It is hard to measure an output of innovation policy

Adequate input for R&D is indispensable: without investment there is no innovation – says Peter Dröll, Head of Innovation Unit in the European Commission. It is equally important to have a maximum output. It is hard to define what output of innovation policy there should be.

What has the European Commission learnt from the failure of  the Lisbon Agenda?

We have learnt that we have set the right targets but did not have all the means to achieve them. I think it is pretty much agreed that if we had achieved objective of 3 per cent of  the GDP investment in knowledge economy, we would have weathered the crisis which started in 2008  completely differently.

So the lessons we have taken from this is that we need a better process of defining the European framework for reform programs in the member states. This is called the European semester where we publish annual growth survey, analyse the reform programs in the member states on that basis and issue country specific recommendations. This is a little revolution compared to the Lisbon Agenda process but you could still argue that it remains a soft process. And the question is out whether it is sufficient.

Is it?

If you look at what has happened after the crisis – with all the different measures that the UE has taken – you can see very clearly a deepening of the European monetary union. In that sense – yes, maybe too late, but it is sufficient. Whether in the years to come this will still remain sufficient, it is an open question and I think we should look at ways to further strengthen economic governance the European Union.

There is a target of 3 per cent of the GDP expenditure on R&D in Europe 2020 Agenda. But targeting inputs instead of outputs doesn’t make much sense, does it?

This is a very good point and yet  I do not agree. You are right that targeting only inputs  is not enough. But without input there is no output. And I think there is no shortcut to this. For instance, if you don’t invest in our young people, in their education, if you don’t give them means to thrive in the knowledge economy, innovation will simply not happen. Without it we won’t compete globally and secure welfare in Europe.

But it is true, it is not enough. We have been working on an output indicator on innovation and it turned out to be extremely difficult. You can measure productivity,  but is it really output of innovation? We have now proposed an innovation output indicator which  combines four elements – patent activities, share of employment in knowledge intensive sectors, employment in fast growing companies and high tech exports.

Number of patents is not a meaningful indicator. It is a biased measure, because, among others, R&D departments are rewarded on the basis of patents granted but R&D department of the global firms where people from all over the world work are located only in a few countries.

There is even one more reason why measuring patents has limitations. Some business strategies are based not on protecting knowledge with a patent but in a different manner. So, yes, this comprehensive measure it is controversial and not fully matured yet so we are not using this as a target. As we agree that we need to focus more on the outcome, it is however a very important step.

Why don’t people with business experience in innovation seek employment in public sector? That would be a great opportunity to bring experience and efficiency of private sector into the public sector.

Not much we can do as the EU, neither can  member states do, because it has to do with the salary systems and career perspectives, with the attractiveness of the sector. But acceptance is something you can do as a public authority. Would you accept someone who has left, has gone to private sector and comes back or would he or she be regarded as a strange animal?

What you are doing about that?

We have a funding scheme for researchers called Marie Curie and there we have one branch which is funding the exchange from public to private sectors and back.

Does it work?

It works but it is a drop in the ocean, because we are reaching only small percentage of researchers.

Many firms complain that European regulations stifle innovation. How does the European Commission respond to such allegations?

There are such opinions, even radical ones that all regulations are bad. You can’t really answer such allegations without going into a detail. But when you ask specifically “what regulations are bad” in most cases it is a tradeoff, say, between employee protection and environment protection on the one hand and risk-taking and driving future markets on the other.

So there we need to be very careful. I think it is established that in quite number of cases you need regulations to be innovative. As part of the Innovation Union strategy, we have developed a methodology to assess the innovation effects of existing legislation. We have tested it in the field of water and raw materials. The conclusions suggest that EU water legislation has a positive effect on legislation, while the ban on landfill might make innovation to recycle materials more difficult.

Does it make sense to encourage private funding for R&D by adding public funding to the pool? The very reason VC works is that investors risk their own money and apart from funding they bring experience and contacts – something that a public official will not be able to do.

VC is an important element in the innovation ecosystem. Right now the VC volume in EU-28 is very low: it corresponds to the venture capital in Israel. Can public authorities stay back and say for example: “This is not our public task, this is a task for markets”. I don’t think so. I would agree, however, that public funding of VC it is not a sustainable solution and the public funds cannot substitute private funds. But governments can give incentives. And we have good examples such as  our fund of funds within the European Investment Fund. It  helps the investment and overcoming part of the credit crunch in Europe, eventually bringing growth. And then I would add that I tend to look at the American system where the state is supposedly taking a step back and yet funding quite a lot.

Yes, we have covered this issue in the Obserwator Finansowy.

And US government programmes fund what we would not have funded so far – business plans and business development. We have to learn also from them and to close the loop in supporting the innovation.

How much do you focus on promoting innovation on one hand and fighting corruption on the other?

I have this privilege that my job is to conceive innovation strategy and implement it. I think we have a very good track record on this. So I am focusing on these questions.

When opening up the EU procurement rules for innovation, we have had a big discussion about corruption. The question was whether the  new innovation procedure would increase the risk of corruption The big argument was “this is too dangerous”, “there will be an uncompetitive behavior”. But the truth of the matter is: if someone wants to deal with procurement procedures in an illegal way, he will do it anyway. The innovation procedure however will not be an opening door for that. So we need other means to fight corruption.

What progress has been made in implementing smart specializations, that is regional strategies to boost innovation?

Good progress has been made, legally and practically. The existence of a smart specialization strategy is a condition for receiving EU structural funding. This is providing a big push. Moreover, the Commission’s joint research center provides a smart specialization platform which helps Member States and regions in the design of their innovation strategies and is facilitating networking and peer-reviews among the actors.

What is likelihood today, in your opinion, that the objectives concerning innovation set in Europe 2020 strategy will be achieved?

It depends on us, EU, member states and regions, public and private actors. Progress towards the 3% R&D investment target is slow and more needs to be done. If we look more broadly at innovation performance, including skills development, scientific achievements, knowledge intensive output, European Union is improving and catching up with the US. I take this is a big encouragement for all who want to drive innovation and make the EU become also an Innovation Union.

Peter Dröll is a Head of the Innovation Policy Unit in the European Commission.

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