The world in 2025 and EU competitiveness Luc Soete UNU-MERIT, Maastricht University An integrated strategy for Europe 2020 – And the Lisbon strategy, Brussels, October 28th, 2009

Need for long term vision Personal involvement in two recent excercises: A foresight exercise initiated by DG Research and BEPA: “The world in 2025” Chairman of Expert Group on the Role of Community Research Policy in the Knowledge Based Economy. The Terms of Reference (ToR) of the EG explicitly referred to the need for an economic assessment, hence the dominance in this EG of experts from the academic, business and policy making communities with a strong economic background. Need for long term perspective particularly during moments of crisis – moments of creative reflection. “ Where there is no vision people perish”: foresight represents an attempt at realizing the idea we have of the future Studies had already impact on European Commission policy making SET plan on climate change and energy Lund declaration

Personal involvement in two recent excercises:

A foresight exercise initiated by DG Research and BEPA: “The world in 2025”

Chairman of Expert Group on the Role of Community Research Policy in the Knowledge Based Economy. The Terms of Reference (ToR) of the EG explicitly referred to the need for an economic assessment, hence the dominance in this EG of experts from the academic, business and policy making communities with a strong economic background.

Need for long term perspective particularly during moments of crisis – moments of creative reflection.

“ Where there is no vision people perish”: foresight represents an attempt at realizing the idea we have of the future

Studies had already impact on European Commission policy making

SET plan on climate change and energy

Lund declaration

2025 Trends Geopolitical Transformations : Population growth in 2025 up to 8 billion worldwide 61% of world population in Asia, EU: 6,5% 35% of the European population will be more than 60 Geopolitical economic power 30% of GDP produced by Asia, EU: 20% Asia will be the first world exporter: 35%, EU: 32% Asia on par with US & Europe in the field of R&D

Geopolitical Transformations :

Population growth in 2025 up to 8 billion worldwide

61% of world population in Asia, EU: 6,5%

35% of the European population will be more than 60

Geopolitical economic power

30% of GDP produced by Asia, EU: 20%

Asia will be the first world exporter: 35%, EU: 32%

Asia on par with US & Europe in the field of R&D

Largest countries by 2025 (100 million or over) China (1453) India (1431) EU-27 (517) USA (358) Indonesia (263) Pakistan (246) Brazil (214) Nigeria (210) Bangladesh (195) Russia (132) Mexico (123) Japan (120) Ethiopia (119) Philippines (117) Egypt (105) Not a single European country

China (1453)

India (1431)

EU-27 (517)

USA (358)

Indonesia (263)

Pakistan (246)

Brazil (214)

Nigeria (210)

Bangladesh (195)

Russia (132)

Mexico (123)

Japan (120)

Ethiopia (119)

Philippines (117)

Egypt (105)

Not a single European country

Economic size: GDPs

G lobalisation and the crisis: a historical return to normal? What remains striking from a historical perspective is how the two largest countries in the world: China and India, saw their share of world population and their share of world GDP more or less continuously fall over the period 1820 till 1973. Actually, I would hypothesize that in 1973, the imbalance between the world’s concentration of GDP and the world’s concentration of population was the highest the industrialized world ever winessed. This extreme geographical inequality in world GDP has formed the basis of the unilateral focus of social scientists and policy makers on domestic competitiveness and in particular on technological competitiveness as the essential feature for a country’s future economic growth. The recent rapid industrialisation of China and India appear from available Cambridge world economic model simulations ( Izurieta and Singh, 2008) non-sustainable. It will ultimately lead to financial imbalances with a huge current account deficits for the U.S. economy but also other resource constraints. From an environmental perspective at current levels of technology, a doubling of world production by 2025, with an increase of population of 23% is unsustainable in terms of agriculture production, access to water and climate impact.

What remains striking from a historical perspective is how the two largest countries in the world: China and India, saw their share of world population and their share of world GDP more or less continuously fall over the period 1820 till 1973. Actually, I would hypothesize that in 1973, the imbalance between the world’s concentration of GDP and the world’s concentration of population was the highest the industrialized world ever winessed.

This extreme geographical inequality in world GDP has formed the basis of the unilateral focus of social scientists and policy makers on domestic competitiveness and in particular on technological competitiveness as the essential feature for a country’s future economic growth.

