Commissioner Janez POTOCNIK: Europe’s Knowledge Economy: Making it Fit for the Future, Center for European Reform

London, 25 April 2006

Ladies and Gentlemen,

I am happy to speak at this seminar of the Centre for European Reform about what we can do to make Europe a knowledge economy that is “fit for the future”.

As Bill Rammell recalled at the start of your seminar, this question was already at the heart of discussions and work last year during the UK presidency of the Union.

Now is a good time to assess where we are on the road to implementation.

This is what European leaders have done at the Spring European Council last month. They notably endorsed the main proposals stemming from the follow-up to the Hampton Court informal Summit of October 2005.

This includes the proposals of the group led by Esko Aho for “Creating an Innovative Europe”, which has already been mentioned in your discussions this morning. I will come back to it in a moment.

First I would like to briefly comment on the fact that the Spring Council confirmed the overall 3% of GDP target for research and development.

This has often been misunderstood as an “input” target, which would:

1° impose undue constraints on national priorities; and

2°divert us from the real focus which should lie with the framework conditions and the market pull for innovative and technology-intensive products and services.

I want to dispel that misunderstanding.

There are three reasons why European leaders believe that the 3% target is important.

The first reason, is that the 3% target is primarily about boosting private R&D. This can only be done through acting on framework conditions and the market pull to attract business R&D and innovation.

As Mr. Aho’s report says, the rate of investment in R&D, in any case the business R&D investment that we need to boost, is an indicator of the progress we make in reforming our economy.

If we do well what we know and say we should do, we will achieve the 3% R&D investment target. It will be a natural result of our policy actions.

The second reason is that Member States have now all incorporated the 3% commitment in their national reform plans. This certainly doesn’t mean that all Member States should achieve 3%. It is a global target for the EU as a whole. At the national level, it all depends on national starting points, economic structure and policy priorities.

In the UK for example, you have a predominantly service-oriented economy. In this context, even with cutting-edge research in your industry, R&D may weigh only 2.5% of GDP which is your Government’s target for 2014.

All Member States have now set their own national targets. Our analysis indicates that if they all realise the measures they propose and reach their targets, the EU will be investing about 2,6% of its GDP in research in 2010. That would be much better than the 1,9% in 2004. It would be very wrong to break the momentum that now exists.

The third reason, quite simply, is awareness. We need a simple and visible target for people and politicians to understand how important the realisation of the knowledge economy is for sustaining our prosperity.

As an indicator of progress towards the knowledge economy, R&D intensity offers striking comparisons between Europe and other parts of the world, notably emerging economies such as China and India.

The times are gone that we could think of China and India as our low cost/low value competitors. R&D growth in China is currently in the order of 20% every year. Under a business as usual scenario, China would invest by 2010 as much of its wealth in research as Europe.

Don’t get me wrong. Globalisation can be good for the world and we should make it beneficial for Europe.

The more the rest of the world develops and innovates, the better for all. It does not have to mean less innovation in Europe. It simply is one more reason to increase the EU’s attractiveness as a location for R&D and innovation.

It is up to us if these economies develop as an opportunity or a threat for us. And that depends to a large extent on how we derive our competitive advantage from research, education and innovation.

We have a pretty good idea of what policy actions to achieve this should be: a coherent set of actions that should make Europe a more attractive place to research and develop, to innovate and to work.

It is obvious that this goes beyond the remit of the research commissioner. At national level, I would like to commend the creation of your new Office for Science and Innovation which is merging the Office for Science and Technology with the Innovation Group. We need such an integrated approach for research and innovation. We are pushing for this also at the European level, by mainstreaming knowledge policies in everything we do.

In doing so, the goal is to improve the framework conditions for research and innovation, gearing up the internal market towards the knowledge economy.

Such an approach implies, for example, making the state aid regime more innovation-friendly; enhancing tax incentives for research and innovation; improving cooperation and technology transfer between academia and industry; promoting innovation through public procurement.

The Commission will be revising the state aid framework for R&D and innovation in the coming months. We will also issue concrete recommendations on the other issues in the second semester of this year. Before issuing these recommendations we will consult widely with stakeholders and the Commission would most welcome your views in that context.

A first consultation has just been launched by my colleague in charge of the internal market Charlie Mc Creevy. He is calling the views of stakeholders on what should be the strategy for Internal Market policies in the coming years. Very broadly, his main idea is that internal market should be strongly geared towards fostering the knowledge economy and he asks a number of questions on what we can do to achieve that.

