Communication to the European Council - Industrial Development and Innovation
Date: 1980-11-18
Institutions: European Commission
Subjects: EU Member State, EU industrial policy, industrial development, industrial structures, innovation, investment, public authorities

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COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

COM(80)  755  final 

Brussels,  18th  November  1980 

• 

• 

INDUSTRIAL  DEVELOPMENT  AND  INNOVATION 

(Communication  from  the  Commission  to  the  European  Council 

\ 

Luxembourg,  1  and  2  December  1980) 

.,. 

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COM(80)  755  final 

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Communication  to  the  European  Council 

Industrial  Development  and  Innovation 

The  issue 

Inoustry  in.the  Community  is  in  trouble.  There  are  serious 
problems  in  many  sectors.  Unemployment  is  high  and  ~ising. 
By  several  measures,  our  industrial  performance  is  de 
clining  compared  with  competitors.  In  our  traae  in  manu 
factured  products,  our  deficit  with  Japan  is  growing 
alarmingly  and  we  no  longer  hav~'a  surplus  with  the 
Unitea  States. 

In  1965  we  exported  40  I  more  electronics-based  products 
than  we  imported.  In  1976  we  only  just  broke  even,  ~here 
as  by  1976  the  Japanese  exported  nearly•9  times  as  much 
electronics  products  as  they  importea.  In  1965  ~e  ex~orted 
3.7  times  as  much  machinery  and  transport  equipment  as  we 
importea.  By  1978  this  was  down  to  2.4  times,  whereas 
Japan  was  exporting  nearly  10  times  as  much  as  she  was 
importing.  The  long  term  implications  of  these  trends 
for  employment  in  industry  ao  not  need  to  be  emphasized • 

. 

Innovation  has  been  a  historical  motor  of  industrial 
a~velopment  in  Europe.  Ever  since  the  industrial  r~volu• 
tion,  the  application  of  new  discoveries  has  resultea 
in  economic  growth,  increased  employment,  domestic  pros• 
perity  and  exports  abroad.  This  process,  initially  based 
on  relatively  simple  technologies,  took  on  a  second 
lease  of  life  in  the  early  part  of  this  century  in  inaus 
tries  such  as  chemicals,  automobiles  and  electrical 
appliances,  and  is  now  entering  a  new  phase  through 
the  application  of  electronic  technologies  to  many  areas 
of  economic  activity.  Future  developments  in  areas  such 
as  biotechnology'and  marine  development  can  already 
be  discerned  on  the  horizon •. 

.• 

.. 

--

Innovation  in  industry  is  essentially  a  market-oriented 
process.  The  principal  responsibilities  thus  lie  with 
enterprises  and  individuals  as  well  as  with  those  in 
both  the  public- and  ·private  sectors  who  are  responsible 
for  the  organisation  of  work,  investment  decisions  and 
public  purchasing.  Thus,  the  message  has  to  be  addressed 
to  people  who  are  living  and  working  throughout  the 
economy.  It  is  their  decisions  and  their  actions  which 
-will  determi.ne  the  extent  to  which  European  society 
continues  its  economic  and  social  progress,  through 
innovation. 

II.  Factors  of  chgnge(l) 

1.  We  are  entering  a  historic  tu~ning  point  where  the  basic 

technological  cavacity  to  oevelop  and  manufacture,  to 
sell  and  trade  is  rapidly  diffusing  throughout  a  large 
part  of  the  world  economy.  Notwithstanding  the  poverty 
and  unaerdevelopment  which  prevails  in  much  of  the  third 
world,  there  are  alreaay  several  newly  industrialised 
countries  which  are  effectively  competing  with  European 
manufacturing  industry  in  many  sectors.  In  the  future, 
there  will  be  more  of  them.  ., 
Furthermore,  to  differing  degrees  and  in  different  ways, 
the  ~wo  other  major  inous 
the  United  States  and  Japan  -
trialised  poles  in  the  free  trading  world  economy  -
· 
are  managing  to  mai~tain  their  economic  pre-eminence. 

I 

Consequently,  the  international  pressure  for  industrial 
renovation  in  Europe  is  getting  stronger  and  the  need 
for  successful  innovation  is  far  more  pressing:  the 
pace  is  no  longer  o~  OU'r  o~n  choosing. 

