Market Innovation? Four Questions On The Lamy Report

The future of European research and innovation policy is under discussion after the publication of the ‘Lamy Report‘. It sets out to provide the vision shaping the final years of Horizon 2020 and the program that will follow.

The report contains 11 recommendations. Some rightly aim at strengthening Europe’s Research and Innovation (R&I) system, doubling the EU R&I budget after 2020; others address procedures and communication. Yet some appear to be more problematic and raise four questions that would need a wide policy debate. Some concerns have emerged also in news reports on the shifting focus of EU policy (see here).

1. Is turning research into market innovation the top priority?

First, there a major emphasis on turning research into market innovation. Recommendation 2 demands an innovation policy ‘that creates future markets’. No 5 proposes a ‘mission-oriented, impact-focused approach’ while No 4 suggests to ‘design the EU R&I program for greater impact’.

The underlying assumption is stated from the very start: ‘the contrast is striking between Europe’s comparative advantage in producing knowledge and its comparative disadvantage in turning that knowledge into innovation and growth’ (p.7). This view is highly controversial among innovation scholars and policy makers. First, knowledge is not a market good where comparative advantage applies. It is a public good whose production is characterized by market failure. Second, Europe’s high standards of scientific research have been achieved – largely in public universities, research institutions, or in publicly funded activities – because of the possibility of keeping market concerns at a distance. Third, the low rates of growth of Europe’s economies, especially after the 2008 crisis, may have less to do with stagnating innovation and more with stagnating demand, austerity policies, reduction of public spending and private investment. Innovation has a clear role in supporting growth when technology ‘push’ and ‘demand pull’ effects are combined, leading to the introduction of new products and processes that meet existing demand and are diffused in the economy through private and public investment.

The funding of R&I. In calling for a doubling of the EU R&I budget after 2020, Recommendation 1 demands an ‘increase in national investment in R&I’ reaching at last the ‘3% target of GDP’ This ignores that in the last decade many EU countries have in fact reduced their R&I efforts due to severe fiscal constraints, failing to preserve public R&D funding in a context of budget reductions.

The Report points out that ‘the biggest gap to reaching the 3% is the lack of private sector R&I investment’ and calls for national policies of tax credits and innovative procurement. In fact, most EU countries have tax credit systems in place that, however, have strong limitations in a context of low investment; moreover, their ‘horizontal’ approach fails to identify key priorities for expanding technologies and markets that could effectively ‘pull’ private investment.

The Report ‘welcomes the recent decision to finance defense research at the EU level, as long as its budget is additional to the recommended doubling of the civil R&I program’. EU investment in military research is problematic as it marks the abandonment of a key characteristic that EU R&I had had so far, in contrast to approaches of the US and Russia. Preventing resources for civilian R&I in Europe from being reduced by new EU-funded military projects remains an unresolved issue.

Innovation and markets. Recommendation 2 emphasizes the need to build ‘future markets’ but the specific tools envisaged are not really clear. It rightly points out that ‘public procurement is also key in designing demand-side innovation policies’ but no indication is offered on the fields where this may happen, with a passing mention to the need to ‘overcome possible regulatory bottlenecks’ produced by Europe’s competition/state aid rules.

The statement that ‘every EU funding program should have innovation objectives and reserve budget for promoting innovation’ raises some concerns. This ignores the specificity of basic research, that is a major area of strength of European science, and forgets that research in social sciences and humanities should not be expected to produce marketable innovations. There is a major risk of distorting EU (and national) funding for research. While this recommendation may be relevant for some areas of EU-funded R&I, it can hardly be generalized.

A key role is envisaged for a new ‘European Innovation Council’ ‘empowered to invest in entrepreneurs and businesses’. This is a major novelty – a European public investment body turning innovation into new products and services for the market – and could represent a cornerstone of a new European industrial policy. However, the expected arrangements, funding, mode of operation and policy priorities of such a body need a broader debate.