The recent rapid industrialisation of China and India appear from available Cambridge world economic model simulations ( Izurieta and Singh, 2008) non-sustainable. It will ultimately lead to financial imbalances with a huge current account deficits for the U.S. economy but also other resource constraints.

From an environmental perspective at current levels of technology, a doubling of world production by 2025, with an increase of population of 23% is unsustainable in terms of agriculture production, access to water and climate impact.

G-5 share of population and GDP

From a socialisation of debt to a socialisation of knowledge? Given likely long term fiscal pressures on Member States’ budgets in the years to come, it is crucial to stress today the particular responsibility of the public sector in Europe to invest in research and KBE. The interventions of various Member States in preventing the collapse of their financial systems might be described as a “socialisation of debt”. In the coming years of fiscal austerity, it will be important to stress the need for a process of “socialisation of knowledge” bringing to the forefront the particular role of the public sector in providing support for knowledge investment in close interaction with the private sector. Recommendation 1 Set a new 3% target. One in which Member States commit themselves to spend 1% of GDP from public funds to research and 2% to higher education by 2020. Its implementation will be under the full control of governments.

Given likely long term fiscal pressures on Member States’ budgets in the years to come, it is crucial to stress today the particular responsibility of the public sector in Europe to invest in research and KBE. The interventions of various Member States in preventing the collapse of their financial systems might be described as a “socialisation of debt”. In the coming years of fiscal austerity, it will be important to stress the need for a process of “socialisation of knowledge” bringing to the forefront the particular role of the public sector in providing support for knowledge investment in close interaction with the private sector.

Recommendation 1

Set a new 3% target. One in which Member States commit themselves to spend 1% of GDP from public funds to research and 2% to higher education by 2020. Its implementation will be under the full control of governments.

Industry-financed GERD as a percentage of GDP (2000-2007).

A new 3% knowledge investment target?

From the rate to the direction of technical change The second driver considered is the notion of Societal Challenges (often referred to as “Grand” Challenges). The notion of Societal Challenges, which I prefer to use, applies to major social problems that cannot be solved in a reasonable time and/or with acceptable social conditions, without a strong coordinated input requiring both technological and non-technological innovation, and at times, advances in scientific understanding. In a way the central issue is at the opposite end of the previous one. Can resources, not just research but also procurement and other investments, be shifted across European stakeholders to more productive “societal use” to influence not only the rate but also the direction of technical change and innovation? Recommendation 4 Shift the policy focus from the rate of technical change to the direction of technical change . Research funds urgently need to be channelled towards the resolution of major societal challenges.

The second driver considered is the notion of Societal Challenges (often referred to as “Grand” Challenges). The notion of Societal Challenges, which I prefer to use, applies to major social problems that cannot be solved in a reasonable time and/or with acceptable social conditions, without a strong coordinated input requiring both technological and non-technological innovation, and at times, advances in scientific understanding. In a way the central issue is at the opposite end of the previous one. Can resources, not just research but also procurement and other investments, be shifted across European stakeholders to more productive “societal use” to influence not only the rate but also the direction of technical change and innovation?

Recommendation 4

Shift the policy focus from the rate of technical change to the direction of technical change . Research funds urgently need to be channelled towards the resolution of major societal challenges.

“ Grand” policy challenges Societal Challenges raise “grand” policy challenges: a Societal Challenge dimension adds a new objective to public policy whereby research and innovation are seen not as ends in themselves but as means to a wider goal, defined as a societal benefit. In contrast to existing policies, this approach implies a focus which is neither horizontal nor sectoral, but defined by the societal challenge, involving a mix of sectors, markets and other actors Recommendation 5 Create a strong coordination between research and innovation policies in order to orient innovative activities towards the needs of society. A stage gate approach is suggested, including adequate provision for innovative procurement and Pre-Commercial Procurement practices.

Societal Challenges raise “grand” policy challenges: a Societal Challenge dimension adds a new objective to public policy whereby research and innovation are seen not as ends in themselves but as means to a wider goal, defined as a societal benefit. In contrast to existing policies, this approach implies a focus which is neither horizontal nor sectoral, but defined by the societal challenge, involving a mix of sectors, markets and other actors

Recommendation 5

Create a strong coordination between research and innovation policies in order to orient innovative activities towards the needs of society. A stage gate approach is suggested, including adequate provision for innovative procurement and Pre-Commercial Procurement practices.

