Ivanenko I. A., Phd, Dorofeyeva K. M.

Donetsk national university of economics and trade named after Mikhail Tygan-Baranovskiy

INNOVATION POLICY IN EUROPEAN UNION: PROBLEMS AND PROSPECTS

In a remarkably short time, last ten years, economic globalisation has changed the world's economic order, bringing with it new challenges and opportunities. In this new environment Europe cannot compete unless it becomes more innovative and responds more effectively to consumers' needs and preferences.

The European Union possesses extraordinary potential for innovation. Europe has a longstanding tradition of producing breakthrough inventions; it has a wealth of creative people and can build on its cultural diversity. It has laid the foundations for one of the largest single markets in the world, where innovative products and services may be commercialised on a large scale. Historically it has a strong and responsible public sector, which should be capitalised on.

Many scientists study peculiarities of EU development and they mark the great influence of innovative policy on it. N. Shelubska, economist from the Moscow institute of word economics and international relationship, had mentioned in her article ‘New direction in innovation policy of the EU, that the EU moves to a new strategy for promoting innovation, providing for increased spendingon R&D, creating a single European research and innovation space, the expansion of the horizontal and vertical coordination of innovation policy, strengthening of regional level of development. M. Anvet, M Granieri see the problems of EU innovative policy in the lack of serious progress in the innovative development, problems in connection with EU enlargement, an aging population. Governmental regulation and supporting of innovative policy require further more detailed researches.

The aim of this article is to define trends in EU innovation policy and the most recent key challenges, to identify main problems in its realization and try to detach the perspectives of development of innovations in the EU.

The word “innovation” lies increasingly at the core of the EU agenda. European institutions – both at EU and national level – repeatedly state that a sound innovation policy is key to recovering EU competitiveness, which lagged behind other areas of the world even before the financial crisis hit the world in 2008-09. The Lisbon strategy in 2000 already set very ambitious goals to unlock the potential for EU competitiveness, but year on year, EU institutions have gradually realized that those goals were not going to be achieved any time soon. [3] Today, while launching the new EU strategy for a smart, sustainable and inclusive growth, the new European Commission puts even more emphasis on innovation, and one of the Commissioners has been given a specific mandate to deal with innovation.

Available data are not reassuring. As shown below, in Pic. 1, the gap between the EU27 and the United States in terms of expenditure in R&D has been in place since 1999s.

In accordance to pic.1 public expenditure on the development of innovative activity in the EU countries is much lower than in the United States. While in the USA for 11 years noticeable variations in the proportion of expenditure on R&D are observed, in EU they stand at the level of 1.5% of GDP.

Pic 1. Gross domestic expenditure in R&D (in % of GDP)

Sourse: Eurostat

For improving the situation it is necessary to unite efforts of countries-members of the EU in one Innovation Union. The benefits of the Innovation Union have to cover all regions, avoiding as far as possible the development of gaps between the strongest innovating regions and the others. A substantial investment in research and innovation is provided by Structural Funds which have to be used more effectively. A possibility is to set up public procurements co-financed by the Structural Funds in order to increase demand for innovative products and services.

While observing the difference between the US and the EU in terms of business sector R&D spending broken down by sector, the gap emerges in particular in the ICT and the commercial services sectors. In particular, ICT is currently the determinant of approximately one half of EU productivity increases, but is at the same time also the main determinant of the productivity gap between the US and the EU. [5]

An important issue is the ability of the European Investment Bank (EIB) to reach dynamic and innovative small firms and help them grow through early-stage financing. Currently the EIB finds it very challenging to reach SMEs due to the large size of the total loan volume it manages compared to the relatively small number of officers in charge of their management. [3] This problem should be addressed, possibly also with the help of member states, by further developing instruments that allow for aggregation of local initiatives, such as clustering, to unlock the potential of innovative SMEs.

One of the biggest problems in the EU is the absence of unified patent system. Firms, institutions and individuals can obtain patent protection either through national patent procedures or through the European Patent Office (EPO).

