Improve Europe's Business Climate Plus Adopt Regional Patents: This Will Spur Company R&D Investment!!

Improving the Business Climate Will Spur European Company R&D Investments



By Lawrence A. Kogan





March 10, 2008




The synopsis provided by Bruno van Pottelsberghe in his recent Financial Times Leaders & Letters article “Europe must use its head on academic research” (3-7-08) is true concerning the unrealized potential of Europe’s antiquated R&D framework and the lag that it places upon the region’s technological and economic growth, inconsistent with the stated political goals of the Lisbon Agenda.
[SEE: http://www.ft.com/cms/s/0/85f21278-eb97-11dc-9493-0000779fd2ac.html ].


Professor van Pottlesberghe is most correct when he states, “the bottom line is that the EU needs now to adopt a common European patent - under discussion for 30 frustrating years- and spend more, and more wisely, on academic research...” I previously drew a similar conclusion in my article (“European universities learn importance of technology transfer” 9-29-06) in explaining why North American universities’ technology transfer offices had realised ‘a sixfold return’ in R&D spending, far greater than those realized in Europe.



Apart from the monies dedicated to R&D, I then stated that “Due credit must be given to the underlying US common law legal system, which recognises and protects temporary but exclusive private intellectual property right ownership in the know-how that underlies and is reflected in such research. Private intellectual property (e.g. a patent) is important precisely because knowledge is an intangible good that is not readily susceptible to valuation.”
[SEE: http://www.ft.com/cms/s/0/6b48c96c-4f99-11db-9d85-0000779e2340.html ].


However, that is the reality in North America, not Europe. The present ‘free movement of knowledge / ‘fifth freedom’ movement which increasingly pervades European public consciousness is likely to derail the enactment of region-wide patent legislation, just as it already impairs new thinking on how to spur the growth of innovative companies to carry that R&D to market.



I would thus add to my earlier conclusions the observation that government R&D spending and protection of patents alone cannot provide the necessary stimulus for business-driven innovation. What is also essential is the enactment of laws that facilitate entrepreneurship; i.e., the taking of economic risks, such as business formation and expansion, and incentives to reinvest company earnings.



In other words, apart from political rhetoric, European governments must create an actual economic enabling environment that promotes ‘doing business’ in Europe and then get out of the way. Unfortunately European countries, apart from Denmark, Ireland and the UK, which have reduced government funding of R&D, have not been too skilled in this endeavor.



If the 2007 World Bank’s Doing Business Report is any indication, it is only these countries that made it into the ‘top 10’ rankings. Indeed, a review of the report will show that, with respect to each of the following key metrics, most EU member states were laggards - the costs of: starting a business, dealing with licenses, workers, property rights, obtaining credit, protecting investors, paying taxes, cross-border trade, enforcing contracts, and closing a business. http://www.doingbusiness.org/EconomyRankings/Default.aspx?direction=desc&sort=1



To be more specific, only three EU member states besides those mentioned above made it into the ‘top 20’ - Finland (13), Sweden (14) and Estonia (17), while most of the remainder made it into the ‘top 50’ - Latvia (22), France (31), Slovakia (32), Portugal (37), Spain (38), Luxembourg (42), Hungary (45), Bulgaria (46), Romania (48) – with some even falling into the ‘top 100’ - Italy (53), Czech Republic (56), Poland (74) and Greece (100)!



Arguably, this report strongly suggests that the inability of EU member state governments to promote business-friendly enabling environments may correlate positively with EU business’ relatively low investment in research. Therefore, before the participants at this week's grandiose EU summit commence their obsessive over-thinking about the European R&D model, they should also consider how to improve the climate for business. Perhaps, this may provide the true answer to the principal question posed by Professor van Pottelsberghe: “What, then, should the EU and governments do to get business to invest more in research?”