Moving Europe forward: innovating for a prosperous future

Voices from the market

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The survey contains both good and bad news for EU policy-makers. Business leaders deeply criticized most governments’ inability to meet the target of spending 3% of GDP in R&D.

As in last year’s survey, business leaders would like the EU and national governments to make stronger commitments to foster innovation.

A number of European countries are, however, perceived as doing well despite the economic crisis and benefit from better perceptions on their economic policies. Business leaders solely consider Germany as the country with the strongest innovation policy and climate. They identify Western Europe as a whole being the strongest region.

Evolving role of the private sector

The role of the private sector in fostering innovation across the EU is crucial and poised to grow even more significant. The reality of austerity is hitting home in Brussels and there are no longer the funds to deliver what may have been originally envisaged.

European leaders agreed in February 2013 to limit the EU’s spending in 2014–20 to €960 billion, 3% below the current seven-year budget. The deal, which represents the first cut in its budget in the EU’s 56-year history, has significant implications for Horizon 2020, the flagship seven-year program for research and innovation.

Investing to innovate

So with money increasingly tight, where should the EU target its remaining funds? According to our respondents, EU policy has so far focused too much on competition and not enough on investment incentives for innovation, with 76% agreeing with the proposition. Agreement is highest, at 87%, among those operating in the high technology sector.

When it comes to identifying these incentives, business leaders wanted more frequent tax incentives.

Tax incentives should be used more frequently to stimulate innovation (e.g., through tax credits)

EY - Tax incentives should be used more frequently to stimulate innovation (e.g., through tax credits)

Source: EY and CEPS survey 2013.

Facilitating initiatives, such as Tech City in London, the technology hub of Silicon Allee in the old East Berlin, and Skolkovo near Moscow, can be expected to boost the generation of innovative solutions in basic and applied research. Alongside these initiatives are the tax credit regimes to promote R&D that are offered by European governments.

As to where the EU institutions should focus their investment, respondents were heavily in favor of focusing more on education and skills (88%) and on investing more funds in the development of a common broadband infrastructure (77%).

Understanding global value chains

The production of innovative goods increasingly involves the combination of various components (modules), which in turn depend on the inventive activity of different entrepreneurs. For example, recent research has suggested that there are as many as 250,000 active patents that potentially affect the smartphone systems.

Given that in the computer and peripherals equipment sector, there are an estimated 277.5 patents per 1,000 jobs, the positive implications for jobs and growth are clear.

The complexity of modern production chains also leads companies to increase outsourcing, purchase greater R&D and innovation from smaller, innovative firms, and open up their systems in order to stimulate gradual increases in quality, product upgrades and lower prices.

The art of innovation policy thus becomes that of facilitating the integration of local firms into global networks and global value chains, without losing domestic firms’ intellectual and industrial know-how and patents.