EN Official Journal of the European Union C 48/112

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Preparing for our future: Developing a common strategy for key enabling technologies in the EU’

COM(2009) 512 final

2011/C 48/20

Rapporteur: Mr MORGAN

On 30 October 2009, the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Preparing for our future: Developing a common strategy for key enabling technologies in the EU’

COM(2009) 512 final.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 8 July 2010.

At its 465th plenary session, held on 15 and 16 September 2010 (meeting of 15 September), the European Economic and Social Committee adopted the following opinion by 112 votes to 2 with 1 abstention.

1. Conclusions and recommendations

1.1 The EESC supports the proposed focus on Key Enabling Technologies (KETs). It also underlines the need for powerful KET oriented R&D in universities and research centres to stimulate development and to support the commercial and industrial application of these technologies.

1.2 However, as it stands, this proposal appears to be just another in a long series of EU initiatives designed to improve innovation and R&D intensity in the internal market. Previous schemes have not been successful, as is evidenced by the present state of affairs described in the Commission analysis (paragraph 3.8 below). A new approach is called for.

1.3 The Communication states that ‘while the required R&D and its specific applications are primarily the responsibility of business, policy makers need to put in place the right framework conditions and support instruments for strengthening the EU’s industrial capacities for the development of KETs’. The responsibility for this lies with the Member States but the EESC believes that this approach is problematical because, as explained in Section 5, the Member States do not have enough leading high-tech companies to adequately exploit KETs.

1.4 Because the spectrum of large high-tech companies is incomplete, SMEs face particular problems in the EU. Some SMEs start small and become big players on the global stage. Most high-tech start-ups need a large company relationship to underpin their growth and survival. Many SMEs go on to be acquired by large companies which use acquisitions to supplement their own R&D efforts. In the absence of EU hi-tech companies, US and Asian companies become the partners and owners of EU SMEs.

1.5 Implicit in this Communication is the assumption that EU interests are well defined and understood, but in fact they are not. Most technology companies are multinational or global. The head office and stock market listing may be anywhere. The shareholders will be global institutions. Links in the value chain of basic research, product development, fabrication and assembly may be located on different continents. Acquisitions may be made wherever the necessary technology can be found. Branding and selling will be global. In effect, every product is available everywhere.

1.6 Where does the European interest lie in this matrix of interests? It is linked to the success or failure of Member States in stimulating enterprise. More companies are needed to exploit KETs. Company formation needs to be encouraged, company growth needs to be supported and inward investment needs to be attracted. The existing business culture in Europe needs to be challenged. Since the Treaty of Rome and the subsequent Single Europe Act, the EU has failed to keep up with the rest of the world as technology has advanced. KETs provide what is probably Europe’s last chance to take the lead in hi-tech products and services.

1.7 For this policy to succeed, there will need to be a build up of manufacturing operations in Europe. There will need to be a paradigm shift. The idea that manufacturing can be sub-contracted to the developing world is no longer tenable. Production engineering and technology are key to the innovation embodied in hi-tech products. This source of competitive advantage must be brought back to Europe and new technology start ups should be scaled up in Europe. In addition, Europe needs the jobs.

1.8 The EESC emphasises the need for a sound balance between applied research and research into science fundamentals. Basic research efforts sow the seeds from which long-term and sustainable innovations and new key enabling technologies can grow. A sound balance between applied and basic research is also important in order to attract high quality researchers.

1.9 An EU-centric strategy in a global market place is difficult to achieve. The EESC notes that the Communication does not contain any indication of performance measures, targets or target dates which might be applied to the outcome of this initiative. Putting some shape into this programme should be the first task of the High Level Group.

1.10 A point by point response to the KET policy proposals is given in section 4. In summary, the main points are:

— Face up to the failure of the internal market to encourage enterprise and develop an industrial strategy to address Europe’s considerable deficit in hi-tech companies

— Bring back manufacturing to Europe and scale up new companies in Europe

— Make it easier for companies to obtain funding for innovative technologies

— Create financial incentives to make the EU a profitable location for KET innovation and enterprise

— Initiate radical reform of schools and universities to provide the necessary skills

— Encourage university and research centre based clusters of hi-tech innovative companies

— Recognise that the world has changed and adopt aggressive international trade policies

— Ensure that this initiative is all embracing, pulling in all related initiatives from all DGs.

