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“The European Union is losing the global innovation race”

“The European Union is losing the global innovation race”

The diagnosis is contained in a report titled “How to Escape the Middle Tech Trap,” issued by the European Policy Analysis Group, which included thoughts by Jean Tirole, a professor of economics at the Massachusetts Institute of Technology and winner of the Nobel Prize in Economics in 2014.

“European Union [UE] “It is losing the global innovation race,” says Jean Tirole, a professor of economics at MIT North America (MIT) and winner of the 2014 Nobel Prize in Economics. The diagnosis is included in the report How to escape the trap of middle technologyIt is a study prepared by the European Policy Analysis Group, in which the economist participated, and includes recommendations for Brussels.

According to the document, European industry “invests less than its counterparts in research and development” and is “far behind in research and development.” Programming And artificial intelligence [IA]Moreover, “its pharmaceutical ingredient is at risk.”

In the words of Jean Tirole, the “complete absence” of the European bloc from the list of “the top twenty technology companies and the top 20 startups is worrying,” criticizing on the one hand the low investment in research and development. On the other hand, the focus is on “intermediate technologies”.

“For more than twenty years, innovation activity in the EU has been dominated by the same companies, mostly from the automotive sector. We call this the 'intermediate technology trap', and it is mentioned in the document written by ifo – the Leibniz Institute for Economic Research and IEP@BU – the Institute for Making European Politics at Bocconi University.

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In an analysis for the Journal Economico (JE), economist Sandro Mendonça says researchers paint Europe as an “unsustainable” innovation economy, which has “failed to build future markets.”

The report says that current European efforts, although praiseworthy, are insufficient, both in terms of quantity and quality. “Important reforms are necessary so that Europe can compete in the field of value creation,” analyzes the associate professor at the Department of Economics at the ISCTE Business School, adding that the document written by economists Clemens Fuest, Daniel Gross, Jan Tirole, P.L. Mengel and. Giorgio Presidente “criticizes the bureaucratic model of the European Union.”

According to the document, “R&D spending of 3% of GDP has been an official EU target since the launch of the Lisbon Strategy in 2000.” “However, total domestic spending on R&D in the EU is still around 2% of GDP, a figure lower than that recorded in other large economies, such as the USA, Japan and China.”

The researchers explain that the delay compared to other markets is not due to lower spending on research and development. “In 2020, government-funded R&D amounted to €110 billion in the EU (mainly by national governments) and €150 billion in the United States, representing a very similar proportion of GDP, around 0.7%. In regions In other parts of the world, public spending on research and development was slightly lower, at 0.5% of GDP.

The researchers point out that the main reason for the global transatlantic difference is “lower commitment to R&D by business, whose expenditures amount to just 1.2% of GDP in the EU, compared to 2.3% of GDP in the US.”

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Sandro Mendonça still talks about the document, and says that what struck him most “was the frank and harsh criticism of the way the community is run,” based on “a very bureaucratic model.” “Innovation policy making is a failure. It is controlled by bureaucrats,” he insisted.

“There was scope for a more robust innovation effort, even in the customization that was implemented. This way of implementing the public innovation policy was not able to deliver results. It was not able to make the continent dynamic.”

As an example of the asymmetry, the Portuguese economist points to the large investments in R&D by major technology companies in North America.

“If we look at the budgets of the five largest technology companies in the United States of America, we find that R&D is larger than the entire combined budget of the 27 European Commissions, seven years ago,” explains the economist, who coordinated the report. The future of big technology companies of the European Commission (Directorate-General for Research and Innovation) published in 2024.

He continued that in the case of the largest European economy, Germany's annual investment in research and development is less than Amazon's investment in the same region.

Turning to the field of national policy, Sandro Mendonça recognizes that this scenario requires a “convergence” between three departments – the Ministry of Foreign Affairs, Economy and Education, and Science and Innovation – to defend a “common agenda” for ministerial portfolios.

China had previously raised the “middle technology trap” scenario. “Countries that develop later generally face difficulties in industrial modernization and the transition to high-income, because they do not have their own technological progress after importing, imitating, absorbing and tracing technology,” the Main Academy of Country Sciences noted last December. .

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