More Impact, Not More Spending
Over the past 10 years, the European Union has spent around €100 billion on research and development through the Horizon program, a pillar of EU innovation policy. However, the results of this massive injection of resources are wanting. Europe remains behind the United States, and now also China, in terms of research spending, especially in high-tech sectors such as software and artificial intelligence.
The real problem is that the European industrial ecosystem remains anchored to “medium-tech” industries — such as automotive — where innovation is mostly incremental and potential growth is limited. What is missing in the European Union, however, is the critical mass of truly high-tech companies that drive productivity and innovation in the United States.
The EU’s Horizon program was supposed to encourage the creation of new high-tech companies. Instead, more than half of Horizon funding has gone to large industrial groups or their subsidiaries, often involved in dozens if not hundreds of projects. These companies have posted growth performance that is lower than either their global high-tech competitors or the average for European companies. Other funds have been spent on consulting services and other ancillary firms, which are useful but rarely drivers of true innovation.
It also doesn’t help that most EU calls for proposals require the creation of large transnational consortia to apply, with over twenty participants and very detailed research objectives decided “from above”. This “collaborative” model absorbs between 60 and 80% of the funding, but the companies that win these EU calls do not derive any long-term benefits from them. Transient positive effects are seen only during the project (typically three years), but then they disappear.
It is not surprising that these very detailed research programs do not lead to innovative ideas because they are developed by large Programming Committees composed of representatives of member states, mostly government officials with no specific knowledge of the subject matter who then end up pushing the interests of their national champions.
There is one segment that works, however: the programs targeting independent small and medium-sized enterprises, such as the SME Instrument or the EIC Accelerator. Here we see lasting positive effects, both in terms of revenues and registration of high-tech patents. The independent qualification is worth highlighting because three-quarters of the companies that are classified as small or medium-sized for Horizon projects belong to larger groups and are therefore only nominally SMEs. Unfortunately, only a minority of the funds actually reach small and independent companies: 12% of the total, if we consider the entire Horizon program.
To reduce the gap in terms of competitiveness with the United States and China, the next multiannual financial framework of the EU budget must focus on funding new ideas, not already consolidated structures: fewer large consortia, more open and flexible calls that allow the creativity and risk-taking capacity of small independent companies to emerge.
In this sense, EU funds can become the springboard for the birth of the technological "champions" of the future. Even companies like Google or Amazon were born from the initiatives of individuals or small teams, not from the research and development divisions of large groups.
It is not enough to simply spend more, you need to spend better: to carefully select recipients and be open to new ideas, instead of imposing a predetermined research program. This will favor the birth of new high-tech companies. Success is not measured by the number of projects funded, but by the real impact they have on innovation and growth.