Another strong focus of interest is higher education and the role of universities, but I won’t go into details as this has been already reviewed by Bill Rammell with much depth. I would only like to confirm that the Commission intends to bring forward proposals for the European Institute of Technology on the basis of a very wide consultation of universities, industry and other interested communities. We are really open to discussion on this matter.

More directly in the remit of research policy is the European Research Area that we are building.

We need more Europe in research and development so that we can achieve much more productive mixes of competition and cooperation. We pay an unacceptably high price because of the fragmentation and duplication of our efforts – and because of the lack of a strategic capacity to programme research and technology development, for example in comparison with the US.

The 6th Research Framework Programme is designed to help build the European Research Area.

The 7th Framework Programme should be launched at the beginning of 2007. It has been designed to help create a knowledge economy, building on a European Research Area. I very much appreciate the support expressed by Bill Rammell a moment ago.

The 7th Framework Programme will keep a good balance between continuity (for example in chosing thematic priorities) and innovation.

A very novel and exciting programme to boost scientific and technological excellence will be the European Research Council, which will fund the best researchers through open competition at the European scale.

I can assure you that despite the reduced budget compared to the original Commission proposal, we are determined to go forward with the European Research Council, as well as with the most promising Joint Technology Initiatives and of course with the bulk of our cooperation activities.

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Ladies and Gentlemen,

There is one topic that Mr. Aho has singled out in his report on creating an innovative Europe and that I would like to underline today: the need and the potential we have to create lead markets for technology-intensive goods and services.

Getting the framework conditions for research and innovation right and bringing more coherence in research policy in Europe is necessary, but not sufficient.

If we could also propel market demand for new technologies that meet economic opportunities and societal needs, we would go a long way towards reaching the 3% objective.

Only the blind would not see the enormous potential for doing just that by working properly together at a European level and being smart about standardisation and regulations.

Mr. Aho cites the example of eHealth. A proper use of ICT can lead to a new health care delivery model based on preventive and person-centred health systems. It is a clear example of how economic opportunity through technology and service innovation could go hand in hand with sustaining prosperity and quality of life.

Another striking area is the construction sector. We have a European technology platform in this sector which is developing a vision and research agenda for a “near-zero emission building”. This is an area where standards and regulations are key issues and where public authorities can play a leading role to launch innovative markets with huge opportunities.

For example, China is currently developing an “eco-city” in Dongtan near Shanghaï, testing environmentally-friendly concepts under the steer of the British consultancy Arup. “Near-zero emission” buildings will have a key role in such developments. Dongtan is expected to host over 50.000 inhabitants in 2010 and grow to half-a-million in the next decades. We should bear in mind that China alone is to build 400 new cities in the next 15 years – and that opportunities can also be created in Europe: the Dongtan example has just led the Mayor of London to announce similar plans for East London.

We could think of many other examples of areas with promising markets for new technologies, such as environmental technologies, intelligent systems for road pricing, transport and logistics, biotechnology – to name but a few.

I expect a lot from the technology platforms that we have now operating in these areas and in others ranging from nano-electronics and aeronautics to textiles and hydrogen.

These technology platforms are led by industry. They develop strategic technology agendas in consultation with academia, consumers, regulators and other relevant stakeholders.

They are meant to coordinate research investments, both public and private, at national and European levels. But it would be very natural for them to also take a proactive approach to standardisation and regulation. Technology platforms are focused on research and technology-driven innovation. That is why I believe that they could identify and drive new approaches to standardisation and regulation that create economic and societal value, thereby creating new markets.

This would take the form of “European lead market agendas” that the relevant technology platforms would develop together with national authorities, which are associated to the technology platforms through “mirror groups” that we would reinforce for that purpose.

I intend to discuss these ideas at a major conference on technology platforms, which will take place in Vienna on 4 and 5 May. We will then consult widely national governments and industry to refine the approach and select the most promising areas. If the response is positive, we may launch proposals for implementing this new approach before the end of the year.

To conclude: we know that our future lies in the knowledge economy. We know more or less what we can do to help build that knowledge economy.

As Mr. Aho says, we now have to act before it is too late.

Thank you for your attention.

Item source: SPEECH/06/251 Date: 25/04/2006