Europe risks missing the ‘innovation bus’

Richard Tuffs is Director of the European Regions Research and Innovation Network (ERRIN)

The First Industrial Revolution harnessed water and steam power to mechanise production, the second used electric power to create mass production, and the third has used electronics and information technology to automate production digitally. Now, it is claimed that the Fourth Industrial Revolution will blur the lines between the physical, digital and biological spheres.

The fourth revolution will see the fusion of technologies, and identifies the mobile age’s interconnectivity between production and networks of phones and computers. Smart production will become the standard, involving intelligent machines exchanging information and managing industrial processes autonomously. Will Europe lead in this Fourth Industrial Revolution, or be left behind in a bygone era?

We immediately run into trouble trying to define ‘Europe’ and its innovation capacity. Any glance at a map of GDP per region across Europe shows wide disparities between the most- and least-developed regions. The latest Regional Innovation Scoreboard shows, too, that all 27 EU innovation leaders are located in just eight member states: Denmark, Germany, Finland, France, Ireland, the Netherlands, Sweden and the UK.

While we can be confident that Europe’s leading innovation regions will readily embrace the Fourth Industrial Revolution, the key question is how Europe can see these regions become global players while still supporting and encouraging follower and lagging regions.

Catching up has been the main remit for cohesion policy. As one of the biggest budgets in the EU, cohesion funding for 2014-2020 amounts to €352bn, of which €182bn will go to the less-developed regions. But a novelty of the current budget is that the cohesion funds must be spent on eleven thematic objectives, of which the first four: research and innovation, ICT, competiveness of SMEs and low carbon must account for 80% of spending in developed regions and 50% in less-developed regions.

The budget’s focus will give strong support to regions catching up as the Fourth Industrial Revolution becomes the global standard, but an added factor will be how cohesion funding interacts with Horizon 2020 – the EU’s research and innovation programme, which is where the innovation leaders gain most of their funding support due to the strength of their research and innovation ecosystems. Horizon 2020 is a competitive programme bringing €77bn to the table between 2014-2020. But this doesn’t mean that only established innovators can benefit from the programme. The Digitising European Industry strategy, unveiled within Horizon 2020 last year, aims to ensure that every business in Europe, wherever they are located, can benefit from digital innovation to create higher-value digital products, maximise efficiency and adapt their business models. The strategy’s actions will support digital innovation hubs in every region, leadership in digital platforms for industry and also address the skills gap and regulatory barriers.

While the European Commission claims that industry is the backbone of the European economy, accounting for 80% of Europe’s exports and private innovations, it also admits that the recent economic crisis has led manufacturing to account for only 15% of EU GDP. And of all the many other things going on in the economy, two new areas of development are worth highlighting. The first is the growing interest in the circular economy, and the second is social innovation. The circular economy means maintaining the value of products, materials and resources within the economy for as long as possible in order to develop a sustainable, low-carbon, resource-efficient and competitive economy. It may in effect present a paradigm shift away from an old-fashioned linear production to new thinking based on a triple win for the economy, for the environment and for quality of life. The circular economy will therefore be part of the Fourth Industrial Revolution; and in contrast to smart manufacturing, Europe has first-mover advantage.

Social innovation embraces another new kind of economy that uses new technologies to blur boundaries between producers and consumers with an emphasis on collaboration and value. This softer innovation will play a strong role in new forms of ownership and business models such as Uber and Airbnb, as well as a wider concern for social values such as the Fair Trade movement. Social innovation linked to social enterprises such as Basque Country’s Mondragon cooperative are not new, but the open access and open data revolution seen, for example, from Open Government Wien will enable new ideas to be developed in new innovation arenas such as Slush Festival in Helsinki.

Europe’s competitive future as the Fourth Industrial Revolution takes hold will depend on us deciding what kind of economy we want, and the kind of economy Europe can develop. It is clear that to engage in any industrial revolution, there is a need for innovation, involvement, investment and an international outlook, whether this is by being aware of competition elsewhere or actively engaged in global value chains.

But we need to be aware of what we are and can achieve. Europe is not the United States. We have no common language, regulations and culture. One of the main issues we face in attempting to upscale innovation is the fragmentation of the EU and the fact that around half the SMEs in the EU have not exported or imported from another country, and have not used subcontractors or partners based abroad.

The European Commissioner for Research and Innovation, Carlos Moedas, has proposed the introduction of an Innovation Council to mirror the European Research Council that has built a strong reputation for delivering and managing grants for excellent science. Early this year, the Commission launched a consultation on what this potential new body might look like and what role it would play. This discussion will no doubt help us see what future lies ahead for Europe’s innovative competitiveness. Any future Innovation Council will also play a strong role in identifying what the Fourth Industrial Revolution is, what it could be for Europe, and how a wider range of European actors and regions could play a strong part in delivering and benefiting from the revolution.