The Real Threat to European R&D

These days, almost everybody understands how important science and technology can be for economic growth. So when the European Commission (EUC) produces a report* on innovation that paints a portrait of declining levels of research and development (R&D) in Europe, policymakers will take notice.

Yet if they follow the report's conclusions, things in Europe could get even worse.

R&D activity is increasingly taking place outside of its traditional home in America and Europe, and is playing an ever larger role to the global economy. As economic growth lifts people from poverty to prosperity, particularly in Asia, the changing international division of labour is creating more demand for high-skill jobs.

But R&D in Europe is not in decline because of the pressures of globalisation and increased competition. Greater levels of research conducted in China or South Korea does not mean that there is less demand for it in other parts of the world. Europe still possesses a large and well-educated workforce and highly developed infrastructure. However, Europe's declining share of is a direct result of the EUC's failure to take advantage of these assets, combined with a policy mindset that actively discourages innovative activity.

The EUC's relentless pursuit of Microsoft has been well documented on these pages. While some may dismiss the importance of the case, given the software giant's market position, it has consequences that reach far beyond Microsoft and the interoperability of a scaled-down Windows. In fact, the case is more widely demonstrative of the EUC's lack of respect for private property - one of the most important safeguards of liberty, prosperity and innovation. The EUC's goal of forcing the company to license the source code behind Windows to its competitors (on terms the Commission must first approve) would be described as theft, if it weren't perpetrated by a government

A more recent and equally disturbing example is Apple, whose alleged sin is that its online music store, iTunes, sells only to owners of Apple iPod products and that this music is protected by digital rights management (DRM) encryption. iTunes is now the world's most popular online music shop. So the EUC and various European governments are seeking to remove DRM from iTunes, thereby allowing competing media players to play iTunes tracks.

The fundamental messages these cases send to entrepreneurs is that too much success and innovation is a bad thing. This kind of populist policy and erosion of property rights frightens and undermines entrepreneurs, who may consider other countries to be more hospitable to their efforts. Emerging economies have taught us that good ideas can emerge from anywhere but sustaining R&D over time requires that these good ideas be exploited and commercialised on a level playing field.

Rather than simplifying and clarifying the protection of property by, for instance, harmonising European patent policies, reducing the costs of filing or litigation, or approving a single language patent, Europe appears to be moving in the opposite direction.

The legality of DRM in the US has been clear since at least 1998 with the Digital Millennium Copyright Act. There, creators are free to explore the possibilities of digital protection for their property. The results have been astounding both for the industry and the consumer, as an elaborate and legal market in digital music has evolved considerably over the past five years.

It is perhaps no coincidence that the US has been the leader in this innovative field. In Europe, with weakening property protection for software or music, it is the pirates - who account for up to 65% of music downloads in some EU countries - who prosper.

Little wonder, then, why creators and innovators who have so much to offer to Europe's economic and cultural landscape seem to be venturing elsewhere to succeed. Disguised in Europe's small decline in overall R&D spending (1.95% of GDP in 2002 to 1.91% of GDP in 2005) is the glaring fact that US firms decreased R&D spending in Europe over the same time period from Ä51 billion in 2002 to just Ä17 billion in 2005.

The EUC's solution to these problems is to push Governments to spend more in order to meet R&D targets set in 2002 - that each European country should spend 3% of its GDP on R&D. The Commission boasts that 38% of the publications appearing in scientific journals are from European researchers. But less and less of this research is actually being turned into useful products. Public spending may improve figures for publications, but this is not as productive an investment as it could be - nor is it sustainable.

More than likely, increased public spending will further undermine markets in R&D, resulting in even less innovation. Public funding for nanotechnology was by far the highest in Europe, but foreign firms - having attracted private funding demanding high returns - are proving most successful in this area. In 2003, US firms registered 1200 nanotech patents as compared to just 400 in Europe - and the gap is widening.

Politicians bemoan the fact that Europe has no equivalent to America's Google or Yahoo!. Yet the route to a successful high-technology industry is not targets, bureaucracy and public cash. Silicon Valley did not emerge because the state of California went on a spending spree. It grew and continues to thrive today because good ideas are welcome and entrepreneurs had strong incentives to build upon them - free from government meddling.

Europe's politicians must learn to stop interfering if technology and innovation are to flourish.

Alec van Gelder is Network Director at International Policy Network (www.policynetwork.net)

* 'Key Figures 2007 on Science, Technology and Innovation; toward a European Knowledge Area', European Commission, 11 June 2007.