2. Are innovation and entrepreneurship the core aims of ‘modernized’ universities?

A second problem is that Recommendation 3 demands a ‘fundamental reform in the role of education’ that should ‘systematically embed innovation and entrepreneurship in education across Europe, starting from early stage school curricula’. EU policies should ‘provide incentives for the modernization of universities’, offering a ‘European university’ label to those adapting to these requirements. Funding is expected to increase for the European Research Council and for the Marie Sklodowska-Curie Actions, with new EU Industry Research Fellowships.

The role of education is narrowly seen as functional to building competences for market activities, innovation and entrepreneurship. This approach ignores the fundamental duties of universities which is to provide higher education and carry out research, and the more general role of the education system in teaching, diffusing knowledge, encouraging critical thinking, educating the young to become active citizens.

3. Should we allow greater divergence in Europe’s R&I?

A third problematic aspect is that the specificities of EU member countries post-crisis are largely ignored. Recommendation 9 proposes to ‘align EU and national R&I investment’ ‘where it adds value to the EU’s R&I ambitions and missions’, leaving less room for national strategies in R&I. Recommendation 6 proposes to ‘achieve synergies with structural funds’ that should be used to support R&I effort in catching up EU countries.

The underlying assumption is that R&I actions should be assigned on the basis of ‘excellence’ – and therefore are expected to be concentrated in the countries, regions and institutions of greater technological strength. Some resources could be set aside to help ‘widen participation’ of weaker actors. Conversely, structural funds – assigned on the basis of ‘geographical rationale’ – should be used ‘for capacity-building in regions that are catching up in terms of their R&I performance’.

The Report disregards the worrying trend towards polarization in the decade since the 2008 crisis that has characterized Europe’s science, universities, R&D efforts, innovation and investment performance. Divergence – at the regional level and among R&I actors – is a major trend also within many EU countries.

The R&I policy envisaged by the Lamy Report risks further entrenching this polarization, supporting a few top players in R&I in large core European countries and regions, while most mid-level players could lose ground, and the weaker ones could only access compensatory resources redistributed through structural funds. This path would risk a further weakening of EU cohesion.

A different R&I policy could devote greater attention to strengthen convergence among countries, regions and research institution, so that a much wider base of competences and innovative efforts could support Europe’s economic growth and social cohesion.

4. What is R&I really for?

A fourth question is fundamental – what are the purposes of R&I? Where should Europe’s innovation and production change direction? Recommendation 5 argues that ‘global societal challenges’ should be turned into ‘a limited number of large-scale research and innovation missions’. The actual missions that should drive EU R&I policy are not discussed, besides a reference to the – widely accepted – goals of the United Nations 2030 Agenda for sustainable development. No reference is made for instance to the many policy commitments Europe has already taken up in its Europe2020 strategy and in the Paris Agreement on climate change. ‘By way of illustration’ a list is provided of ‘some potential missions for the post-2020 EU R&I program’ including a plastic litter-free Europe, producing steel with zero carbon, making three out of four patients survive cancer, building the first quantum computer. Besides a ‘stakeholder debate among citizens, scientists and innovators’ launched by the EU Commission, little is said on the democratic policy process that should lead to identify Europe’s R&I missions.

The questions that can be raised about the Lamy Report are of critical importance for the future not only of EU R&I policy, but also for the appropriate functioning in all countries of the education, research and innovation systems supporting the creation and diffusion of knowledge in our societies and its use in economic activities. An important contribution in this direction has come from the Academies of Sciences of G7 countries which met in Rome in May 2017 and issued a statement on: ‘New economic growth: the role of science, technology, innovation and infrastructure’. The document has a different approach from the Lamy Report and emphasizes the importance of growing funds for basic research alongside innovation, with the goal ‘to address the challenges of sustainable and inclusive growth’. It argues that:

Public policies should recognize the key role that expenditure for the advancement and diffusion of knowledge, culture, higher education and innovation can play in supporting high quality socio-economic growth, and that these benefits outweigh many short-term concerns for balancing public finances.

The consensus of the G7 Science Academies may offer a broader perspective and widely shared policy indications for the future of Europe’s research.