ascentral to equipping Europe to face the challengesof global competition. Only by excelling in research
connection between higher education and (basic)research – HER – is also obvious, and the US, themodel for other countries in terms of its success-ful HER system, demonstrates a very close asso-ciation between higher education and researchthrough its highly successful research universi-ties. These excel in publications, while attractingforeign talent and developing worldwide researchlinks, including with emerging Asian economies
.Meanwhile, Europe invests too little in higher edu-cation. The EU spends less than two percent of itsGDP on R&D, compared to more than 2.5 percentin the US. But the gap between Europe and the USis even wider for universities than for R&D spend-ing: total (public and private) spending on highereducation in the EU accounts for less than 1.5 per-cent of GDP, against more than three percent in theUS. In terms of expenditure per student, the con-trast is starker still, with annual spending morethan three times higher in the US.Moreover, the unsatisfactory research perform-ance of Europe’s universities also results frominadequate institutions: they suffer from poor gov-ernance, are insufficiently autonomous and offeroften insufficient incentives to devote time toresearch.Europe started to recognise some years ago thatits university system faced a problem. The 1999Bologna Declaration was the starting point for thecreation of a European Higher Education Area. Theobjectives were to establish a degree of compara-bility between higher education qualifications andto improve mobility within Europe. In 2000, theEuropean Commission initiated the EuropeanResearch Area in a drive to improve the effective-ness of research in Europe. An increasing numberof EU member states have also tried to reformtheir university systems. But much more remainsto be done. In particular, the economic and finan-cial crisis should not be allowed to underminebasic research funding.
3. See Reinhilde Veugelers(2010) 'Towards amultipolar science world?',
82:439-456.4. See Philippe Aghion,Mathias Dewatripont,Caroline Hoxby, AndreuMas-Colell and André Sapir(2008)
Higher Aspirations: An Agenda for ReformingEuropean Universities
,Bruegel Blueprint, volume V;and Philippe Aghion,Mathias Dewatripont,Caroline Hoxby, AndreuMas-Colell and André Sapir(2010) ‘The Governanceand Performance of Research Universities:Evidence from Europe andthe U.S.’,
Economic Policy
,vol. 25/01.5. The contribution of private donations anduniversity intellectualproperty revenue is alsohigher than in the EU, butaccounts for a modestshare of the overalldifference.
Dewatripont, Sapir, van Pottelsberghe, Veugelers
It has been empirically documented that for qual-ity basic research, a mix of increased funding,stronger autonomy and more vigorous competi-tion is required. Specifically, recent empirical evi-dence shows that increased university fundingdoes lead to both higher levels of academic output(measured by publications or citations) and morepatenting, and that these gains are stronger foruniversities that are more independent of publicfunding authorities, and which face a more com-petitive funding environment
. The complemen-tarity of funding, autonomy – in terms of hiringand wage setting, for example – and competitionis intuitive: (i) more money helps, and helps morewhen universities are allowed to allocate theirresources efficiently; (ii) the discipline of compe-tition in turn induces autonomous universities tomake efficient decisions in resource allocation.While giving universities more autonomy is theresponsibility of member states, and several of them are making progress in this area, the EUcould help greatly in the areas of funding and com-petition, by:Encouraging and monitoring – by relying on theOpen Method of Coordination – a concertedeffort to raise university funding in Europeancountries, for example by one percent of theirGDP. While the precise mechanism by whichuniversity revenue is raised could be left to themember states, it is important to make surethat it is raised. Note that higher US universityfunding comes partly from higher public fund-ing but, more importantly, from much higherstudent fees
. If university funding were tocome from higher student fees, it is critical thata well-functioning system of grants or loans tohelp poorer students is set up.Enhancing excellence thanks to EU-wide merit-based competition (open to anybody in theworld who wants to do research in the EU), byincreasing funding for the European Research
‘The unsatisfactory research performance of Europe’s universities also results from inadequateinstitutions: they suffer from poor governance, are insufficiently autonomous and offer ofteninsufficient incentives to devote time to research.’ 

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