1.11 The Commission is rightly concerned that without correct information, a public misled by disinformation may unreasonably oppose the introduction of KET based products and services. The EESC would support the engagement of civil society so that the necessary progress can be made. A high priority needs to be given to engaging the interest of the public in general and the young in particular in the amazing science and technology that surrounds our everyday lives, whether it be the extraordinary TMT (1) convergence represented by the iPhone class of products or the chain of biology, chemistry, physics and logistics which brings meals to our table via the microwave oven. Europe needs more scientists with a mission to change the world.

1.12 At the same time, the EESC insists that a precautionary approach is adopted towards KET developments so that, while there must be risk, climate, health and social problems are mitigated and the developments made sustainable. Development and discovery will be inhibited if no risks are taken in research, but when applications of the KETs are in mass production, the EESC would expect that neither the welfare of the general public nor the sustainability of the environment would be compromised.

2. Introduction

2.1 In Section 1 of the Communication it is stated that ‘the EU needs a strong innovative performance in order to equip itself with all the means needed to address major societal challenges ahead’. The Commission invites Member States to agree upon the importance of deploying KETs in the EU. This agreement is a prerequisite for developing the EU into a breeding space of innovation. It is also required if Europe is to become a key international player, translating its engagement into welfare gains at home and abroad.

2.2 The Commission proposed that a high-level expert group be set up to address the action areas set out in section 4 below. This has now been done. Group members are industrial and academic experts from Member States. To create synergies, this group should cooperate with other high-level expert groups, Commission expert groups and other technology bodies.

2.3 The group should:

— Assess the competitive situation of the relevant technologies in the EU, with particular focus on industrial deployment and relevance to societal challenges.

— Analyse in depth the available public and private R&D capacities for KETs in the EU.

— Propose specific policy recommendations for a more effective industrial deployment of KETs in the EU.

The EESC expects the work of the Group to be based on foresight, vision and an all-embracing approach.

3. Key enabling technologies

3.1 The following have been identified as the most strategically relevant KETs:

3.2 Nanotechnology is an umbrella term that covers the design, characterisation, production and application of structures, devices and systems by controlling shape and size at nanometre scale.

3.3 Micro and nano electronics deal with semiconductor components and highly miniaturised electronic subsystems and their integration into larger products and systems.

3.4 Photonics is a multidisciplinary domain dealing with light – its generation, detection and management.

3.5 Advanced material technologies lead to both reduced cost substitutes for existing materials and to new higher added-value products and services. At the same time, they will reduce both resource dependency and environmental hazards and waste.

3.6 Industrial Biotechnology includes the use of micro-organisms or their components, such as enzymes, to generate industrially useful products, substances and chemical building blocks with capabilities that conventional petrochemical processes cannot provide.

3.7 Gaining Community agreement on the selection of Key Enabling Technologies is the focal point of the Communication. Software to run on these technologies and applications of these technologies will follow from the choice of the technologies themselves. The EESC is content to leave any refinement of this list to the high-level expert group. The EESC suggests that consideration be given to High Performance Computing and Simulation Science.

3.8 According to the Commission, the EU faces significant obstacles in achieving a wider deployment of KETs. It has been less effective than the US and some Asian countries in terms of commercialisation and exploitation of nanotechnologies, some aspects of photonics, biotechnology and semiconductors. These are all areas where substantial public R&D efforts are undertaken, however they do not sufficiently translate into economic and societal gains. There are several reasons for this:

— The EU does not effectively capitalise on its own R&D results.

— Public knowledge and understanding of KETs is often lacking.

— There is a shortage of skilled labour tailored to the multidisciplinary nature of Key Enabling Technologies.

— The levels of venture capital funding and private investment available for KETs remain comparatively low.

— The fragmentation of EU policy efforts is often caused by a lack of long-term vision and coordination.

— In some third countries, KETs may benefit from state support which is often opaque and needs to be better understood in the EU.

4. Policy proposals

4.1 For an effective industrial deployment of KETs, ten policy areas need to be addressed. In the following paragraphs, the text in italics is the gist of the Commission proposal.

4.2 Increased focus on key enabling technologies:

— A key objective of public support for R&D and innovation should be to ensure that the flow of innovation is maintained, especially in the economic downturn, and that technology adoption is facilitated.

4.2.1 The EESC gives its full support to the proposal to reinforce publically supported programmes to offset the impact of the crisis on technological development. The squeeze on business profits is certainly holding back company R&D. The emphasis on collaboration in EU funding schemes is often an insurmountable handicap for small high-tech start-ups with a messianic commitment to their mission. Public money should be available without strings attached to provide seed money while innovators and entrepreneurs work on proof of concept.

