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Smart Instruments for a Smarter Europe: The CIP in Perspective

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Smart Instruments for a Smarter Europe: The CIP in Perspective Nicholas S. Vonortas Center for International Science and Technology Policy & Department of Economics – PowerPoint PPT presentation

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Title: Smart Instruments for a Smarter Europe: The CIP in Perspective


1
Smart Instruments for a Smarter EuropeThe CIP
in Perspective
  • Nicholas S. Vonortas
  • Center for International Science and Technology
    Policy
  • Department of Economics
  • The George Washington University
  • European Parliament
  • EPP-ED Hearing
  • on the
  • Competitiveness and Innovation Framework
    Programme (2007-2013)
  • CIP

2
What is the Proposed CIP?
  • The CIP promotes competitiveness through
    innovation
  • The CIP supports the innovative implementation of
    RTD results by enterprises. It addresses the grey
    area between research and application
  • The CIP supports primarily SMEs
  • The CIP supports collaboration
  • The CIP emphasizes two broad sectors

3
Sectoral Systems of Innovation (SSI)
  • A sector is a set of activities that are unified
    by some related product group for a given or
    emerging demand and that share some basic
    knowledge
  • A sectoral system of innovation (and production)
    is composed of a set of agents engaged in market
    and non-market interactions for the creation,
    production, and sale of sectoral products.
  • Interaction among agents is shaped by
    institutions.
  • Sectoral systems have a knowledge base,
    technologies, inputs, and potential or existing
    demand.

4
SSI Building Blocks
  • Knowledge and Technology A sector is
    characterized by a specific knowledge base,
    technologies and inputs.
  • Accessibility, opportunity and
    cumulativeness are key dimensions of knowledge
    and are related to the notion of technological
    and learning regimes. These regimes differ across
    sectors.
  • The specificities of technological regimes
    and knowledge bases provide a powerful
    restriction on the patterns of firms learning,
    competencies, behaviors and organization of
    innovative and production activities.

5
SSI Building Blocks
  • Actors and Networks A sector is composed of
    heterogeneous agents, connected in various ways
    through market and non-market relationships.
  • Institutions Cognition, actions and
    interactions of agents are shaped by
    institutions, which include norms, routines,
    common habits, established practices, rules,
    laws, standards and so on.
  • National institutions may have major
    effects on sectoral systems, as, e.g., the patent
    system, property rights, or antitrust
    regulations.

6
Key Levers for Sectoral Innovation Policies
  • Agents/actors, networks
  • Market and non-market interactions
  • Potential or existing demand
  • Knowledge base, technologies, inputs
    (accessibility, opportunity, cumulativeness)
  • Institutions (national, regional, global)
  • Element co-evolution leads to sectoral
    transformation

7
Why Direct Intervention?
  • The major support for business innovation
    projects in Europe is at the national and
    sub-national levels. The programmes are still
    fragmented along national and regional lines and
    cannot exploit synergies.
  • ONE COULD ARGUE
  • Such programmes must remain at the national/local
    levels. Federal governments are just too distant
    from regions to know their needs for innovation.
    US example
  • Arguably, the role of the Commission could
    be to(1) maintain/enhance the Research
    Framework Programme and(2) maintain open
    channels of communication with the regions to
    ensure cohesiveness so that the sectoral
    innovation systems in critical areas can be
    defined at the European, rather than just
    national, level. A European Innovation Area?
  • The CIP addresses only parts of the innovation
    systems. What ensures co-evolution of elements
    i.e., how is policy coordination achieved?
  • How connected will the CIP be with
    national/regional programmes and other European
    programmes for regional support (such as the
    Structural Funds)?
  • Why the CIP cannot be delivered in the same
    general manner as Structural Funds?

8
Valley of Death
  • To successfully move from a scientific
    breakthrough to a market-ready prototype involves
    bridging three gaps
  • A financing gap between funds that support more
    basic research and the investment funds to turn
    the idea into a market-ready prototype.
  • A research gap between the scientific or
    technical breakthrough and the basis for a
    commercial product.
  • An information and trust gap between the
    scientist/ technologist and the investor, each
    with a different perceptions of the innovation
    and different expectations of what it is to
    accomplish.

9
CIP Financial Instruments
  • The CIP Financial Instruments address the first
    gap by facilitating access to finance for SMEs
    seed, start-up, expansion and business transfer.
    Investments in technological development,
    innovation, and technology transfer are within
    the scope of the instruments
  • The High Growth and Innovative SME Facility GIF1
    for early stage (seed, start up) and GIF2 for
    expansion stage investments.
  • The SME Guarantee Facility debt financing via
    loans or leasing, microcredit financing,
    guarantees for equity fund investments in SMEs,
    and securitization of SME debt finance
    portfolios.
  • The CIP Financial Instruments address, to some
    extent, the third gap
  • The Capacity Building Scheme to (a) stimulate the
    supply of private venture capital to innovative
    SMEs (b) provide technical assistance to improve
    the credit appraisal procedures of financial
    intermediaries for SME debt financing.

10
CIP Financial Instruments
  • All this is fine. But it is basically a
    supply-side approach. One ought to pose for a
    minute and ask what is the reason for the
    reportedly sub-optimal levels of risk capital and
    new technology based firms (NTBFs) in Europe.
  • To the extent that the reasons have to do with
    supply, then the policy will help. But what if
    the reasons have to do with demand? E.g.,
  • What if equity risk capital does not exist
    because investors are constrained in unloading
    companies? (IPOs)
  • What if corporate risk capital is insufficient
    because large European corporations still avoid
    such strategies?
  • What if large institutional investors that handle
    insurance and pension funds are not allowed to
    invest in risky activities?
  • What if small innovative firms are not created in
    Europe for mainly other reasons such as heavy
    regulatory burden, lack of entrepreneurial
    culture, or fear of failure?
  • What if the problem is lack of demand for the SME
    output? (private sector and public
    sector/procurement)
  • If such reasons are present, supply-side policies
    that require co-investment by private investors
    will have limited effect.

