Economists Call for Reform of EU Research Policy

A report by a group of economists from France, Germany, and Italy criticizes the EU’s innovation policy and the direction of spending on research and development in Europe and calls for changes. “The EU is losing the innovation race, thereby giving up on economic well-being and surrendering regulatory and geopolitical influence. Its complete absence in the group of top-20 tech companies and top-20 start-ups is ominous. It spends too little on R&D and focuses on mi-tech,” says Nobel laureate Jean Tirole from the Toulouse School of Economics. Ifo President Clemens Fuest added: “Investment in the EU research is concentrated in the automotive industry and similar sectors, while Europe is being left ever further behind in growing high-tech sectors such as the digital economy. The continent is caught in a mid-tech trap.”

“To reverse the current trend, the report recommends that the EU should invest much more in disruptive innovation and support high-tech, low Technological Readiness Level projects”, says Tirole. “Also, the Government of Horizon Europe should be more conducive to innovation; the EU therefore should reduce the political control over scientific choices, involve more leading scientists, and give the latter more discretion and more flexibility. Only then will the EU be able to escape the mid-tech trap by supporting game changing innovation”, he adds.

Fuest adds: “To improve the EU’s competitiveness, it must change its research policy to focus more on breakthrough innovations while broadening its basis. It must also take a different approach on the governance of the allocation of European funds in the matter.” The report “EU Innovation Policy – How to Escape the Middle Technology Trap?” was published in Brussels on Wednesday It was compiled under the leadership of Clemens Fuest, Daniel Gros from the Institute for European Policymaking @ Bocconi University Milan, and Jean Tirole.

According to the authors, the European Innovation Council (EIC) should be reshaped along the lines of the US ARPA agencies. This would see more scientists and fewer civil servants on the committees. Compared to the US, the EU’s application and selection processes are extremely bureaucratic and subject to a rigid, complicated set of rules. As a result, too few breakthrough innovations are currently being promoted in Europe and funding is too focused on remedying capital market imperfections faced by small and medium-sized enterprises. More money could be made available by reallocating a majority of the budget of the European Institute of Innovation and Technology (EIT), which seems to have achieved little so far.

Questions can be directed to: Prof. Clemens Fuest, 0049 89 9224 1257, Fuest@ifo.de