Where competitiveness thrives

Europe has a real opportunity to define key structural changes needed to boost innovation when the world's most competitive economy assumes the EU presidency this week.

According to a report released by the World Economic Forum last year, Finland topped competitiveness rankings in 2005 for the third consecutive year. Crucial to Finland's success is sound macroeconomic management combined with a strong culture of private sector investment in research and development (R&D).

"It's a country that not only has an effective innovation system, but is constantly working to improve it. There are a great number of exercises to maintain good performance in innovation. If they can carry that through to Europe, that would be great," said Luke Georghiou, professor of science and technology policy at Manchester Business School. "The big battle is getting the efficient measures to do something about it."

Georghiou is part of a four-person expert group, including the former prime minister of Finland, Esko Aho, which was tasked by the European Commission to look at ways of boosting EU research and innovation, following last October's informal EU summit at Hampton Court. The group's initiatives will be one of the main sources of ideas for the presidency's development of an EU innovation policy over the coming six months.

Janne Kankanen, an official at the Finnish Ministry of Trade and Industry, who is co-ordinating an informal meeting (10 July) of ministers in charge of

competitiveness in the Finnish university town of JyvŠskylŠ, said: "Ministers will have the chance to reflect on general policy issues. We'd like to broaden the discussion and bring up the subject of demand as a driver of innovation."

Issues up for discussion in JyvŠskylŠ include the development of so-called demand-side market conditions that can encourage private sector investment in research. Creating an innovation-friendly regulatory climate, with emphasis on areas such as intellectual property and public procurement, potentially a significant driver for innovation, would complement existing supply-side measures and help to boost lacklustre EU performance.

Critics warn that lack regulatory harmonisation is a real barrier to companies that have to face the nightmare scenario of wading through 25 different sets of rules to launch products. Companies are unlikely to spend money on EU-based R&D if they cannot be guaranteed decent market conditions to ensure a return on investment.

Petri Peltonen, executive director of Tekes, the Finnish funding agency for technology and innovation, said: "There are not enough incentives to create market demand for new innovations. This is clearly a weakness. I think it has been overlooked in Europe. Action can be taken at legislative level to create demand for innovation."

Georgihou said: "We still need emphasis on vertical measures, taking a sector, such as transport, where the biggest failure is one of co-ordination. If the demand-side can be combined with the supply side, we're much more likely to get a good result."

He pointed out that, although problems were unlikely to be solved during the presidency, actions taken should prove a sound foundation for future policy development. Finland is one of the few member states meeting EU targets on so-called R&D intensity, with investment of 3.5% of gross domestic product (GDP) in research projects. By 2010, the EU as a whole should be investing at least 3% of its overall GDP in R&D. Improving the demand-side conditions that will boost private sector spending is crucial to meeting the targets.

Recommendations on future EU innovation policy are to be included in a report planned for the end of 2006. The presidency will review action taken at member state level to create effective conditions for commercialisation of research-intensive products and forward ideas on the creation of a demand-led innovation policy. "We hope the German presidency will pick up on the points raised during the Finnish presidency and follow them up," said Kankanen.

Europe has a real opportunity to define key structural changes needed to boost innovation when the world's most competitive economy assumes the EU presidency this week.