Rationale for European versus national research policies T he global financial crisis represents a window of opportunity for more radical reflections on the relationship between Community and national research policies. The current existence of a ERC next to 27 individual member countries research councils is unsustainable: joint programming as way out: appears a “soft” but rather ineffective European policy tool. Inter-governmental initiatives (Eureka?) are likely to flourish. Need for revision of EU’s FPs in terms of content and governance with as ultimate target better performance than any national programme. Relevant questions: along the lines of the EIT? Along the lines of the European energy alliance and the SET Plan? Involving public procurement funding? As fiscal pressures mount in each MS, the question of raising the efficiency of national research funding agencies and of higher education and public research funding is likely to be raised in coming months/years in many countries.

T he global financial crisis represents a window of opportunity for more radical reflections on the relationship between Community and national research policies.

The current existence of a ERC next to 27 individual member countries research councils is unsustainable: joint programming as way out: appears a “soft” but rather ineffective European policy tool.

Inter-governmental initiatives (Eureka?) are likely to flourish. Need for revision of EU’s FPs in terms of content and governance with as ultimate target better performance than any national programme. Relevant questions: along the lines of the EIT? Along the lines of the European energy alliance and the SET Plan? Involving public procurement funding?

As fiscal pressures mount in each MS, the question of raising the efficiency of national research funding agencies and of higher education and public research funding is likely to be raised in coming months/years in many countries.

Risks and trust in research For these opportunities to be realized, it will be essential that some key governance issues are solved.,Tthe opportunities for further deployment of new Community instruments, will only be realized if they can illustrate their particular European valued added through their administrative flexibility and best practice governance. Only then will they play a central structuring role for a new, post-crisis augmented ERA. If issues of effective governance at EU level are not addressed as an issue of absolute priority, the crisis shock might actually go the other way: questioning increasingly the valued added of Community research and leading to a future ERA that is based much more on MS’ national efforts at attracting research talent within their own borders. Recommendation 13 Revise the financial regulation by making specific provisions for research that take into account the specificities and the risks associated with it.

For these opportunities to be realized, it will be essential that some key governance issues are solved.,Tthe opportunities for further deployment of new Community instruments, will only be realized if they can illustrate their particular European valued added through their administrative flexibility and best practice governance. Only then will they play a central structuring role for a new, post-crisis augmented ERA. If issues of effective governance at EU level are not addressed as an issue of absolute priority, the crisis shock might actually go the other way: questioning increasingly the valued added of Community research and leading to a future ERA that is based much more on MS’ national efforts at attracting research talent within their own borders.

Recommendation 13

Revise the financial regulation by making specific provisions for research that take into account the specificities and the risks associated with it.

Research on the move : in the past “Research within borders” The EU as example of `esearch within borders: the case could be made that as in the case of trade diversion, a side effect of economic integration on research activities within the EU has been intra-European knowledge diversion Gradual move from national to European borders: the ERA ( in French l’espace europ é en de recherche) most easily comparable with a research single market, also Fifth freedom. Lisbon fitted nicely within this view: it should be primarily considered as a correction on the EU institutional set-up. Competition policy not providing necessarily growth and innovation dynamics, on the contrary it created sometimes legal uncertainty with respect to MS research policies; Monetary/fiscal policy with growth and stability pact under the Maastricht Treaty not providing any fiscal prioritisation with respect to knowledge investments.

The EU as example of `esearch within borders: the case could be made that as in the case of trade diversion, a side effect of economic integration on research activities within the EU has been intra-European knowledge diversion

Gradual move from national to European borders: the ERA ( in French l’espace europ é en de recherche) most easily comparable with a research single market, also Fifth freedom.

Lisbon fitted nicely within this view: it should be primarily considered as a correction on the EU institutional set-up.

Competition policy not providing necessarily growth and innovation dynamics, on the contrary it created sometimes legal uncertainty with respect to MS research policies;

Monetary/fiscal policy with growth and stability pact under the Maastricht Treaty not providing any fiscal prioritisation with respect to knowledge investments.

