The EU is losing ground in research and development and in the creation of innovative technology companies with global reach, says a report commissioned by the European Commission. That is unlikely to surprise anybody familiar with the matter, as such concerns have been in place for many decades.
The report says the EU lags in artificial intelligence, cybersecurity, the internet of things (IoT), blockchain and quantum computers.
The EU has generated fewer new lead innovators in the past decade than the United States, and that the share of EU firms in the top 2,500 global R&D companies has fallen compared to other blocs,” the study argues.
“For instance, among leading companies in software and internet, EU firms represent only seven percent of R&D expenditure, compared with 71 percent for the U.S. and 15 percent for China; similarly, the EU only accounts for 12 percent of R&D expenditure among leading companies producing technology hardware and electronic equipment, compared with 40 percent for the U.S., and 19 percent for China.
The study notes that the EU is home to only four of the fifty largest digital marketplaces worldwide, while the ten largest platforms serving EU citizens are owned by U.S. or Chinese companies (Alphabet, Amazon, Meta, Apple, Microsoft, X, Tencent, Alibaba, Byte Dance and Baidu).
On the other hand, the report notes that “the EU has important capabilities, in particular, in green technologies, advanced manufacturing and advanced materials, the automotive industry and biotechnology.”
Among the perhaps-obvious recommendations are to increase research and development spending. But many of the other recommendations are less directly related, such as increasing the quality of world-class research institutions.
“According to the Nature Index in 2022, which ranks institutions based solely on the volume of
publications in a selected list of top academic science journals, the EU has only three research institutions among the top fifty globally,” the report says.
While praiseworthy, the effort to grow more world-class research institutions is a tough and long-term goal that many would argue is unlikely to happen in a world where leadership begets leadership.
The computer science, semiconductor and biology industries are typically concentrated in a small number of science and technology clusters, with leading clusters accounting for a large share of overall innovation in a country, the report notes. The EU simply has such clusters, but few in the top 10.
According to the WIPO classification of world clusters (2023 Global Innovation Index), the EU has a similar number of clusters in the top 100 as the US and China, but only one in the top 20. None of the EU clusters appear among the top ten, while the United States has four and China has three, the report says.
But there are lots of other issues, ranging from a weaker venture capital system to the degree to which academics create private companies; overall commercialization of research and regulatory and bureaucratic obstacles.
A slower pace of technology adoption; smaller firm size; quality of digital infra and skills also are cited as obstacles. But the list of issues is numerous, including the cost of energy; access to raw materials and digital infrastructure in general.
For some observers, the report simply restates what critics have said for decades about EU competitiveness,
The common litany of concerns includes the fragmentation of the Single Market impedes scale. It always is argued that the EU makes insufficient investment. Regulatory barriers are said to be too high. There are talent shortages as well.
Digital infra is not well-developed enough and competitors do better in such areas. Most of the proposed remedies, and they are numerous, would require both a huge shift of resources and significant time, something perhaps unavailable to the EU as the artificial intelligence and computing innovation cycles either appear or continue.
Some problems might not have solutions, at least not solutions that are politically or economically feasible. And even if successful, EU “catching up” to China and the United States in many technology fields would take a long time, many would likely argue.
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