Investing in research: an action plan for Europe frequently asked questions

Brussels, 29 April 2003

Tomorrow the Commission will publish the Communication "Investing in research: an action plan for Europe" (1) . The Action Plan outlined by the Communication responds to the March 2002 Barcelona European Council's call for Europe to raise its research spending from the current level of 1.9% to 3% of its average Gross Domestic Product (GDP) by 2010.

Why did you choose the 3% objective? Why not 2.9 or 3.1%? Is the 3% target realistic?

At the March 2000 Lisbon European Summit, Europe set itself the ambitious goal to become the most competitive and dynamic knowledge-based economy in the world. The 3% objective, as endorsed by European Heads of State and Government in Barcelona in 2002, to increase research spending to 3% of EU GDP by 2010, is pivotal to the Lisbon strategy.

It sets a measurable objective, which has been established taking into consideration the performance of Europe's main competitors and of EU's best performers in terms of R&D and innovation. It makes sense from the economic point of view, and will create a drive to increase both public and private research efforts across Europe.

It requires a dramatic, well-planned and long-term commitment from both the EU and Member States across a range of policies. The 3% objective is ambitious, but also timely, realistic and achievable:

• Timely because, in view of current economic trends, the European Union will fall further behind unless action is taken rapidly to increase spending in research. R&D investment by industry is still too low in Europe, compared with our international competitors. In absolute terms, the gap in research investment between the European Union and the United States is already in excess of €120 billion per year. This gap has widened even more since the Lisbon European Council as the US and Japan have been increasing considerably their public research budgets, levering ever more private investment.

• Realistic, given that the three best performing Member States Finland (3.4%), Sweden (3.8%) and Germany (2.5%) - are near or exceed this level of investment. This is also the case for the US (2.7%) and Japan (3 %) where R&D expenditure is seen as a crucial tool for their long-term competitiveness.

• Achievable, given the strong commitment of the European Council and of the current and future Member States to take appropriate measures to boost research and innovation; and given the 3% action plan's potential to accelerate the momentum and to ensure that efforts are sustained and consistent.

  To reach the 3% objective in 2010, of which two-thirds should come from industry, the public sector needs to increase its R&D expenditure by 6% on average every year, while business should increase its R&D investment in Europe by 9% every year. These levels are comparable to what is currently being achieved in the US, Japan and several other Asian countries.

What about the "qualitative" dimension of research? Why focus on "quantitative" targets?

Europe needs to invest more and invest better in research to transform the knowledge produced into increased growth, competitiveness and high quality, skilled employment. The qualitative and quantitative dimensions of the 3% objective are strongly connected: one of the main challenges is to improve the quality of the EU R&D effort in order to make it more attractive to businesses, i.e. existing industry and new entrepreneurial initiatives.

To this end, centres of excellence with sufficient critical mass, closer links between public research and industry, and enhanced supply of scientists are essential. Even more important than any of these individual elements critical mass, public-private partnerships, and human resources is the interplay between them.

Once attractive research locations have achieved a critical mass of high quality R&D, investors and entrepreneurs often naturally develop into " knowledge clusters " that result in further investment and spin-off activities. These knowledge clusters arise from a virtuous capital venturing circle: the arrival of investors enables access to capital, which leads to the creation and growth of successful firms. This in turn encourages more researchers, universities and public research organisations to think in an entrepreneurial way, thereby attracting more investors, more researchers, and so on.

Public financial support to research is a key issue not only in terms of its level but also of its effectiveness, and both aspects are addressed by the action plan. Increased public support must be accompanied by a determined effort to enhance its effectiveness in two ways:

• Improve the leverage effect of the public support on private investment, by making a better use of various instruments, i.e. subsidies, fiscal incentives, risk capital and guarantee mechanisms;

• Increase the quality (excellence and critical size) of the public research base and its links with industry.

Actions listed in the Plan do not always lie within the Commission's responsibility: how can you persuade EU Member States, industry and other players to implement them?

The 3% target is already having a strong mobilising effect on current and future EU Member States. Research and innovation policies are being upgraded across Europe and most Member States have set ambitious national goals and schedules to reach them, so as to meet the 3% objective. Some European regions have also adopted similar strategies. Mutual learning and information exchanges are creating a positive dynamic. The diversity of R&D situations in the enlarged Union will result in a variety of approaches building on the different national and regional capabilities.

Mutual learning, i.e. a collective process of monitoring and reporting on initiatives taken in the context of national policies and on the resulting progress at national level, is playing a key role. This process will be supported by benchmarking exercises on focused topics (e.g. impact of financial incentives), where there is a particular need for detailed data gathering and information sharing and for the identification and dissemination of good practices.

EU Member States will thus work with the Commission to increase and/or better target their research effort. At the same time, European businesses will be encouraged to boost their investment in research through the creation of more R&D-friendly framework conditions. This will entail concerted actions at EU and national level on the broad legislative, regulatory, fiscal and financial environment.

