PART I - SITUATION AND TRENDS
4 Factors determining real convergence
4.6 Innovation and RDT
Innovation 'is a means by which less favoured regions can move immediately
alongside the developed regions, not by attempting to imitate what the
latter have already achieved but by trying to lay the groundwork, in accordance
with their own features and requirements (...), for adapting to the conditions
of competitiveness in a global economy.1
It is widely accepted today that the ability of regional economies to
withstand competition and adapt to technical change is related to their
capacity to innovate. This, of course, is not new, but the increasing
importance of knowledge (as compared with natural resources, physical
capital and labour supply) in determining economic performance puts technology
and innovation high on the regional development agenda.
The Lisbon European Council reiterated the importance of research and
development, and innovation, for economic growth, employment creation
and social cohesion. It emphasised the need to create a European research
and innovation area and asked the Commission and Member States to carry
out a series of measures in order to meet the aims set out in the Commission
Communication, 'Towards a European Research Area.'
The importance of innovation was highlighted by the European Council,
which called for, inter alia, a challenging programme for enhancing innovation
and economic reform. The Commission's communication on 'Innovation Policy
in a knowledge-driven economy'2 set broad
policy guidelines for enhancing innovation in the EU. As innovation has
come to be understood as a key element in economic development policy,
so the importance of the regional dimension has been increasingly recognised.
Many measures are most effectively conceived at a regional level, where
the needs of enterprises, and the environment in which they operate, can
best be assessed.
Understanding of the process by which technology and innovation affects
regional development has evolved over time. Rather than innovation being
seen as a linear process from basic research to commercial success, a
more interactive model has emerged, which recognises the importance of
the environment in which firms, and SMEs in particular, operate. Indeed,
since SMEs lack the articulation of business functions of large firms,
they have to rely more on making use of capabilities external to the firm.
Innovation has, therefore, been associated with concepts of network formation
and management and of clustering. In this respect, it no longer depends
solely on how firms, universities, research institutes and regulators
perform, but, increasingly, on how they work together, particularly at
the regional level.
In the EU today, the capacity to innovate varies significantly from one
region to another, both in quantitative and qualitative terms. To give
an insight into these variations, the Commission presented in September
2000 3 a first outline of a European innovation scoreboard,
which indicates the extent of disparities in this area across the EU.
Certain Member States, particularly the Nordic ones, scored quite highly,
sometimes even higher than the US. In terms of the number of indicators
with values significantly above the EU average, Sweden had the highest
score (with 12 out the 16 indicators, 20% or more above average), followed
by Finland (8), Denmark and Germany (both 7).
The following examines, first, the structure of national scientific and
technological systems and, second, how the capacity for innovation varies
across the EU.
Though converging, significant differences remain at the national
Expenditure on research and technological development (RTD) relative
to GDP has increased in recent years in the cohesion countries, but, Ireland
apart, the rise has not been enough to close the gap with the rest of
the Union significantly. The technology gap between the cohesion countries
and the four Member States where expenditure is highest (Germany, France,
Sweden and Finland) has widened rather than narrowed (see Table
Business expenditure on RTD declined relative to overall expenditure
in Portugal, Greece and Spain between 1995 and 1998, as it did in the
EU as a whole, though it rose in the top four Member States, and even
more so in Ireland. As a result, the gap in innovation between the former
three cohesion countries and the latter five could widen further, which
could, in turn, reduce the chances of their competitiveness in EU or world
Government expenditure also fell in Greece and Spain, though this was
in line with developments elsewhere in the Union, while it remained unchanged
in Portugal. The increase in overall expenditure in these three cohesion
countries was, therefore, due to a rise in spending on higher education,
which can be seen as a prerequisite for raising the skills of their labour
The significant gap in RTD expenditure which exists between the cohesion
countries and other Member States, especially in terms of business spending,
indicates a need for more encouragement for firms to undertake research
activities and, accordingly, the adaptation of RTD policies to this end.
This means taking a broader view than simply redistributing EU expenditure
on RTD to these countries. In lagging regions, in particular, attempts
need to be made to increase: the capacity of businesses to absorb new
technology and know-how developed elsewhere; the capability of the work
force to use this technology and adapt to new techniques; the entrepreneurial
spirit to seek out new market opportunities and the availability of risk
capital for innovation(See Table A.21 of R&D Indicators
for the European Union, in annex).
The few data available on the candidate countries4
suggest that since the beginning of the 1990s, the funds available for
RTD have been reduced (applied research more so than science), competition
for funds has increased, and the demand for public RTD has fallen markedly.
In 1995, RTD intensity in most countries was similar to that in the cohesion
countries, while in Slovakia, Slovenia and the Czech Republic, both public
and private expenditure on RTD was closer to the EU average.