4.3 Increased focus on technology transfer and EU-wide supply chains:

— The process of technology transfer between research institutions and industry needs to be strengthened (2). Greater access for SMEs to enabling high technologies manufactured in Europe and the promotion of regional innovation clusters and networks are essential for creating and maintaining world class innovation.

4.3.1 This policy relates to the relationship between research institutes and industry, particularly SMEs. It does not discuss industrial clusters based at universities and research centres. There is a big difference between existing SMEs in the industry supply chain which need access to the latest technology relevant to their position in the supply chain and small new SMEs which are established to take forward new science or technology which may have emerged from a scientific institute, a university or a company research department. While the EESC supports the policy proposal as outlined, it also advocates a more determined effort to improve university science and technology and venture capital support for university related venture capital clusters.

4.3.2 For this policy to succeed, there will need to be a build up of manufacturing operations in Europe. There will need to be a paradigm shift. The idea that manufacturing can be sub-contracted to the developing world is no longer tenable. Production engineering and technology are key to the innovation embodied in hi-tech products. This source of competitive advantage must be brought back to Europe. It is also an opportunity to create employment. As small companies scale up, they should have incentives to manufacture in Europe.

4.4 Increased focus on joint strategic programming and demonstration projects:

— The Community, but also Member States and regions, should pursue a more coordinated and strategic approach to avoid uneconomical duplication and more effectively capitalise on R&D results related to KETs.

— Innovation programmes financed in Member States should provide stronger incentives for collaborative joint programming actions between Member States. This would unlock the benefits of scale and scope and facilitate strategic alliances between European companies.

— As the costs of demonstration projects are sometimes an order of magnitude greater than those of upstream R&D, greater collaboration across the EU with stronger industry and user involvement could allow progress to be realised efficiently and affordably.

4.4.1 This focus could provide one way of addressing the gaps in the spectrum of EU high-tech companies. Development and demonstration of market facing products and services meeting real market needs could be the means of transforming smaller high-tech companies into larger ones. The EESC believes that this policy is more applicable at the applications of science and technology, rather than to basic research. The EESC would like to see a concentration of EU and Member State funds on realising the market potential of the technologies which have featured in so many policy papers and vision documents. There needs to be a concerted effort to both stimulate new business formation and the subsequent up-scaling to enterprises of global presence and competitiveness.

4.4.2 Additional synergy could be created based on the Commission initiatives on joint programming in research and macro regional cooperation. Special incentives might be made available specifically for joint cooperation on KET projects.

4.5 State aid policies:

— Well targeted state aid that addresses market failures is an appropriate instrument to increase R&D and foster innovation in the EU. The Commission intends to review the 2006 framework for state aid to R&D and innovation to determine its adequacy.

4.5.1 Clearly, EU established companies do not want to have to compete with other EU companies supported by state aid. However, in the view of the EESC, the biggest issue is the paucity of large EU high-tech companies as described in section 5. The EESC believes that there is scope for public intervention in these sectors, in order to stimulate the working of the market.

4.5.2 It may be appropriate to devise specific policies to help some states in the East and South of Europe to accelerate the development of a hi-tech infrastructure together with a complementary university science infrastructure. Research potential may be unexploited due to a lack of resources.

4.5.3 It should be a priority for the Commission to understand why there are gaps in the spectrum of EU high-tech companies and what can be done to fill them. In all the major regions of the world, high-tech companies emerge from a mix of market forces and public intervention. Apple, Google, Microsoft and Dell are pure products of the market. In the EU the significant aerospace presence is the product of public intervention (ESA, EADS). EU market forces have produced Nokia, but virtually no other comparable company has emerged in the life of the EU. The expert group must find a way to enable the EU to re-establish itself in the global ICT industry. In addition, if the EU is to succeed in, the renewable energy field, it must clearly identify companies with the capacity to develop and deploy new fuels and energy sources. It must then support such companies to scale up.

4.6 Combining the deployment of KETs and Climate Change policy:

— The combination of fostering KETs and fighting climate change would offer important economic and social opportunities and would also facilitate considerably the financing of the European share of the burden which international agreements will impose.

4.6.1 The EESC believes that priority should be given to the development of alternative fuels and technologies for transport power, heat and light. The best strategy for climate change is to develop energy options (3).

