Low business R&D a major threat to the European knowledge-based economy

"Knowledge is a key component of competitiveness" said European Science and Research Commissioner Janez Potočnik. "If our businesses are to be at the leading edge in the future, they need to invest in knowledge now. And governments need to put in place the appropriate measures to help them do so."

Since the last Key Figures in 2005, policy-makers have launched new initiatives at both EU and Member State level in order to boost the "Europe of Knowledge": The ambitious Seventh Framework Programme (FP7) has been adopted and is now underway with a substantially higher budget than its predecessor, FP6. Member States have made new and far-reaching commitments within the framework of the renewed Lisbon strategy by setting future R&D intensity targets. The recently published ERA Green Paper has launched a wide-ranging debate on the future orientations of the European Research Area (ERA).

Key Figures 2007 presents data and statistics on science, technology and innovation up to 2005, thus predating these recent initiatives and renewed commitments. It shows however that these recent policy developments are now more than ever needed, for at least five reasons:

• The EU is part of a globalised world where knowledge is more evenly distributed than ever before. High competition on this level requires the EU to adapt and make the ERA more attractive to the rest of the world. The Key Figures 2007 show that countries like China already act as strong competitors in the globalised knowledge-based economy.
• The report shows that EU R&D intensity has stagnated since the mid-nineties. In 2005, only 1.84% of GDP was spent on R&D in EU-27 and it still remains at a lower level than in the US, Japan or South Korea. Also new emerging economies such as China are rapidly catching-up. If current trends last, China will have caught up with the EU by 2009 in terms of R&D intensity. However, high R&D-intensive EU Member States such as Austria, Germany, Finland and Denmark show that it is possible to maintain and increase R&D intensity above 2% and even 3% of GDP.
• Over 85% of the R&D intensity gap between the EU and its main competitors is caused by differences in business sector R&D financing. The low level of private R&D expenditure in Europe in comparison with the US is mostly due to differences in industrial structure and to the smaller size of the high-tech industry in the EU.
• Regarding research excellence, although the EU is the world's largest producer of scientific knowledge, the impact of European science is lower than that of the US. Europe lags behind the US in all scientific disciplines in terms of citation impact scores and highly-cited publications. Also, EU universities are very much underrepresented at the top of a ranking based on bibliometric indicators of the world's largest universities. In addition, the linkage between technology (patented inventions) and the science base is much weaker in the EU than in the US. Europe has a difficulty in breaking through in new high-tech industries.
• Even though private sector funds are a notable part of R&D, the public sector still has a major role to play. Public R&D funding in the EU must be sustained in order for private R&D activities to develop further and grow on a solid science base. The Key Figures 2007 reveal that high R&D intensity can be achieved when high contributions from the private sector go hand in hand with high levels of public funding. For those economies that are catching up, government funding of R&D is critical for creating and developing S&T capabilities.