"The finding is worrying: American companies are more likely to conduct research into high technology than German or European companies. But the European Union has the opportunity to learn from the United States.
Research and development and the resulting innovations are of central importance for the competitiveness of national economies and thus for economic prosperity. It is therefore worrying that Europe and Germany are losing ground in this area to the USA, and now also to China.
How can we recognize this decline? It is evident both on the input side, i.e. the expenditure on research and development, and in the results of these investments, which are reflected in patents, company start-ups and ultimately in overall economic productivity development.
More than 20 years ago, as part of the Lisbon Strategy adopted in 2000, the EU had already set itself the goal of increasing the competitiveness of the European economy. In order to achieve this, the share of overall economic expenditure on research and development was to rise to 3 percent of gross domestic product (GDP) by 2010.
The target was missed badly. Today, at 2.2 percent of GDP, it is barely higher than it was then.
In the United States, however, spending on research and development amounts to 3.5 percent of GDP.
In absolute terms, spending in the USA, at 730 billion euros, is more than twice as high as in the EU, at 322 billion euros.
There are significant differences in Europe: little investment is made, particularly in southern European economies such as Italy and Spain; there the rates are around 1.5 percent.
Germany is doing better, at 3.1 percent.
The level of spending on research and development (R&D) is only one aspect, however. Its composition is also important. The first thing that is noticeable here is that the share of government spending on R&D in economic output is similar in the EU and the USA.
The difference is mainly due to the fact that European companies invest less in research and development. Private investment in the EU, at 1.2 percent of GDP, is only about half as high as in the USA (2.3 percent).
Between high technology and medium technology
How does this gap come about? It is mainly due to the fact that research-intensive US companies are active in other fields. It is common to distinguish between "high technology areas" and "medium technology areas" in technological development.
High technology includes, for example, the development of software and hardware for the digital industry, biotechnology or aerospace.
In contrast, the development of cars and industrial machines, chemicals or telecommunications systems is classified as medium technology.
High-tech areas play a much larger role in the United States. In the European Union, companies invest roughly the same amount in R&D in high-tech and mid-tech industries - around 45 percent of total spending in each case. In Germany, the share of mid-tech industries is even higher than the EU average at 57 percent, while the share of high-tech industries is only 36 percent. US companies, on the other hand, concentrate their research and development mainly on high-tech industries. They account for 85 percent of private sector spending on research and development in the United States.
There is no doubt that there is room for debate about the classification of various areas as high or medium technology. The distinction can be difficult, partly because digital innovations are playing an increasingly important role in the automotive industry, for example. However, German car companies are showing considerable weaknesses, particularly in the IT sector. It is clear that companies in high-tech areas have grown much faster in recent decades. This has led to research spending also increasing more quickly. In the EU, it has roughly doubled in the past two decades, but in the USA it has quadrupled.
Mercedes, Siemens and VW with the highest research spending
The dynamism in the USA is also evident when you look at which companies spend the most and whether and how this group is changing. The three companies with the highest research and development spending in the EU in 2003 were Mercedes, Siemens and VW. In the USA at that time it was Ford, Pfizer and General Motors. In both cases, the automotive industry dominated. In 2022, VW and Mercedes were still in the top group in the EU, only Bosch has replaced Siemens. The dominance of the automobile industry had increased in Europe (and Germany). In the USA, however, this industry is now secondary. Amazon, Alphabet and Meta led the way in R&D spending in 2022.
If, instead of spending on research and development, you look at international patent applications that meet certain quality standards due to the high costs involved, a similar picture emerges. Europe is a leader in the automotive industry or in special mechanical engineering. But these belong to the mid-tech sectors, which in 2023 only accounted for 6.7 percent of all international patents, with a continuing downward trend. High-tech sectors have a significantly larger and growing share of patents at 35 percent. The USA dominates here, while China is catching up and Europe is being left behind.
It fits the picture that the high investments in fast-growing high-tech areas are also accompanied by a growing economic gap between the USA and the EU. This is dramatically shown by the fact that none of the globally leading, newly established technology companies come from Europe. The gap is also clear when you look at the development of labor productivity. By the mid-1990s, the EU countries had caught up with the USA. Since then, however, this trend has reversed. The EU is falling behind the United States again. Although labor productivity is influenced by many factors, innovations play an important role in productivity development.
Is the specialization of Europe and Germany in medium-sized technologies really a disadvantage? One could counter that this is an international division of labor and specialization in which everyone involved concentrates on what they do best. This is not entirely convincing for two reasons: Firstly, the framework conditions for research and development are significantly influenced by government action. Secondly, there are also significant path dependencies in private research and development.
This can be seen clearly in the software sector. US high-tech companies are much more profitable. The difference in average profit margins between high- and medium-sized technology companies in the USA is 7 percentage points, compared to just 3 percentage points in the EU. The difference is even greater in software. This may explain why so much more capital is flowing into the US high-tech sector.
One reason for the lower profit margins in the European high-tech industries must certainly be sought in the fragmentation of markets and the higher density of regulation, especially in the software sector.
The high profits of US technology companies are undoubtedly at least partly the result of market power and monopoly or oligopoly positions that arise through network effects. In terms of technology policy, however, this creates the problem that high profits drive the financing of research and development in the high-tech sector in the USA. As a result, the market dominance of these companies continues to grow.
