The European Union is falling further and further behind in research and competitiveness

June 28, 2002

Brussels, June 2002

In the USA, €288 billion ($265 billion) was spent on research and technological development (R&D) in 2000, but only €164 billion in the EU. European Commissioner for Research Philippe Busquin presented the latest figures available today in Brussels. "In euro values at current rates, the gap between the USA and the EU widened to €124 billion in 2000", he affirmed. "At parity, and at constant prices, this gap was more than €100 billion in 2000. In 1994, the gap was €51 billion, but it has constantly increased since then. The trend since the second half of the 1990s has got far worse. The fall in the value of the euro to the dollar in 2000 only partly explains the considerable widening of the gap between levels of research investment. This trend confirms the importance and urgency of reaching the target agreed by the Barcelona European Council of increasing R&D spending in the EU to near 3% of GDP by 2010", he concluded.

Commissioner Busquin added that "these results underline the need for a general discussion on how best to make government research budgets give genuine leverage to increase private investment. What is needed is detailed analysis and the spread of best practices as regards direct aid, fiscal measures and ways of increasing risk capital.

Japan has already achieved this level of research, with a rate of investment of 2.98% in 2000, and the USA is coming closer (with a figure of 2.69% in 2000 which has been constantly rising since 1995). In Europe, on the other hand, R&D intensity, at 1.93% in 2000, has been stagnating at under 2% since the beginning of the last decade. The EU therefore spends a much smaller proportion of its GDP on research. The trend seen in 2000 is due to a fall in R&D spending by the larger Member States such as France, Italy and the United Kingdom, offset by the good performance in some Member States such as Greece, Portugal, Finland and the Netherlands (see Table 1 in the annex).

Promoting private R&D investment

In Europe, the proportion of private-sector research funding is lower than in Japan and the USA, where it is more than two-thirds of the total. In Europe, private-sector spending is comparable in Finland, Sweden, Belgium, Germany and to a lesser extent, Ireland. However, in spite of the upward trend seen during the last few years, private-sector funding accounts for only 56% of total R&D spending in the EU as a whole. In 1999, the rate of real growth of research spending financed by European companies (8.2%) was very similar to that of the USA (9.0%), although in some Member States the figures were much higher: Greece (26.3%), Finland (21.4%), Portugal (11.9%) and Germany.

In 2000, it fell slightly in the USA (8.3%), and it is impossible to detect an overall trend for the EU since data are only available for 5 countries. However, in those countries the trend is not uniform: a 16.0% increase in Finland, a big increase in Spain (12.7% compared with 1.1% in 1999) and a decrease in Germany (6.7% in 2000 and 3.4% in 2001) (see Table 2 in the annex).

Most of the overall shortfall in R&D investment in Europe as compared with the USA can therefore be attributed to the low level of investment by the European private sector. The gap between research investment funded by EU companies and US companies was €104 billion in 2000, yet only 14 billion in 1995.(1) This worrying trend means we must take a new hard look at the economic, fiscal and social factors which influence company decisions with regard to investment in research and innovation and improve the way in which research and innovation policies are coordinated with other government policies, in particular industrial policy and competition policy.

The increase in the proportion of private investment must be accompanied by an increase in public investment. In 1999, public funding of research rose by only 2.2% in Europe despite rapid growth in some Member States such as Portugal (15.9%), Greece (13.1%) and Finland (12.5%) as compared with 0.2% in the USA and 2.1% in Japan. In 2000, the figures rose in Japan (3.6%) and to a lesser extent in the USA (0.8%), while in the EU, on the basis of the scant data available, a slightly lower increase can be expected compared with 1999.

The role of the European Union

Government support for industrial research essentially has a leverage effect on private-sector investment. In 2000, while R&D spending by US companies increased substantially, 12.3% of the funds came from government sources, as compared with only 8.5% in the case of EU companies.

These indicators stress more than ever before the importance of the decision taken by the Heads of State and Government at the Lisbon (March 2000) and Barcelona (March 2002) European Councils. Investment in R&D and the technical progress to which it leads are a major driving force for future competitiveness and the creation of skilled jobs. It is a known fact that the high level of growth in the USA in the 1990s was preceded by a spectacular improvement in technological innovation due mainly to large-scale investment by both government and the private sector in research and innovation.

Europe is still a world class scientific power and still has a high standard of potential for research and highly-qualified human resources. However, the widening gap in investment as compared with the main partners raises the fear that it is bound to fail if the trends are not swiftly reversed. This is why the Barcelona European Council set the target for the EU of increasing its level of spending on R&D to near 3% of GDP, two-thirds of it funded by the private sector, by 2010. The European Commission intends to present the first results of its thinking on this subject in the near future.

However, the full meaning of this target can only be seen in the more general context of the creation of a European Research Area. Investment must be accompanied by major efforts to increase the overall effectiveness of research in Europe by improving the coordination of national policies, increasing cooperation between businesses and universities, producing and attracting more highly-qualified research scientists who are guaranteed greater mobility, and ensuring that there is greater coherence between public research instruments and resources in order to encourage EU businesses, in particular SMEs, to invest more in research and innovation.

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DN: IP/02/939 Date: /06/2002

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