4.7 Lead markets and public procurement:

— The EU needs a favourable environment for effective capitalisation of research results in products. It needs to promote demand through public procurement and schemes such as the lead market initiative. Member States could use pre-commercial procurement and procurement for large-scale, close-to-market innovations to stimulate emerging enabling technology markets.

4.7.1 The EESC supports this proposal in concept. It would expect the high-level expert group to establish priority projects to ensure that this policy has maximum effect.

4.8 International comparison of high-tech policies and enhanced international cooperation:

— The Commission will conduct an international comparison of high technology policies in other leading and emerging countries such as the US, Japan, Russia, China and India and explore the scope for closer cooperation.

4.8.1 The EESC supports an extensive programme of international benchmarking to provide a basis for KET policy development (4). International cooperation could be valuable for large scale developments, particularly in the climate change arena, but competitiveness should come first. The Commission should seek to learn from the industrial strategies employed elsewhere.

4.9 Trade policy:

— Particular attention should be paid to ensure favourable trade conditions for KETs through bilateral and multilateral means, in order to avoid international market distortions, facilitate market access and investment opportunities, improve IPR protection, and reduce the use of subsidies and tariff and non-tariff barriers at global level.

4.9.1 The EESC believes that the EU must discard the previous paradigm that distinguished between developed and developing countries and caused policy makers to tolerate subsidies and other trade distortions in third countries while conducting multi-year negotiations to remedy the situation. In many technologies, the EU trails Asia. The EESC believes that the EU should now be prepared to confront subsidies and trade distortions with subsidies and trade distortions of its own. The EU should, of course, be ready to agree appropriate treaties when the other parties are ready to come to the table. In the meantime, the EU should implement an industrial strategy to rebuild its companies and its technological leadership.

4.10 EIB financing instrument and venture capital funding:

— The Commission will further stimulate high-tech investment and encourage the EIB to give priority to the high-tech industry by both using existing schemes and designing new instruments in order to facilitate investments, taking account of the current financial and economic crisis.

— Venture capital funds specialised in early stage investment need strengthening. Sufficient availability of venture capital can be assured through public private partnerships which play a critical role in the creation and expansion of R&D intensive companies.

4.10.1 Money is the most vital of market forces. More and expanded sources of development finance are a prerequisite for the KET programme.

4.10.2 The EESC believes that the bureaucratic technicalities relating to existing EU investment and finance mechanisms should not be allowed to divert or prevent funds necessary for KET development from reaching the target.

4.10.3 It is very easy to lose money on high-tech investments. The Commission needs to look further than venture and bank capital in whatever form. High net worth individuals must have every incentive to put their money at risk in high-tech start ups at the early stage before VCs become involved. High-tech R&D should receive maximum tax relief. Tax on the capital profits from the sale of high-tech start-ups should receive favourable treatment. The rewards of success need to compensate for losses on other investments. The EU is less friendly towards investors and entrepreneurs than other regions.

4.11 Skills, higher education and training:

— Natural sciences and engineering must achieve their rightful place in the education system. The percentage of graduates in these fields should be increased and further strengthened by the attraction of international talent.

4.11.1 The scale of Asian investment in education and skills is well known. The output of PhDs from Asian universities overwhelms the numbers produced in the EU. The best EU universities have a large quota of Asian students. Given that national wealth in the 21st century is being determined in the class rooms of the world, most EU Member State educational performance, whether in school or university, falls way behind the requisite standards. The evidence can be found in the tables of global school achievement and international university ranking.

4.11.2 Priority should be given to improving the standard of school teaching, especially in mathematics and science, creating incentives for students to major in maths and science in both school and university and for qualified science graduates to enter the teaching profession. Furthermore, an elite group of universities must be identified where teaching and research standards can be made world competitive, together with the development of university linked infrastructures (science parks) to incubate spin out SMEs and provide the necessary seed capital funding.

4.11.3 The scale of the educational challenge in many member states is so great, and the compound failure of politicians to deal with the problem over the years is so manifest, that society will need to deploy its resources on a war footing until the necessary results are secured.

4.11.4 Moreover, the framework conditions for teaching and R&D in universities and research centres need to be made much more attractive. The EU needs to attract the best brains from other regions. At the moment, conditions are such that the reverse is true, many of the EU’s best brains move to other regions for better conditions (5). Even so, it is important to facilitate international mobility (6) because this has become a prerequisite for a successful career.