11
Pay Attention to the Demand Side
  • Successful SMEs are acutely focused on the
    customers needs. Studies have shown time and
    again that an excellent way to understand the
    degree of innovativeness of a company is through
    its customers technologically advanced SMEs
    supply demanding larger customers or
    sophisticated market niches.
  • The policy implication is that a critical
    factor in establishing technologically advanced
    SMEs is the creation of opportunities to sell
    their products. This can mean one of three
    things
  • Making entrepreneurs aware of sophisticated
    market niches
  • Linking small companies with sophisticated large
    contractors
  • Create public procurement for the products of
    innovative SMEs.

12
Example SBIR
Small Business Innovation Research (SBIR) Program
Model
13
CIP Financial Facilities
  • The description of the financial facilities in
    the document of the Commission already sounds
    quite complicated even without the arcane details
    that typically accompany such programmes.
  • Are there provisions to create single-stop
    shops in all Member States for the comprehensive
    provision of information to interested parties?
    (the facilitation of transactions is also
    relevant here)

14
CIP Sectoral Focus
  • The discussion earlier on implied the need
    for a more holistic approach to address as many
    sectoral factors as possible (demand,
    institutions, agents, networks, market and
    non-market interactions, the knowledge base, and
    so forth).
  • The CIP calls for an ICT Policy Support
    Programme and an Intelligent Energy-Europe
    Programme. Both consist of demand-side measures
    primarily, and other measures for actors,
    interactions, and the knowledge base.
  • The ICT Policy Support Programme will provide
    for
  • The development of the Single European
    Information Space and strengthening the internal
    market for ICT products and services
  • The stimulation of innovation through a wider
    adoption of and investment in ICTs
  • The development of an inclusive information
    society and more efficient and effective services
    in areas of public interest, and improvement of
    the quality of life.
  • The Intelligent-Energy Europe Programme will
    provide for
  • Fostering energy efficiency and the rational use
    of energy resources
  • The promotion of new and renewable energy sources
    and energy diversification
  • The promotion of energy efficiency and the use of
    renewable energy sources in transport.

15
CIP Sectoral Focus
  • Each of these two hugely worthy, as well as
    complex, areas will be supported to the tune of
    roughly 800m. for 7 years, or about 100m. per
    year (basically excluding programme
    administration).
  • This level of support appears inadequate to
    address the sectoral objectives, as sketched out
    earlier in this presentation, in all Member
    States.
  • Since there is no room for growth, however, this
    money could, in my view, be best utilized to
    coordinate across Europe the relevant existing
    national and regional programmes, also including
    those supported by the European Structural Funds.
  • (a European Innovation Area in parallel to
    the European Research Area)

16
Exclusive Focus on SMEs
  • The CIP focus on SMEs is encouraging given
  • The fact that the Research Framework Programme
    has never really resonated with the majority of
    SMEs which
  • (i) are too busy to find out what is going on
    with the Commission
  • (ii) are too secretive and protective of their
    single idea to accept to collaborate on it
  • with others
  • (iii) have felt that the RFP is a game for the
    big boys
  • (iv) are much more into innovation
    (implementation) than pure research
  • (v) continuously face cash flow constraints
  • (vi) often are not that innovative even though
    they have no trouble with
  • implementing new technologies.
  • The emphasis in FP6 and seemingly in FP7 on
    larger projects for Technology Platforms and
    Joint Technology Initiatives resulting in the
    concentration of power in the hands of large
    organizations (systems integrators).

17
Agent Interactions
  • The CIP emphasizes the innovative implementation
    of RTD results by enterprises. In other words, it
    keeps very close to the market. For that reason
    exactly, it should not focus exclusively or,
    even, mainly on collaboration.
  • Small innovative companies are fiercely
    protective of their ideas and would not like to
    share the best of them with others, even if that
    means risking death.
  • Collaboration is necessary in occasions of
    systemic products. Perhaps more important than
    pairing SMEs in this case would be to pair
    innovative SMEs to larger, sophisticated
    contractors, thus also opening a demand channel.

18
Collaboration
  • To the extent that collaboration is encouraged,
    it must not follow the style of the RFP (many
    partners, many countries)
  • (E.g., the Commission Proposal several times
    indicates collaboration involving at least three
    partners which is the RFP prototype.)
  • Innovative product collaborations involve few
    organizations, most typically only two.
  • If the EU is truly interested in internationally
    competitive innovation, then it must break the
    old political barriers and go for true
    excellence. This would require opening the
    possibility that, under certain conditions,
    collaboration may involve partners from one
    country only.
  • There is, of course, the possibility that the
    quest for excellence will end up with a very
    skewed allocation of funds. Monitoring is
    required

19
Flexibility Grant Procedures
  • CIP programmes must be flexible.
  • They address SMEs whose biggest strength is
    presumably flexibility in addressing the market.
  • They address very dynamic technology areas where
    we can expect rapid and frequent changes.
  • Two other issues also deserve serious
    consideration
  • Standardizing grants (say, 50 co-funding)
  • Establishing a 2-step evaluation procedure for
    proposals in order to decrease the application
    cost to SMEs.

20
Thank you!
www.gwu.edu/cistp
Center for International Science Technology
Policy Elliott School of International
Affairs The George Washington University
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