Urenio Watch Watch: Innovation Strategies

Innovation Policy: Europe or the Member States?

This study, carried out by the Netherlands Bureau for Economic Policy Analysis, finds that with the exception of SMEs, innovation policy is most effective at the European level.

Nowadays, Europe focuses on innovation as a solution to its poor productivity growth. Europe’s growth figures look pale in comparison with those of the US and many Asian countries, most notably China and India. The EU Member States agreed to increase R&D spending and many policy initiatives emerge to stimulate innovation at the European, national and regional level. At this moment, national governments spend about 65 billion euros on public research per year and the European Commission about 8 billion euros (the yearly budget of the Seventh Framework Programme and the Competitiveness and Innovation Framework Programme). Given the total amount of 73 billion euros, should the division between national and European spending be altered?

The study discusses the appropriate decision level of innovation policy. Is there a role for European coordination and a European budget or do national governments have the primacy for innovation policy (as it seems now)? Is a Community Patent desirable and what is the role for Europe in stimulating innovation by Small and Medium-sized Enterprises (SMEs)? These questions are analysed from the perspective of the subsidiary principle. Are there economies of scale or external effects that can be internalised through coordination of national innovation policies in Europe? Or is the heterogeneity in policy objectives, structure of the economy or preferences in Europe too large to conduct innovation policies efficiently from Brussels?

Innovation policy covers many areas including public research and development (R&D), public funding of private R&D, Small- and Medium-sized Enterprises (SMEs), entrepreneurship and venture capital, and policies dealing with intellectual property rights (IPRs) and standards. For each of these areas, the paper assesses whether action is most appropriate at the EU-level or the national level. Economies of scale and external effects would support coordination of innovation policy at the EU level, whereas national policies are to be preferred in cases with strong heterogeneity in objectives, preferences or economic structure.

The authors conclude that a European innovation policy could have, or already has, substantial benefits over purely national policy in these areas. However, with respect to innovation policies targeted at SMEs, no economies of scale or external effects are found. Thus it is concluded that, in this case, such policies are best conducted at the national level.


Netherlands Bureau for Economic Policy Analysis: Innovation Policy: Europe or the Member States? (PDF file, 80 pages, 496KB)