The human resource potential in RTD in many of the candidate countries
is relatively strong, as a legacy of the major role accorded to RTD under
the socialist system, which means that they are well placed catch up with
present EU Member States, so long as there is a fundamental restructuring
of the RTD system (See Map A.13 on business enterprises
expenditure on R&D, in 1997).
particularly in terms of human resources
The quality of human resources is the major factor behind the invention
and diffusion of technology and it is a precondition for increasing the
capacity of a given economy to absorb new innovations. The difference
in this respect between the most advanced countries in the EU and the
cohesion countries has been reduced during the 1990s, but it remains the
case that the former have around three times as many research staff in
firms as the latter.
Firms in the most developed regions can count on better-targeted public
A third dimension of the 'technology gap' takes the form of differences
across the Union in the quality and quantity of schemes for public assistance.
In the case of public assistance for innovation, measured in terms of
state aid to RTD in manufacturing, in the most developed Member States
the amount provided over the period 1995 to 1997 was over 10 times larger
relative to employment than in the lagging countries. In Denmark, Finland,
France, Austria, Germany and the Benelux countries, the figure in each
case was above the EU average, while in the cohesion countries, it was
under 60% of the average. In addition, in the latter a much smaller share
of state aids is allocated to RTD than in other parts of the Union, even
though their RTD and innovation needs are greater than elsewhere.
Patent activity reflects differences in national innovation systems
Patent applications have long been used as measures of innovative activity,
the output of RTD and the extent of the links between the scientific system
and the productive sector. This indicator for the cohesion countries is
well below the EU average, despite some convergence over the 1990s. Patent
applications in Spain, Portugal and Greece amounted to 20 % of the EU
average in 1998 as against 10% in 1989 (Map 13).
In sum, therefore, the scientific and technological systems in cohesion
countries are characterised by low RTD intensity, over-representation
of the public sector, low involvement of the private sector, weak links
with the productive sector and low levels of technology transfer.
Such differences give rise to problems as regards providing support since
they suggest that injections of aid would benefit the existing (public-oriented)
system, so perpetuating and even reinforcing the structural problems of
the system itself. In consequence, regional development policies should
focus on strengthening the environment in which firms operate and, in
particular, the link between the scientific system and business.
Technological capacity highly concentrated at the regional level
The regional distribution of innovative capacity in the EU reflects
the structure of national scientific and technological systems, though
regional differences within Member States serve to widen disparities even
There is a strong concentration of RTD and innovation in the most advanced
regions of the EU, the top ten regions (in Germany, the UK, France and
Finland) accounting for around a third of all expenditure in the Union.
At the same time, 17 of the 25 regions with the lowest RTD intensity (less
than 25% of the EU average) are Objective 1 regions. Similar disparities
are evident for business expenditure, human resources and patent applications.
Interregional differences are particularly large in the cohesion countries.
In Greece, for example, over half of RTD expenditure is incurred in Attiki
(where Athens is located), which is also responsible for two-thirds of
patent applications. In Spain, over three-quarters of business RTD is
located in just three regions (30% in Madrid alone).
so affecting the innovative nature of economic activity
High RTD intensity in the private sector and efficient links between
the scientific sector and businesses are key to innovation and, in turn,
economic growth. In almost all the top 25 regions in terms of employment
in high-tech sectors (over 12% of the total), RTD intensity is also relatively
high. In the 25 regions with the lowest RTD intensity, employment in high-tech
sectors (4% or less of the total) is also very low. According to the preliminary
results of the second Community Survey on Innovation, the former group
of regions are those with the highest innovation intensity in manufacturing,
the highest number of enterprises with innovation activities and the highest
turnover from innovative products. Most regions in Greece, Spain and Portugal,
on the other hand, are at the other extreme.
The importance of the regulatory, organisational and institutional
These structural differences in science and technology alone cannot
explain the weakness of the structure of economic activity in lagging
regions. There is increasing consensus that the failure of firms in the
regions concerned to innovate is not due primarily to scientific or technological
problems, but to shortcomings in the regulatory, institutional and organisational
environment in which firms have to operate.
In the less favoured regions, this environment is often characterised
by a combination of structural weaknesses, such as lack of a dynamic business
services sector, a poorly developed financial system, weak links between
the public and private sectors, sectoral specialisation in traditional
industries with little inclination to innovate, low levels of public support
for innovation and aid schemes which are poorly adapted to the needs of
local SMEs. In view of this, a primary aim of regional policy should be
to help develop new forms of organisation and institutional cooperation,
and so improve the 'structural' competitiveness of firms located in lagging
regions, and encourage resources to be shifted into more dynamic and innovative
areas of economic activity.
1. CEC (1995), Green Paper on Innovation,
European Commission, Luxembourg.
2.COM (2000) 67 of 20 September 2000
3.Innovation Policy in a knowledge-driven economy - COM
(2000) .567 of 20 September 2000 "Impact of the enlargement of the EU
towards the associated Central and Eastern European countries on RTD-innovation
and structural policies", European Communities 1999.
4. Impact of the enlargement of the EU towards the associated
Central and Eastern European countries on RTD-innovation and structural
policies', European Communities 1999.