European Innovation

Addendum: This blog was written based on a copy of Europe 2020 that was leaked to the press on or around 24 February. Since the launch on 3 March, we have subsequently learned that two of the original nine flagship programmes are no longer included in the final version. They are the “Energy Action Plan” and “A New Jobs Agenda.” Also, there is now some confusion over the governance of Europe 2020. What appeared like a clear-cut division of labour between the European Commission and the European Council/member states in the original draft has now been called into question because there is confusion over who will set the country-specific targets and conduct the surveillance. To be clear: for me it is a non-starter to allow member states to set their own targets because they have an incentive to set them too low (in order to reach them easily and proclaim success). Also, the member states are not likely to diligently monitor progress. As we have seen with the watering down of the Stability and Growth Pact in 2005, member states are soft on one another. To the extent that there is a body that credibly and forcibly puts much-needed pressure on member states, it is the European Commission. That is why it is imperative that the Commission be entrusted to set the country-specific targets for the five headline objectives and that it be the guardian of compliance and in charge of surveillance. Anything else spells failure.

On Wednesday, 3 March, the European Commission will launch a communication on Europe 2020. This much anticipated document has already raised much interest, with onlookers and analysts eager to see if there are real improvements and promising innovations in comparison to the Lisbon Agenda. Here is my take on the document, which offers first an analysis of the innovations and then a critique of issues that are either missing or not sufficiently highlighted.

Overall, this policy blueprint for Europe 2020 is a vast improvement over the Lisbon Agenda. These plans have clearly taken account of the shortcomings of the previous decade. Specifically, the following innovations should be noted:

– the articulation of Europe-wide goals and country-specific targets, taking account of the vast differences in economic development between EU member states
– an increase in targets from two to five, taking into account key objectives that have hitherto been missed, such an increasing educational performance, fighting climate change and reducing poverty.
– a dramatically greater degree of coherence with nine flagship EU programmes supporting the five headline targets, thereby kick-starting and facilitating an actual process to achieve the targets that are set out. These flagship programmes include Innovation Union; Youth on the Move; European Digital Agenda; Low-Carbon, Resource-Efficient Europe; Energy Action Plan; An Industrial Policy for the Globalisation Era; A New Jobs Agenda; New Skills for New Jobs, and a European Platform Against Poverty.
– a clear division of labour between the European and member state level. That used to be often blurred in the Lisbon Agenda, with the European Commission taking the heat for non-performance of the member states.
– a clear division of labour between the European Commission and the European Council, with the former in charge of the content and enforcement of the strategy, and the latter in charge of governance
– the Europe 2020 strategy builds on the competencies already bestowed on the European Commission, such as internal market, the Stability and Growth Pact and trade policy, which is sensible, makes the strategy more comprehensive and can lead to fruitful synergies
– there is finally a recognition that the state of public finances – both in terms of overall debt, annual budget deficits and quality of spending – must be an integral part of a modernisation strategy
– likewise, there is finally a recognition that the policy priorities must be linked to the EU budget. The Commission rightfully says that a credible Europe 2020 strategy necessitates significant changes in the EU budget.
– for the first time, the importance of the public sector is noted, recognising that rising demands at a time of empty public coffers can serve as an impetus for innovation and renewal
– a sanction for non-performance in form of a policy warning (no further information available on what specifically this warning entails)
– an invitation for the European Commission to “monitor progress… and providing an overview of progress towards the targets.” This could signal a return to naming and shaming.
– a dramatic expansion in the stakeholders invited to be part of the process, now also including regions, parliaments, civil society and individual citizens.
– an articulation of a communication strategy

While the overall direction is very promising and deserves broad support, there continue to be a number of shortcomings:

– it is disappointing that the EU continues to use the R&D target of 3% as a proxy for innovation performance. That is too simplistic and downright misleading. As the case of Japan clearly demonstrates (which is mentioned in this paper as a role model, with R&D spending of 3.4% of GDP), high R&D spending in itself does nothing to boost economic performance. Despite its high R&D expenditure, Japan experienced a “lost decade” of low growth, declining global market share and precarious state of pubic finances. In addition, a high degree of innovation is not driven by research but by changes in processes, business models and workplace organisation. And it is precisely in these areas where Europe has weaknesses. This calls for a different target or at least necessitates that the R&D target be complemented by other targets, such as productivity growth. At the same time, we should finally recognise that innovation is at least as much a management and organisational challenge as it is a research challenge.

– The proposal is also too timid with regards to state transformation. Accounting for some 40-50% of GDP in most EU member states, the coming decade will see dramatic and pronounced changes in how the state functions, driven in large part by greater demands (for example due to ageing society), citizens who expect more tailor-made and better delivery of public services, i.e. via new technologies, as well as the budget constrains which virtually every country is faced with. While the call for greater innovation in public administrations, as articulated by the paper, is spot on and long overdue, these plans need greater detail and full inclusion in one of the nine flagship programmes. If one considers the situation in Greece or Ireland, state transformation is the number one challenge, and is linked to the well-being and future prosperity of the entire society. This warrants more than a faint mention in this document as it is in many ways the key challenge of Europe’s future. If the only EU response to the state crises emerging around Europe is “cut, cut, cut”, this could lead to a backlash and rising EU skepticism. Europe needs to develop a more constructive role in the process of state transformation; a role that goes beyond mere crisis management.

– The call for better quality of public finances needs to be accompanied by complete transparency in public finances. The European Commission needs to make public how member states raise and spend public money. As is, it is virtually impossible for citizens to understand how and in which areas public money is spent, i.e. does anyone know how much their governments spend on servicing their national debts, investment in education and training or social services? In the absence of complete transparency on public finances, it will be impossible to measure and assess the quality of spending outside expert circles, depriving the European Commission of the public pressure that could be exerted if this information was made accessible to a broader audience. In addition, better public information could prevent future meltdowns a la Greece because a better informed public could call at an earlier stage for changes in public expenditure.

– While the European Commission deserves praise for finally linking its flagship programme, i.e. the Europe 2020 strategy, with a communication strategy, it will need more than a communication tool box and a web-based exchange to bring European citizens along. In particular, what is missing is an understanding that these processes of change need to be underpinned not only by top-down communication but by a public education strategy. Only citizens who truly comprehend why changes are necessary can accept and support reforms. The communication challenge with regards to Europe’s modernisation is on par with other transformative challenges, such as climate change, in which thousands, if not millions of organisations, people and multiplyers have been activated for decades to explain to the broad public why change is necessary. A communication tool box and web-based exchange could have never replaced the activism and engagement from the bottom-up which has made all the difference in the area of climate change.

– While there are tools to punish non-performing member states, i.e. via the policy warning, there is no mention of conditionality, i.e. by providing more EU funds to countries that make progress in achieving the five headline targets. This was mentioned in earlier plans for Europe 2020, including by the Spanish EU Presidency, and should be seen as a key way to incentivise countries to improve their performance. It is a mistake to make use of “sticks” without accompanying “carrots”. Countries that do well and make an effort need to be recognised and publicly celebrated and rewarded.

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