European Parliament Briefing - Competitiveness in the current 2021- 2027 Multiannual Financial Framework
Laudable intentions but a small budget oversold and funding subject to incumbent bias. A briefing requested by the European Parliament BUDG Committee - prepared by Daniel Gros
-
Fileeuropean parliamentFinal Setting the Scene.pdf (336.04 KB)
Key Findings
Supporting competitiveness is rightly a major theme for the next multiannual financial framework (MFF). This analysis of existing policy instruments in the 2021-2027 MFF points to two broad issues:
Firstly, leveraging private invetsment can only create the illusion of a great impact with limited budgetary resources. When the EU contribution for projects is reduced to a few percentage points, it becomes difficult to have a large impact on project selection. Additionality and EU value-added become thus difficult to ascertain. This applies in particular to InvestEU (and its predecessor, the European Fund for Strategic Investments (EFSI)). The claims that they have mobilised hundreds of billions of additional investment should be toned down.
- Secondly, there should be increased focus on disruptive as opposed to incremental innovation: Involving industry in the determination of the research programme seems attractive at first sight because industry should know better what research is needed to make them more competitive But this creates a status quo bias. European industry is strong in middle-technologies (machines, automotive) but virtually absent in software, ICT and AI and only a small proportion of competitiveness instruments aim at these sectors. Moreover, the direction of spending of many instruments (Pillar II of Horizon, including in particular the Joint Undertakings), the Chips Act, Important Projects of Common European Interest (IPCEI) seem to be determined to a large extent by industrial associations and national champions. These incumbents are of course interested in incremental innovation, but unlikely to favour disruptive innovation outside their existing business models
Conclusions
A key issue for EU innovation policy is the difference between supporting (incremental) innovation in existing industries or fostering disruptive innovation in new sectors. The incumbents favour naturally the former.
Their influence via lobbying through industry associations and as national champions through Member States is evident in the work programme of Pillar II of Horizon, the ICPEIs and also the Chips Act. A large part of EU instruments for competitiveness thus strengthen those industries in which Europe is already relatively strong. But these are in many cases also industries with low growth potential. A similar observation applies to the vast amount of investment that has been claimed to be mobilised by InvestEU.
If the aim of the next MFF is to support disruptive innovation, great care should be taken to insulate the influence of the incumbents on the work programme and strengthen those instruments that allow also single recipients to pursue disruptive ideas.
Another key issue is the use of leverage by using small amounts of EU funding to ‘mobilise’ large amounts from the private sector. As the EU contribution gets smaller, it becomes more and more difficult to influence the nature of the projects and it also becomes less likely that these projects are disruptive. The use of leveraged instruments should be limited and the claims of what they can achieve tempered.
The main issue for the next MFF is thus not so much whether one big overarching fund (the proposed Competitiveness Fund) substitutes existing dispersed instruments, but whether the management of EU funding for competitiveness can escape industry capture and whether EU institutions can resist the temptation to use leverage to claim very large impacts.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
