Philipp-Leo Mengel

An INPACT! proposal in Science, with contributions from IEP Bocconi, calls for a clearer path from scientific discovery to market

This paper presents the construction of the IEP-COMPET dataset, which links approximately two-thirds of all EU Horizon 2020 and Horizon Europe grants awarded to companies with their financial performance and patents, using various data sources. The dataset can be used to examine the allocation and impact of EU funding for innovation.

Competitiveness has returned to the top of the EU agenda, with the EU Competitiveness Compass highlighting the need for innovation-driven growth. But European industry has fallen behind in innovation by specializing in mid-tech industries, now increasingly subject to Chinese competition.

Since the start of Horizon 2020, the EU budget has provided about €100 billion to support research and innovation. But this seems to have had little impact.

A large proportion of Horizon funding has gone to a small number of big corporations with modest innovation and growth performance. Another sizable share goes to SMEs that are part of wider corporate groups.

Moreover, the lion’s share of Horizon funding has gone to collaborative programs, with detailed guidelines on research topics and expected outcomes, typically involving broad-based consortia with more than 20 participants. Yet our analysis suggests that bottom-up programs undertaken by individual recipients yield better results, but only if the recipients are independent SMEs.

Any new Framework Program should thus focus on funding ideas, not companies. They key is not more money, but rather leaving space for disruptive innovation by encouraging bottom-up initiatives, especially by small independent companies.

A popular thesis in policy circles is that there is an “investment gap” that Europe needs to fill to face the great challenges of our times, such as the digital and green transitions. However, the notion of the “investment gap” used by policymakers is often vague and therefore it risks legitimate a wasteful allocation of public resources.

EU firms should be able to satisfy a large share of the increases in defence expenditure that are required immediately to support Ukraine and also those in the medium and longer-term

Through its missions and governance, Horizon Europe does not meet the innovation challenge and anchors our industry in the mid-tech range. This report argues that current European efforts, while laudable, are insufficient, in both quantity and quality. Important reforms are required to enable Europe to compete in the value-creating space. 

In this Working Document, we do not try to provide an overall evaluation of the IRA or its cost-effectiveness with regard to addressing climate change and US emissions. Rather, we investigate its impact on the US market and on EU export opportunities, concentrating on the material content of the IRA – not its intention.