In Europe, on the other hand, innovation is concentrated in the automotive industry and similar medium-technology sectors, while the high-growth, high-tech industries are barely involved. This is shown by an international study presented by Ifo President Clemens Fuest together with scientists from France and Italy in Brussels. "The continent is in a mid-tech trap," the Ifo boss states. Today, the EU is neither represented in the group of the top 20 tech companies nor in the top 20 start-ups. "The EU is losing the race for innovation," warns Nobel Prize winner Jean Tirole from the Toulouse School of Econonics. This would not only mean giving up economic prosperity, but also geopolitical influence.

As the study shows, the EU not only invests less than the USA in research and development overall. In Europe, the focus of innovation is also on achieving minor product improvements in old industries such as the automotive sector. However, the researchers emphasize that this generates far less growth than groundbreaking innovations.

In the EU ranking of the most research-intensive companies in 2022, VW, Mercedes-Benz and Bosch were the same companies at the top as ten years earlier, and the two car manufacturers were also there in 2003. In the USA, car companies also dominated twenty years ago. However, the IT giants Alphabet, Meta and Microsoft have long since replaced the old industrial groups in the top spots and are now also responsible for much greater value creation.

One reason for the EU's lack of innovation is low research spending. The political goal of spending at least three percent of gross domestic product (GDP) on research and development is being missed by a wide margin. In fact, the ratio is around two percent, which is lower than in the USA, Japan or China. It is true that the state in the EU is as heavily involved in research as it is in the USA. However, the decisive role is played by the private sector, and here the Americans are significantly more involved: While research spending by US companies amounts to 2.3 percent of GDP, European companies only manage 1.2 percent.

In order for the EU to overcome its weak growth, the renowned economists recommend a radically different research policy. The USA should serve as a role model. In the United States, public research funds are primarily used to promote ground-breaking innovations. Government agencies concentrate on the early stages of development. Hundreds of excellently trained scientists are involved in the process of selecting potentially promising projects from a wide range of fields for funding.

In contrast, the European Innovation Council (EIC), which is based at the EU Commission, is dominated by civil servants, the study criticizes. The application and selection process for companies interested in funding is also bureaucratic and the regulations are too rigid. "As a result, too few ground-breaking innovations are currently being funded in Europe," the authors criticize. A large proportion of the funding granted is concentrated on small and medium-sized companies.

This is less about genuine innovation and more about compensating for the weakness of the European capital market. This is because there is far less venture capital available here than in the USA. There, private investors are also available if the state withdraws from research funding for a development project - usually years before market exploitation.

Compared to EU research policy, the USA's approach achieves a far greater leverage effect from the billions of taxpayers' money. The EU Commission, on the other hand, often pursues several objectives with its programs. For example, small and medium-sized enterprises are to be supported. There are also often requirements that companies from several member states must form a consortium in order to receive funding. The economists conclude that the EU will not catch up with the high-tech leaders with this policy approach. To escape the "mid-tech trap", what is needed is not more state funding, but less political control and more scientific expertise.