2. 

But  innovation  encounters  domestic  obstacles.  First, 
new  investment  is  a:necessary  vehicle  for  it  and  the 
present  low  level  of  profitability  in  many  firms,  leading 
to  too  few  investments,  must  be  holding  back  mcany  innova 
tions  which  otherwise  would  be  within  our  grasp. 

Second,  and  more  fundamentally,  resistance  to  change 
is  reinforced  by·  the  current  economic,  social  and  cultural 
climate.  Moreover,  the  recession  and  the  contraction 
of  inoustrial  employment  which  are  taking  place  throughout 
the  European  economy  are  generating  social  attitudes 

· 

(1) 

See  also  Report  on  certain  structural  aspects  of  growth, 
COM(78)  255  f~nal,  22  June  197~ 

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which  are  often  inimical  to  change.  These  arise  from 
the  fact  that  after  thirty  years  of  rapid  economic  growth, 
high  standards  of  living  and  full  employment  are  taken 
· for  granted  and  from  rigidities,  even  inadequacies, 

in  educ,ation  and  training.j 

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At  the  same  time,  the  technological  characteristics 
of  new  discoveries  are  increasingly  advanced.  In  the 
future,' much  innovation  will  demand  an  unprecedented 
degree  of  managerial  and  technological  sophistication 
both  from  the 
innovator  and  his  working  people.  There 
is,  however,  little  doubt  that  the  education  and  training 
.systems  within  our  economies  have,  with  few  exceptions, 
failed  during  the  past  generation  t~  engenaer  the  flexi 
bility  and  attitudes  which  would  allow  the  European 
economy'  to  develop  in  the  way  which  present  international 
and  technological  factors  require.  Rigidity  and  time 
lags  in  the  educational  system  and  individual  and  social 
obstacles  to  retraining  in  middle  life  act  as  a  serious 
brake  on  the  scope  for  innovation  in  our  economies. 

I 

Furthermore,  innovating  firms  in  the  United  States  and 
Japan  benefit  from  a  .large  domestic  market  as  well  as 
from  additional  support  from .,a  new  well-targeted  range 
of  government  measures.·  In  Europe  only  the  Community-wiae 
market  offers  a  comparable  potential,  but  it  remains 
fragmented  for  many  purposes.. 

· 

-

III.  The  obj~ctives  and  scope  of  innovation 

Innovation  policies  must  address  themselves  to  the. 
obstacles  which  we  encounter  today  because  the  Europ~an 
economy's  dependence  on  external  natural  resources  ana 
energy  imposes  a  development  strategy  based  on  maximum 
use  of  our  abundant  human  and  technological  resources. 
we  cannot  afford,  for  the  remainder  of  this  century,  to 
allow  this  comparative  aavantage  we  have  to  deteriorate 
further,  for  we  have  no  other. 

· 

Innovation  policies  can  favour  social  and  economic  pro 
gress  throughout·European  society,  facilitate  adjustment 
of  industrial  structures  to  changes  in  energy  price 
and  availability,  technology  and  international  traae 
patterns,  and  can  support  recovery  in  competitiveness 
of  critical  economic  activities. 

.. 

The  option  for  change  has  been  altered  by  the  compre 
hensive  nature  of  innovation  in  modern  society  and  the 
way  in  which  new  processes  potentially  affect  many  acti 
vities.  Granted,  the  initiative  to  apply  new  possibilities 
rests  with  the  firm  and  the  individual,  both  in  the 
public  and  private  sectors.  However,  the  option  to  ao 
so  is  increasingly  predetermined  by  the  social  and  eco-

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nomic  environment  and  by  the  results  of  the  research, 
financial,  education  and  training  systems.  These,  by 
contrast,  are  ovewhelmingly  influenced  by  the  public 
authorities.  This  is  why  it  is  imperative  to  aaoress 
the  problem  of  innovation  in  Europe  at  the  level  of 
public  authorities  and  at  the  level  of  the  European 
Community. 