4.11.5 Likewise, a sound balance must be struck with regard to support for applied research and research into science fundamentals. Basic research efforts sow the seeds from which long-term and sustainable innovations and new key enabling technologies can grow. A sound balance of this kind is also important in order to attract high quality researchers.

5. Hi-Tech Companies

5.1 The EESC is extremely concerned about the European deficit amongst global high technology companies. The two tables below have been compiled from the 2010 Financial Times listing of the global and regional top 500 companies by market value. They contain data on the industry sectors best able to exploit KETs.

5.2 The first table is extracted from the Global 500 list. In this analysis there is no hi-tech sector in which Europe leads the world, except for Chemicals.

FT Global 500 - Technology Sectors Sector Number of Companies Global USA ASIA EUR Pharmaceutical & Biotechnology 20 10 3 6 Novartis*, Roche*, GSK, Sanofi- Aventis, AstraZeneca, Novo Nordisk Technology Hardware 21 13 5 2 Nokia, Ericsson S/W & Comp Services 12 6 5 1 SAP Automotive & Parts 11 2 6 3 Daimler, VW, BMW Chemical 13 4 1 5 Bayer, BASF, Air Liquide, Syngenta*, Linde Health Care Equipment 12 11 0 1 Fresenius General Industrials 13 4 6 2 Siemens, ThyssenKrupp Industrial Engineering 11 3 4 4 ABB*, Volvo, Atlas Copco, Alstom Aerospace & Defence 10 7 0 3 BAE Systems, Rolls Royce, EADS Oil Equipment & Services 7 4 0 1 Saipem Leisure Goods 4 0 3 1 Phillips Electrical Electronic & Electrical 6 2 3 1 Schneider Electric Alternative Energy 1 1 0 0 Industrial sectors excluded from this analysis are oil and gas producers, industrial metals and mining, construction and materials, as well as food, drink and tobacco producers. Operational sectors excluded from this list are fixed line and mobile telecommunications, industrial transportation, electricity, gas, water and multi-utilities. Asia is predominantly Japan, but includes companies from Taiwan, S. Korea, Hong Kong, China, India and Australia. Europe includes the EU and EFTA. Companies marked with an asterisk (*) are Swiss.

5.3 The second table is extracted from the top 500 listings for the USA, Japan and Europe. It includes regional market values in each sector. Of the thirteen high-tech sectors, Europe leads in Chemicals, Industrial Engineering and Alternative Energy, although the latter is still a fledgling sector. Europe also holds a respectable position in pharmaceuticals and Biotechnology. Japan leads in Automotive, Electronic and Electrical and Leisure Goods. Other Asian countries also hold strong positions in these sectors. The USA dominates the sectors which it leads: Pharmaceutical and Bio-tech, Technology Hardware, Software and Computer Services, Health Care Equipment and Services, General Industrial, Aerospace and defence an Oil Equipment and Services. These are all important sectors for the exploitation of KETs.

FT Regional 500 - Technology Sectors Sector Number of Companies (#) and Market Value ($ billions*) USA Japan Europe # $ # $ # $ Pharmaceutical & Biotechnology 21 843 24 147 18 652 Technology Hardware 34 1 049 18 164 8 140 S/W & Comp Services 25 884 12 58 8 98 Automotive & Parts 5 81 37 398 9 186 Chemical 12 182 36 134 18 293 Health Care Equipment 31 511 4 24 11 94 General Industrials 9 344 8 38 6 127 Industrial Engineering 11 165 36 185 18 210 Aerospace & Defence 12 283 — — 7 84 Oil Equipment & Services 17 271 — — 9 62 Leisure Goods 5 42 14 181 1 31 Electronic & Electrical 10 124 29 159 6 54 Alternative Energy 1 10 — — 2 16 A billion* is one thousand million This table is compiled from the FT listing of the top 500 companies in each of the three regions. The sector mix and balance in each region is quite distinct, but the comparative market value of each sector in each region is a useful measure of relative technological intensity.

5.4 The conclusion from this analysis is that the EU needs an industrial strategy to secure its position in the world of KETs in 2020 and beyond.

Brussels, 15 September 2010. The President of the European Economic and Social Committee Mario SEPI

(1) Telecommunications, media and (information) technology.

(2) See OJ C 218 of 11.9.2009, p. 8.

(3) See CESE 766/2010 of 27.5.2010.

(4) See OJ C 306 of 16.12.2009, p. 13.

(5) See OJ C 110 of 30.4.2004, p. 3.

(6) See OJ C 224 of 30.8.2008.