This leads to a self-reinforcing process in which the EU is falling further and further behind. For these reasons, the current situation cannot be seen solely as the result of efficient market processes. But this does not change the fact that the EU has been left behind and enormous efforts would be needed to lead European companies to success in these sectors again. This is also shown by the experience of the European flagship company in the field of artificial intelligence, Mistral, which has entered into a cooperation with Microsoft.
Improving conditions for groundbreaking innovations
One could also argue that the classification of sectors as mid-tech or high-tech is questionable because it suggests that the high-tech sectors are necessarily more promising than the mid-tech sectors. It is hardly possible to predict today in which areas the European economies will be able to achieve particularly high added value in the future.
Nevertheless, it must be taken into account that the high-tech sectors have been showing significantly higher growth rates for a long time and that the volume of research and development spending there is therefore expanding more quickly.
From this perspective, the falling behind of the large EU states in terms of investment in research and development documented here is at least risky. Last but not least, it should be borne in mind that Germany in particular could lose competitive advantages in its core competence, the automotive industry, due to the shift towards electric drives and networked mobility concepts. A recent ranking by the automotive research institute CAM found that none of the 10 best-selling electric cars in the world come from Germany.
What follows from the finding that Europe is caught in a kind of medium-technology trap and is increasingly falling behind in high-technology? At first glance, it seems obvious to demand that more state funds be channeled into the computer or software industry. However, channeling resources specifically into fields in which European companies are already largely left behind in international competition offers little chance of success. It is more promising to improve the conditions for groundbreaking innovations across all sectors without making a narrow sectoral commitment. This requires changes in state funding for research and development, but also a comprehensive concept for strengthening innovation in Europe.
American innovation agencies as role models
The American innovation agencies ARPA (Advanced Research Project Agencies) are seen worldwide as role models when it comes to groundbreaking technological innovations. The best known of these is DARPA, which focuses on armaments projects and has an annual budget of around 4 billion euros. Other ARPA agencies promote fundamental innovations in energy and health.
The Federal Agency for Disruptive Innovation (SPRIND) was recently founded in Germany. It pursues the same purpose, but is very poorly funded.
At EU level, the European Innovation Council has existed since 2021, which, like ARPA, should support groundbreaking innovations. Of course, it does not make sense to simply copy the US model ARPA - the innovation conditions on both sides of the Atlantic are too different. Nevertheless, EU innovation policy must be judged on whether it achieves the goal of promoting groundbreaking innovations.
This concerns projects that are still far from being ready for the market and are therefore not privately financed.
This is where major weaknesses become apparent. The European Innovation Council not only has too few, but also too few highly qualified staff to be able to manage projects from all sectors. The decision-making structures should be reformed by reducing the influence of the EU Commission and giving top scientists more competencies. In addition, the European Innovation Council's programs combine innovation goals with other economic policy concerns, especially the promotion of medium-sized companies.
The involvement of actors from poorer Member States in research and development by requiring broad cross-border cooperation is also well-intentioned, but it dilutes the focus on groundbreaking innovations and impairs the effectiveness of the resources used.
Make better use of existing resources
Instead, existing EU programs should be consistently geared towards breakthrough innovations. Projects should be funded regardless of whether they are applied for by large or small companies or research institutions. Cooperation should be voluntary and not forced as a prerequisite for funding. In this way, the existing funds, which amount to more than 1 billion euros per year, could be used much better. However, the funds provided at EU level are only part of the state innovation funding. National innovation policies should also be reviewed and geared more towards disruptive innovations.
In order to achieve noticeable progress, it is not enough to focus solely on state funding for breakthrough innovations. A comprehensive economic policy agenda to strengthen innovation is required.
Private capital markets must be developed so that more risk capital flows to start-ups.
Tax law must not hinder the financing process, for example by excessively restricting loss compensation. Labor market regulation should enable newly founded companies to quickly increase and reduce staff. Last but not least, it is crucial to remove the still significant obstacles to cross-border economic activity in the EU internal market in order to offer new companies better growth opportunities.
F.A.Z.
Daniel Gros (69) is a professor of economics and director of the Institute for European Policymaking at Bocconi University in Milan. He was an advisor to the Delors Committee, which developed the plans for the European Monetary Union. He also advises the EU Parliament and various central banks. In his research, Gros, who comes from Wiesbaden, deals with monetary policy, foreign trade and general macroeconomics.
Clemens Fuest (55) is president of the Ifo Institute, director of the Center for Economic Studies at the Ludwig Maximilian University of Munich and also professor of economics at the LMU. Fuest is a sought-after political consultant. But he also sees his task as a scientist as communicating findings to the general public in order to enable debates. As a liberal economist, he always advocates for the most market-based paths possible.
Jean Tirole (70) is an economics professor and co-founder of the Toulouse School of Economics (TSE) and the Institute for Advanced Study in Toulouse (IAST). Tirole comes from Troyes, France. His research focuses on industrial economics, regulation, game theory, banks and currency crises. He is the most cited economist in Europe and has received many awards, including the Nobel Prize in Economics in 2014." [1]
1. Europa in der Technologiefalle. Frankfurter Allgemeine Zeitung (online) Frankfurter Allgemeine Zeitung GmbH. May 18, 2024. Von Clemens Fuest, Daniel Gros und Jean Tirole
Komentarų nėra:
Rašyti komentarą