2. A Competitive Europe
2.3 Investing in our future
Only by increasing investments in R&D, ICT, skills and economic competencies can Europe fulfil its ambition to lead in the green transition and the digital age.
The European Commission is committed to focusing R&I investments on delivering the ‘European Green Deal’, its new strategy for growth.
R&I is called upon to play a strong role to support this initiative. Given the size of the challenge and its costly nature, with EUR 1 trillion mobilised for the Green Deal over the next decade, this demands investing record amounts in R&I and other intangibles assets, such as skills, ICT and economic competencies, for Europe to become the world’s first climate-neutral continent and to achieve the Sustainable Development Goals (SDGs).
With just over 2 % of its GDP invested in R&D, the EU is still far from its 3 % target.
The EU underinvests in R&D compared to its main competitors. Asian countries, in particular China and South Korea, are investing at a rate that is eclipsing both the EU and the United States. If this continues, Europe risks being outpaced irreversibly.
The EU lags behind its main competitors in business R&D funding.
In the world’s business R&D landscape, China now accounts for more than one quarter of global business R&D expenditure while the EU’s share continues to decline.
Governments are increasingly using R&D tax incentives, apart from direct support which includes, for instance, grants and subsidies.
The EU largely dominates business R&D investments in the automotive sector and shows strong performance in aerospace and defence and in industrial engineering.
Europe underinvests in ICT compared to other major economies, despite some progress.
Estimates for the EU aggregate show that it invested around 2 % of GDP in ICT compared to almost 3.5 % in the United States and 3 % in Japan.
Europe appears to have an advantage compared to the United States in the most-intensive ICT-using sector, which accounts for the largest contribution to labour-productivity growth in recent years.
With the unlocking of the potential of artificial intelligence (AI), private investments in AI start-ups are on the rise. The United States leads, followed by China.
Although the EU has also made some progress in recent years to attract private capital, investments remain well below those of its main global competitors.
Worldwide, major economies have put forward ambitious AI strategies. At the European level, the goal is to reach more than EUR 20 billion per year over the next decade.
Europe appears to underinvest in economic competencies relative to the United States despite the positive contribution made by these intangibles to growth.
The so-called ‘economic competencies’ include brand aspects (advertising and market research), knowledge-embedded, firm-specific human capital and organisational capital.
In the EU, cross-country differences in investments in economic competencies persist which may intensify inequalities in innovation.
Over time, there has been an enormous rise in brand value, especially in technology and disruptive digital industries where Europe has a ‘weaker’ presence. Today, the ‘top 30 brands’ are mainly found in the United States and China. However, many software and digital applications behind the widespread success of digital disruptive industries have some ‘EU origin’.
Investment in education and training could further profit from better alignment with the private sector.
While spending on school education in the EU is comparable to the levels found in North America and East Asia, there is a remarkable gap in tertiary education. The EU is spending less on tertiary education than all of its competitors and the gap is not closing over time. The spending gap compared to international competitors seems to be driven primarily by private sources of funding.
Aligning the provision of education and training with changing labour market and social needs is a persistent challenge for every country, in particular as regards coordinating investment strategies with the private sector.
At the European level, despite evolving statistical instruments, there are significant barriers to tracking investment levels (particularly as regards skills investment) due to the misalignment of available data sources in their timing, scope and definitions.