TARGETS FOR R&D: WHAT DOES 3% MEAN?

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At the end of the 1990s Europe was voicing worries about the widening of the gap in performance with respect to the U.S. By then, the notion that the knowledge-based economy was the central factor of growth, competitiveness and employment, was established. And the admission that research and innovation were at the core of the new economy prompted the need to define a new strategy towards the future.

At the Lisbon European Council in 2000 the EU announced the ambitious goal of becoming by 2010 the most dynamic and competitive knowledge-based economy in the world. One of the projects launched at the Lisbon Council was the European Research Area (ERA), as a means to establish a reference framework for research in Europe --- recognising that the EU was behind the U.S. and Japan in research and innovation performance. Expenditure in R&D (GERD) was 1.9% of GDP by then, compared with 2.7% in the U.S. and 3.1% in Japan.

Two years later, in the Barcelona European Council of 2002, the EU set itself the objective of increasing the European research effort to 3% of its GDP by 2010, with the provision that two-thirds should be funded through private investment (2%) and one-third from the public sector (1%).

R&D expenditure overall in the EU during the 1990’s had been relatively stable around 1.9% of GDP. The Commission services published in the “European Indicators 2003 [Third European Report on S&T indicators]” the prospective values for this indicator in two extreme opposite scenarios (see Figure). In the “best-case” scenario the EU value in 2010 could reach, at most, 2.3% of the GDP. The Commission knew only too well that the overall 3% target was unachievable but still the political will prevailed.
Figure for Joao's article

How could this have happened?

The only reasonable explanation is that the “3%” value is a modern European myth, born in the period the French like to call “les 30 glorieuses”. In fact, this famous figure appears for the first time in the 1964 document entitled “Réflexions pour 1985” published by the French Commissariat général du Plan. In this important report it is stated that it should be expected that by 1985 [a 20 year horizon] France should devote to R&D at least 3% of its GDP – the value achieved by the U.S. then (1964).
This mirage has haunted S&T policy in Europe ever since.

But the analysis of the funding of this U.S. expenditure is very revealing: in 1964, the Federal government financed 65% of the total (down from 75% in the early 1950’s). The private sector invested a little more than 30% (nearly 1% of GDP). It took 15 more years, until 1980, to balance the R&D expenditure funding between the public and private sectors in the U.S. (50% each). So why did Europe embark in the Barcelona chimera?

By posting the EU in an open contest with the U.S. and Japan, being solely armed with the Framework Programme and an infant ERA, together with a collection of national research policies loosely coordinated with EU policies and European organisations, Europe seemed to be skirmishing against windmills. To what extent was Europe an articulated territory in terms of policies and institutions to allow the monitoring of convergence to an average value, say “3%”, have any meaning?

We know that we cannot compare the EU to the U.S., nor the U.S. to any of the individual European countries (because of their dimensions) nor even States in the U.S. to European Member Countries (because they lack the wholeness of nation-states). But to get away from well-know averages, which are useful but hide dynamics and change, we can look at values for the indicator GERD/GDP for territories that have some political coherence and somewhat comparable population size (countries in Europe and states in the U.S.). The results are shown in the table below.

Caraca table

From the table we can see that in the U.S. the national average is only meaningful in terms of overall resource allocation.

But if we disaggregate the national EU data at a regional level (e.g. NUTS II) we would get for Braunschweig, Stuttgart and Oberbayern, in Germany, the values of 6.34%, 4.84%, and 4.76%, respectively. Maybe for large countries this disaggregation is useful. But how large is “being large”?

So, the achievement of a 3% target has to be considered in more detail as we sense that, in Europe, new kinds of public interventions and policies must be called to play central roles in the process. The reason for this conviction stands on the perception that the private sectors in Europe are not able to engage in a collective endeavour towards a goal that was defined without a firm explicit commitment from their side; certainly new “rules of the game” have to be set.

We will have to disentangle two perspectives of the ratio R&D/GDP, which is an useful indicator of R&D intensity, but an “elusive” policy goal, as the NSF Science and Engineering Indicators 2008 quite adequately qualify it (page 0-16). There are two main reasons for this.

First, because as a target, it is ill-defined: it is a ratio, not a physical milestone. It depends critically on the behaviour of aggregate GDP.

Second, because this indicator was introduced in very different contexts from today’s, when the most relevant issue was the development of hi-tech sectors, heavily dependent on technological R&D – the notion of national innovation systems hadn’t been invented yet, and the knowledge based economy was not even a fantasy.

What if GDP growth and wealth creation is based on sectors that rely mainly on non-technological research to be competitive? This R&D indicator doesn’t bring about the whole dynamics of the present globalised economy.

Certainly, new institutions and new regulations are needed, where new values and new perceptions can be nurtured. We must develop new attitudes towards innovation and entrepreneurship, relying on openness and on constructive public policies, with clear ways and means, together with monitoring and evaluation milestones. We must strive at being excellent in bridging the cultures of education, of research, of business and entrepreneurship, across regions and beyond national borders. Then, maybe 3% (of GDP) in R&D will loom in the landscape. But this will mean that some 15 scientists and engineers in each thousand employees are working within the knowledge triangle web framework. This corresponds to 1.5 times the total scientific workforce in Europe today – a crucial structural issue for EU research policy.

We should thus give some thought into redefining the goal in terms of people – well trained, highly qualified, entrepreneurially oriented, fully committed to a Europe that reaches out and connects to the multi-polar world that is unfolding. Attempting to increase the scientific workforce of Europe by 50% in a reasonable (political) horizon would be as daring as the setting of (lame) targets in the past. And it would have the advantage of revealing the need of a common policy, articulated both at the national and European levels. The OMC (Open Method of Coordination) could then quietly evaporate into oblivion, hurting nobody in the process.

João Caraça
Head, Science Department
Calouste Gulbenkian Foundation
Lisbon, Portugal

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