Strengthening innovation need not cost new money

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Countries facing huge public debt and diminishing resources will have a hard time earmarking money for innovation, but other means do exist, argues Eva Srejber, vice-president of the European Investment Bank, in a commentary sent to EURACTIV.

Eva Srejber is vice-president of the European Investment Bank with special responsibility for information technologies and the knowledge economy.

"With public spending cuts looming, it may be difficult for governments to allocate more money to innovation. This is a problem as the Europe 2020 goals foresee increasing spending on research and development to 3% of GDP from today's 1.9%.

Happily, strengthening innovation can be fostered by other means than new public sector spending.

The EU lags behind the United States in innovation not because of insufficient government funds but because private sector innovation has not taken off, which reflects that patents are harder to get, markets are smaller and a host of other reasons.

One of them is weakness in the services sector, which is a key future growth area. Service businesses innovate mainly not through capital-intensive research and development but by adopting best practice from other firms, often by interacting in clusters.

The European Cluster Observatory has shown that strong clusters in services are highly correlated with national prosperity.

For such clusters to prosper, the conditions have to be right. One example is access to high-speed broadband.

The Commission's Digital Agenda emphasises the need to adopt the right policies to encourage investment and to safeguard competition and low prices.

Here, long-term financing institutions like the European Investment Bank (EIB) can play a role.

For example, the EIB has just signed a loan, from its risk-sharing finance facility with the European Commission, for the Reggefiber fiber-to-home network in the Netherlands. This EUR 298 million project will bring fast digital links to 33 Dutch towns.

Crucially, the network will have open access which enables subscribers to select their own service providers. With such healthy competition and because Reggefiber is built in less populated areas, it may take 10 to 15 years to recoup the investment – too long for most commercial investors. But the European Union needs such projects – especially if the EU is to meet its target of providing half the population with high-speed broadband access by 2020 compared with today’s 6 %.  

Governments can and should encourage the growth of strong clusters. By lowering barriers to exchanging information and creating larger markets, they will contribute to the so-called agglomeration effect.

Recent research shows that when service industries innovate, they use investment in knowledge, human and organisational capital and other assets to develop new services and reshape the way they conduct business. This requires product and labour market flexibility, competition and free trade of services across borders.

An EU-wide patent, which the Commission says will be in place by 2014, would be a key milestone in this work.

Much more is needed, but none of that needs to cost the EU taxpayer an extra cent."

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