Many  innovations  in  the  form  of  new  products  further 
permit  changes  in  the  processes  whereby  existing  products 
and  services  ~re  ,upplied.  As  a  result,  innovation  in 
telecommunicq~ions,  micro-electronics  and  materials 
science,  in  p•rticutar,  affects~wide  ranges  of  industry 
and  services  to  the1point  where  it  represents  a  common 
factor  of·cha~ge  throughout  our  society  and  economy. 

,, 

Although  the  need  to  apply  advanced  technologies  is 
relativel~2yell  understood  and  the  international  stakes 
,  the  scope ·and  need  for  innovation  through 
are  clear 
out  the  whole  economy  is  not  always ·fully  appreciated. 

For  example,  promotion  of  innovation  in  both  supply 
and  use  of  energy  is  vital.  It  would  provide  new  opportun 
ities  for  industry  and  have  a  positive  effect  on  employ 
ment.  Furthermore,  many  of  the  new  technologies  and 
new  skills  in  the  energy  field  will  be  exportable.  It 
is  important,  for  all  these  reasons,  that  policies  to 
encourage  innovation  should  give  particular  attention 
i 
to  energy. 
Many  everyday  applications  can  make  use  of  the  most 
advanced  technologies  and  materi~ls.  Our  shortage  of 
resources  should  also  be  tackled  by  employing  alternative 
local  resources  of  substitutable  and  more  plentiful 
materials,  by  developing  a  recycling  economy  and  by 
aifferent  ways  of  aesigning  and  producing  9000s  so  as 
to  lengthen  ttieir  life  and  allow  for  easy  replacement 
and  repair. 

~ 

I 

Comprehensive  innovation  strategies  thus  imply  the  appli 
cation  of  many  appropriate  technologies,  builuing  up 
a  complex  and  articulated  system  of  production.  This 
woula  improve  further  opportunities  tor  entre~reneurship 
throughout  the  economy  and  develop  the  basis  for  exports 
of  technologies  suitable  for  a  wiaer  range  of  requirements 
throughout  the  world  economy. 

(2)  See  also  European  Society  faced  with  the  challenge  of  new 

information  technologies:  a  Community  response  (COM(79)  650 
final),  26  November  1979 

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Innovatio.,  does  not  need  to  run  counter  to  social  values 
in  Europe;  it  can  help  us  reach  our  goals  if  it  is  ad 
dressed  not  only  to  the  application  of  technology  in 
proouction,  but  also  to  problems  of  social  and  economic 
organization. 

IV.  Role  of  public  authorities 

Public  authorities  have  a  major  role  to  play  in  the 
c  area  of  innovation,  in  order  to  create  the  conditions 

for  successful  de~eiopment  in  the  future: 

- first,  in  leading  public  opinion  to  an  understanding 
of  our  situation  and  prospects  as  well  as  by  their 
determining  influence  over  the  educational  and  training 
systems, 

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second,  as  significant  economic  agents  themselves 
responsible  for  the  organization  of  many  manutacturing 
and  service  activities,  substantial  public  procurement, 
a  large  part  of  research  and  development  ex1,>enditure, 
and  the  ability  to  decide  whether  or  not  to  maximize 
the  advantages  of  coorainated  action  at  different 
levels  of  administration,  local,  national  and  European, 

., 

third,  and  most  important,  through  their  influence 
over  economic  policies  whi~h  aff~ct  the  response  of 
of  indivioual  peofle  and  firms. 

' 

Innovation  in  industrial  and  service  activities  is  deter 
mined  largely  by  the  market.  However,  if  this  takes 
place  in  the  context  of  defensive  and  static  attitudes 
and  social  structures,  it  may  well  turn  out  to  be  too 
late  to  take  advantage  of  market  opportunities.  Thus, 
public  policy  tor  innovation  should  address  itself  to 
several  different  levels  of  the  problem: 
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(a)  creating  an  environment  of  attituaes  and  opinion 

. 

which  is  receptive  to  change.  This  involves  explaining 
the  real  economic  options  which  confront  us  at  home 
and  abroad  so  as  to  forestall  purely  irrational 
factors  in  the  political  process. 