National patent offices grant national patents with limited territorial protection, based on domestic (substantive and procedural) patent laws that have a sufficient degree of harmonisation (thanks to international conventions on patent protection adopted by most states in Europe and in the world). Since markets are expanding, national applicants may find national patent protection inadequate and usually they also apply abroad, through international or regional filing procedures. [4] Despite this, the number of claims for the patenting of inventions in the EU is still very large, even compared to the USA and Japan, which are known as the countries of innovations (Table 1). And while in Japan and USA the amount of claims decries in general in 5-8% yearly, in EU it shows stable growth.

Table 1

The amount of the claims for the patenting of inventions in the EU, the USA and Japan in 2006-10, unit per mil. inhabitants

Country	2006	2007	Growth in % to 2006	2008	Growth in % to 2007	2009	Growth in % to 2008	2010	Growth in % to 2009
EU (27)	56381	57094	101,27	56863	99,59	57493	101,11	57864	100,65
USA	35693	32675	91,55	30067	92,02	28542	94,93	26158	91,65
Japan	21535	21183	98,37	20588	97,19	19852	96,43	19291	97,17

Source: Eurostat

It is disputable whether patents are the best way to protect innovation and the answer is not absolute, depending rather on industries, technologies and the kind of innovation in general. But it is a fact that EU firms face higher costs and greater complexities than competitors in the US or Japan. As a consequence, they have a reduced propensity to resort to patent protection. US firms have 45% more patents than EU ones, while Japanese firms have 209% more patents than EU firms.

As there is no centralised jurisdiction for patent litigation, litigation of patents remains national, unlike litigation of other intellectual property rights where the European Union has union-wide systems which complement the existing national systems (for trademarks and design, which are centralised, at least as far as the examination is concerned). [4]

To avoid these problems a Single Innovation Market should replace the current fragmented national markets and their costly procedures. Improvements have to be made as regards the existing EU Patent which is too costly largely due to translation and legal fees. The current absence of a cheap and simple EU Patent results in a tax on innovation.

The problem to be solved (demand from the market and society) should be the starting point for innovation policy; scientific questions cannot be the only drivers of innovation. This implies that the whole innovation cycle should be taken into account, including all the different actors in the innovation chain: industry, academia, public and private financing organisations, society and citizens, politicians, policy-makers etc. At the same time, both the supply and the demand for innovation should lie at the heart of EU policy-making. [1] The discussion should go towards accepting innovation as a transversal concept cutting across all sectors of economic social and political activity, to cover the different kinds of innovation Demand-side measures, such as the Lead Market Initiative and pre-commercial public procurement are powerful tools that should be developed to create the market incentives for innovation.

In December 2008, the European Council called for the elaboration of a European Innovation Plan to contribute to the competitiveness of the EU’s industry and to strengthen economic recovery. Since then, the European Commission has undertaken preparatory work on possible policy measures. Recent initiatives include:

- various preparatory policy documents, communications and staff working documents in particular, the Communication “Reviewing Community innovation policy in a changing world”;

- other policy papers covering specific areas, such as design for innovation, innovation in services, access to finance, the Lead Market Initiative and Key Enabling Technologies;

- a business panel on future European innovation policy that provided a set of recommendations from a business perspective on priorities for future EU innovation policy;

- a public consultation on the European Innovation Plan, which led to 215 responses from universities and research institutions, companies, governments, non-governmental organisations and individuals;

- a consultation on the review of European standardisation, coupled with the creation of an ad hoc working group (Express);

- ongoing work on the Community patent and the common patent litigation system, which will arguably lead to future policy measures. [1]

These initiatives, including legislative ones, are to be undertaken by Member States and by the EU, as relevant, over the next couple of years. The Strategy thus presents a clear distribution of tasks between the EU and the Member States which will be needed in order to make the Innovation Union a reality.

The recently presented EU 2020 strategy includes seven flagship initiatives, of which one hints at the need to create an ‘Innovation Union’ to improve framework conditions and access to finance for research and innovation so as to ensure that innovative ideas can be turned into products and services that create growth and jobs. Within this context, emerging initiatives include actions to strengthen EU instruments to support innovation (including through closer collaboration with the EIB); streamlining of administrative procedures to facilitate access to funding, particularly for SMEs; the promotion of knowledge partnerships and the trengthening of links between education, business, research and innovation, including through the EIT, and to promote entrepreneurship by supporting young innovative companies. The new flagship initiative also deals with multi-level governance and announces the launch of joint ‘European Innovation Partnerships’ between the EU and national levels to speed up the development and deployment of the technologies needed to meet the challenges identified. [5] The Innovation Union policy forms part of the EU’s 2020 Strategy and sets out a planned approach to innovation in order to strengthen Europe’s competitiveness in the coming years. The Strategy 2020 provides for work areas, indicated in Table 2.