The launch of European Technological Platforms in key sectors represents another way to make progress towards the 3% objective. Technological Platforms will mobilise all stakeholders, e.g. the research community, industry, public authorities, financial community, users and consumers, in areas where R&D has a vital role to play in addressing major economic, technological or societal challenges.

The role of Technology Platforms is to bring together all interested players to develop a long-term vision to address a specific challenge, create a coherent, dynamic strategy to achieve that vision and steer the implementation of an action plan to deliver agreed programmes of activities and optimise the benefits for all parties.

Such platforms are being or will be set up in the coming months around important technologies such as hydrogen, photovoltaics, plant genomics, steel research, and specific topics of microelectronics and nanotechnologies.

The Action Plan addresses broader issues such as State aids, intellectual property rights, and fiscal policy: what is the link with R&D policy?

The success of the 3% Action Plan requires coherent action on several fronts. Different policies should be co-ordinated so as to achieve maximum impact on the R&D drive. The " 3% policy mix " therefore requires the consistent mobilisation of research, innovation, industrial, regional, competition and internal market policies.

For instance, as far as State aids are concerned, a large share of public support to business research is still included in the State aid category under a Community framework which, in 2005, will have been in force for the past 10 years. It will be necessary to review the basic definitions used to take account of developments in R&D.

Concerning intellectual property rights, in particular patents, copyright, trade secrets, and design, they are an increasingly important factor in research partnerships and technology transfer among firms and between industry and public research organisations. They are also important in scientific and technological co-operation agreements between countries and in international trade agreements.

As far as fiscal policy is concerned, fiscal incentives are increasingly used to support private R&D because these schemes reduce the costs of R&D for a wide variety of firms, including small and medium-sized enterprises (SMEs), and leave the decision as to the content of the research to their discretion.

The action plan includes a number of specific measures in these policy areas.

Inconsistencies between policies may indeed have adverse effects on investment in R&D and industrial competitiveness. That is why, to be successful, the "3% action plan" has to take into consideration every aspect of the research policy mix. The scientific side alone is important but it is not enough, and it must be complemented by all other elements that encourage more and better research in Europe.

What will be the 3% Objective's impact on growth, employment and overall competitiveness?

Science and technology play a key role in the knowledge-based economy they are the source of knowledge itself, and therefore they represent a key competitiveness booster. Investment in research and technology is responsible for 25 to 50% of economic growth (2) . Meeting the 3% objective is expected to create 0.5% additional growth of GDP and 400,000 additional jobs every year after 2010.

To make it easier to improve European companies' competitiveness in the global economy, it is necessary to look first of all to the quantity and quality of knowledge it relies on. Without enough researchers or public and private investment in research, the EU economy would stagnate, deprived of the knowledge, which is its driving force. To become the most competitive knowledge-based economy in the world, Europe requires a new drive, with R&D as an essential component.

How will Candidate Countries contribute to achieving the "3% Objective"?

The 3 % objective is a goal for the European Union as a whole, not a target that will be reached individually by each and every Member State in 2010. However, all Member States and Candidate Countries need to step up their efforts, in particular to encourage business R&D investment. No matter whether their current R&D level is 0.5% of GDP, as in Greece or in Latvia, 1.5%, as in Slovenia, or 3.8% of GDP, as in Sweden, it is in their common interest to make their business environment more favourable to R&D investment, and to upgrade their overall research effort.

Many countries, including the Candidate countries, have defined national R&D targets for 2010 or intermediary dates. For example, Slovenia set itself the target of 3%, with 2% as the share of R&D business investment by 2010; so did several current Member States such as France, Germany and Belgium; Poland, which has today an R&D intensity of 0.7%, set itself the target of reaching 1.5% by 2006. Differences in targets reflect the difference in starting positions.

National objectives converge and aim at increasing private R&D investment through a wide range of measures, focusing in particular at strengthening the link between the public and private research base, increasing skilled human resources and creating an environment conducive to more innovation. With few exceptions, European countries are also engaged in launching or strengthening fiscal incentive schemes.

Is the Action Plan trying to impose standardised actions, not adapted to the different local, regional and national realities across Europe?

The action plan does not propose any "one size fits all" strategy. There are important differences between Member States with regard to the size and main features of their public research systems, the structure of their industry and other factors that affect their comparative attractiveness for R&D investment by companies. Large differences also exist between regions. While some are at the cutting edge of high-tech sectors, others are specialised in more traditional sectors or sub-sectors, which have less recourse to R&D.

The action plan therefore foresees a collective and flexible effort adapted to the disparity of R&D situations in the enlarged Union, which is expected to result in a variety of approaches and policy mixes building on the different national and regional capabilities.
(1) COM(2003) 226 , see also IP/03/( …)
(2) Towards a European Research Area, COM(2000) 6 , 18 January 2000

DN: MEMO/03/93 Date: 29/04/2003