It  means  encouraging  social,  vocational  and  geogra 
phical  mobility  neeaed  for  innovative  change,  ~hen 
necessary  reinforcing  social  security.  It  will  also 
ruean  intluencing  the  characteri£tics  and  pace  of 
innovation  so  as  to  reassure  working  people  that 
the  change  will  be  progressive  and  not  brutal  and 
that  help  towards  alternative  opportunities  will 
be  provided. 

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It  is  also  essential  to  build  into  education  and 
training  systems  the  necessary  level  and  flexibility 
both·in  terms  of  numbers  and  qualit~. 

(b)  Then  there  is  scope  for  a  broader  reappraisal  of  the 
the  links  between  a  wide  range  of  public  policies 
and  public  sector  activities  and  the  innovation 
process.  In  this  respect,  assessing  and  even  emulating 
the  more  ~uccessful  aspects  of  policy  in  other  coun 
tries  may  well  prove  to  be  a  fruitful  approach. 

Among  the  many  opportunities  for  innovation  are 
those  ~hich  arise  from  public  policy  in  areas  such 
as  environment,  pollu~ion  control,  health  and  work 
ing  conditions.  The  relationship  between  public-spon 
sored  research  and  development  also  neeas  to  be 
considered  in  order,  at  one  extreme,  to  provitie 
the  basic,  long-range,  technological  research  that 
companies  have  difficulty  in  carrying  out  for  them 
selves  but  that  our  competitors'  public  authorities 
are  supplyin91  at  the  other,  to  bring  research  and 
oevelopment  closer  to  practical  economic  applications. 
To  do  so  would  no  doubt  iQvolve  promoting  smaller 
firms'  possibilities  to  apply  research  and  development 
results  or  to  engage  in  collective  research  and 
development  themselves. 

· 

(c)  Finally,  there  is  a  crucial  area  of  public  policy 

which  influences  the  incentive  to  invest  and  innovate. 
There  is  much  more  that  the  public  authorities.could 
co  to  improve  the  environment for  innovation  by 
reducing  the  tax  burdens  on  innovation,  on  energy 
saving  and  on  employment.  'l'he  incentive  effect  of 
tax  relief  compared  with  aid  systems  should  be  care 
fully  examined,  and  the  authorities  should  be  alert 
to  the  importance  that: their  policies,  regulations 
and  practices  for  risk:capital  and  public  procurement 
have  for  incentives  to 1  innovate  and.  invest,  parti 
cularly  in  the  smaller I firm.  We  should  profit  from 
the  1'.'"erica:  experiencr  X 

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'.L'he  Community  and  the  Member  States  can  reinforce  public 
consciousness  of  the  obstacles  to  innovation  and  the  over 
whelming  need  to  overturn  the  existing  unsatisfactory  trend. 
Member  Governments  would  do  well  to  speak  clearly  in  unison 
since  the  message  will  often  be  un~elcome.  The  message  is 
not  only  addressed  to  the  individual·,  to  the  manager  and 
to  public  opini~n  at  large,  but  also  to  many  agencies  of 

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the  Governments  themselves  which  determine  the  scope  and 
pace  of  change,  and  which  influence  the  environment  for  change 
in  the  long  run.  The  Community  must  see  that  both  established 
Community  policies  and  new  proposals'- where  they  can  be 
relevant  - promote  and  co  not  hinder  innovation,  and  the 
Commission  will  act  accordingly. 

A  sound  innovation  strategy  should  act  as  a  bridge  between 
industrial  strategies,  on  the  one  hand,  and  scientific  and 
technological  policies  on  the  other.  We  must  ensure  that 
further  integration  of.the  domestic  market  within  the  Com 
munity  continues  to  proviae  the  incentive  to  firms  to  inno 
vate  and  invest.  Here,  public  authorities  have  a  crucial 
role  to  play.  ~e  should  more  actively  exchange  intormation 
within  the  Community,  and  between  .the  Community  and  the  rest 
of  the  world,  about  successful  innovation  policies.  For  its 
part,  the  Commission  will  examine  the  reasons  forth~  present 
inaoequate  results  of  innovation  in  the  Community,  particularly 
in  comparison  with  those  achieved  in  the  United  States  and 
Japan. 

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The  European  Council  is  inyi~ed  to  endorse  this  analysis 
and  general  approach·towards  one  of  the  most  important  prob-
lems  facing  European  industry • .  , 

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