EU Innovation Policy: How to Escape the Middle Technology Trap

The EU is losing the global innovation race. EU industry invests less than its peers in R&D, it lags way behind in software and artificial intelligence, and its pharmaceutical component is at risk. For over 20 years the same companies, mostly from the automotive sector, have dominated EU innovation activity. We call this the middle technology trap. Existing EU programmes to foster innovation, including those under the heading of the European Innovation Council (EIC), are far from the gold standard – the US Advanced Research Projects Agency (ARPA) model. Their decision processes are still very political, they impose collaboration instead of accompanying them, they devote too much of their limited resources to venture capital investment rather than to supporting breakthrough innovation, and the few project managers are over-stretched. We propose an ARPA-style model of governance and a budget-neutral shift of resources to support high-risk, high-return projects that are far from commercial application. Project selection and management should be improved by increasing the scientific and engineering excellence of the EIC Board and by delegating more to scientists. The current venture capital activities should be outsourced to a specialised fund.