In the future : “Recherche sans fronti è res” Global dimensions of research can go hand in hand with R&D concentration in EU, US and Japan with BRIC countries catching up… But such physical concentration will need to address global welfare problems and demands. Most urgent policy concern linked to world over-concentration of R&D must be enhancing access to such knowledge: Energy saving technologies should be diffused as rapidly and cheaply as possible ; Agricultural research and production enhancement at global level: reform of CAP Not just global aspects (food, health, climate change, environment, energy, safety); But also with respect to local issues such as water management, transport, logistics, urban mobility, migration, etc. Complexities of problems will involve many players: public, private, local, international. In all those areas old policy obsession with national technological competitiveness appears outdated… coming to an end of geographically determined technological competitiveness

Global dimensions of research can go hand in hand with R&D concentration in EU, US and Japan with BRIC countries catching up… But such physical concentration will need to address global welfare problems and demands.

Most urgent policy concern linked to world over-concentration of R&D must be enhancing access to such knowledge:

Energy saving technologies should be diffused as rapidly and cheaply as possible ;

Agricultural research and production enhancement at global level: reform of CAP

Not just global aspects (food, health, climate change, environment, energy, safety);

But also with respect to local issues such as water management, transport, logistics, urban mobility, migration, etc.

Complexities of problems will involve many players: public, private, local, international.

In all those areas old policy obsession with national technological competitiveness appears outdated… coming to an end of geographically determined technological competitiveness

Global research challenges: insights from the South Developing markets appear to raise some of the most motivating research/innovation challenges Autonomy, unwired to high quality infrastructure (energy, water, roads, terrestrial communication); Low education hence necessity of simplicity in use; Less maintenance/repair facilities, so an intrinsic need for long term sustainability; Extreme income inequalities with strong needs in urban slums and poor rural villages, but little current purchasing power and high living risks, hence low willingness to invest or borrow money in the long term. All these features appear also and increasingly of particular value to consumers in developed countries: Autonomy of high quality infrastructure as “freedom of movement”; Shift in the democratization of innovation: from the needs of sophisticated, bèta users to the needs of (digital) illiterates; Need for zero maintenance and ecological sustainable: cradle to cradle Relevance of new financial products such as micro-credit and micro-insurance in poor urban areas

Developing markets appear to raise some of the most motivating research/innovation challenges

Autonomy, unwired to high quality infrastructure (energy, water, roads, terrestrial communication);

Low education hence necessity of simplicity in use;

Less maintenance/repair facilities, so an intrinsic need for long term sustainability;

Extreme income inequalities with strong needs in urban slums and poor rural villages, but little current purchasing power and high living risks, hence low willingness to invest or borrow money in the long term.

All these features appear also and increasingly of particular value to consumers in developed countries:

Autonomy of high quality infrastructure as “freedom of movement”;

Shift in the democratization of innovation: from the needs of sophisticated, bèta users to the needs of (digital) illiterates;

Need for zero maintenance and ecological sustainable: cradle to cradle

Relevance of new financial products such as micro-credit and micro-insurance in poor urban areas

The global knowledge challenge

Conclusions: on need for different research and knowledge policies Surprising how current economic crisis (contrary to financial crisis) is in policy terms being discussed purely in national terms... Yet, global access to knowledge central in current crisis. HIgher growth in emerging and developing countries dependent on technology transfer and access to knowledge; Global access to markets raises return to knowledge investments in EU and more broadly the developed world; Global and local environmentally sustainable growth is crucially dependent on access and fast diffusion/use of eco-innovation. New central challenge to technology and innovation policy: from the political obsession with technological competitiveness to a new global view in which access, diffusion and effective use become the central elements. Citizens in the US, Europe or Japan are ultimately dependent on the speed and effective use of (green) knowledge diffusion in both their countries as well as those in the rest of the world.

Surprising how current economic crisis (contrary to financial crisis) is in policy terms being discussed purely in national terms...

Yet, global access to knowledge central in current crisis.

HIgher growth in emerging and developing countries dependent on technology transfer and access to knowledge;

Global access to markets raises return to knowledge investments in EU and more broadly the developed world;

Global and local environmentally sustainable growth is crucially dependent on access and fast diffusion/use of eco-innovation.

New central challenge to technology and innovation policy: from the political obsession with technological competitiveness to a new global view in which access, diffusion and effective use become the central elements.

Citizens in the US, Europe or Japan are ultimately dependent on the speed and effective use of (green) knowledge diffusion in both their countries as well as those in the rest of the world.