A tragedy is in the making for EU economic policy if a misleading conclusion drawn from Mario Draghi’s recent productivity report is cemented. This is the paralysing belief that Europe will fall hopelessly behind the US in innovation unless it finds hundreds of billions in additional public subsidies — which politicians who pride themselves on their realism rush to dismiss as impossible.
Draghi’s analysis is of course a lot more sophisticated than that. But where do the sources of the EU’s innovation gap really lie? A good place to start is a recent study of “how to escape the middle technology trap” by the European Policy Analysis Group.
It starts with the important fact that the EU subsidises innovation as much as the US. In both, public spending on research and development is about 0.7 per cent of their GDP. So this can’t explain America’s innovation advantage. R&D spending by private businesses, however, is almost twice as high in the US as it is in the EU (2.3 versus 1.2 per cent of GDP).