Table 2

The working areas of EU innovative policy in Strategy 2020

The working area	Methods of realization
Education	The EU and the Member States need to continue to invest in education, research and development and information and communication technologies where excellence must become the guiding principle. Businesses should engage in so-called ‘Knowledge Alliances’ by collaborating in the development of university curricula in order for graduates to better match industry needs.
European Research Area	The proposed Strategy intends to set up a unified European Research Area to be completed within 4 years. This should allow public and private actors to operate freely, meaning that they can cooperate across the EU as easily as within national borders putting in place a truly free movement of knowledge. The system of support to research and development has to be simplified and high priority has to be given to setting up coherent procedures and conditions for the access to funding.
EU Funding Instruments	With support from the European Investment Bank, the access to EU programmes has to be streamlined and the leverage effect on private sector investment has to be improved. Funding opportunities should be opened in particular to small and medium enterprises with the potential of turning the results into new products and services. Cooperation between the worlds of science and business must be enhanced in order to get more innovation out of research.
European Institute of Innovation and Technology	The creation of the European Institute of Innovation and Technology has been able to put education, research and innovation under one hat promoting new forms of financing research within the EU. By mid-2011 the European Institute of Innovation and Technology should present a Strategic Innovation Agenda to expand its activities.

Particular attention should be given to international cooperation of the EU. The EU

create a new structure of relations with third countries, and this is manifested mostly in the field of science and innovation. Permanent partners of the EU in this area are New Zealand, USA, Egypt, Switzerland, Japan and others. In addition to wide geographical structure, constantly deepening cooperation between the EU, characterized by stability. EU develops cooperation with Mediterranean countries (Maghreb and Mashreq). It is planned to create a «Union for the Mediterranean», in which in 2010 was established a free trade zone.

There are great perspectives for EU cooperation with Latin America countries. Cooperation between the EU and Asian countries also rapidly develops . For example, in 2010 came into force treaty on scientific and technical cooperation between the EU and Japan. The document provides the development of joint research programs primarily in the fields of energy and sustainable development, and  a traditional exchange of scientists.

The most «rich» history of relations the EU has with the United States and Canada. Cooperation with these countries is aimed at solving global problems.
Thus, the EU becomes a «centre» of the formation of international innovation system, which goes to the global level.

Innovation is an important driver in enabling the European Union to create greater competitiveness, increased growth and more job opportunities and consequently to compete on a global scale. The EU has an enormous innovation potential, due in part to its cultural diversity and internal market.

Today, nothing is more important for the re-launch of the EU project than unleashing the potential for EU competitiveness through innovation. EU institutions endorsed this view in the recently adopted EU2020 strategy, which announces seven flagship initiatives, of which at least five are intimately linked with innovation (Innovation Union, Digital Agenda, Resource Efficient Europe, A New Industrial Policy for the new globalisation era and an Agenda for new skills and jobs).

Innovation policy is increasingly coming under the spotlight in the European Union, and has been given a prominent role in the EU 2020 strategy and in the flagship initiatives that will aim to ensure that Europe succeeds where the Lisbon strategy failed. The changing nature and scope of global innovation activities creates very significant consequences for EU innovation policy, requiring a substantial review of the pillars of EU innovation policy, involving both the scope and the governance of innovation at the EU and national level.

References

1. A New Approach to Innovation Policy in the European Union [Text]: CEPS Task Force Reports / Maria Anvret. – 2010. – 88 p.

2. Official website of the European Commission [electronic source]/ [http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/]

3. The Innovation Policy of the European Union: From Government to Governance [Text]: Edward Elgar Publishing Ltd / Susanna Borras. – 2003. – 272 p.

4. EU Competition Law and Intellectual Property Rights: The Regulation of Innovation [Text]: Oxford university press / Steve Anderman. – 2011. – 351 p.

5. Innovation Law and Policy in the European Union: Towards Horizon 2020 [Text]: Springer / Massimiliano Granieri. – 2012. – 250 p.