THE EUROPEAN LANDSCAPE IN THE

NEXT DECADEProf. dr. Richard C. Kaehler

Professor Emeritus

Pepperdine University

Director of Academic Affairs-Europe

University of Phoenix

June 23, 2001

Lisbon, Portugal

IC² Fellows Special Session

INNOVATION AND COMPETENCE BUILDING

POLITICAL

Enlargement

* Began in 1951 between six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands

* First Enlargement in 1973: Denmark, Ireland and the United Kingdom

* Second Enlargement, in 1981: Greece

* Third Enlargement in 1986: Portugal and Spain

* Fourth Enlargement in 1995: Austria, Finland and Sweden

15 COUNTRIES WITH A POPULATION OF 375 MILLION

POLITICAL

Enlargement

* There are 12 candidate countries with a combined population of 105 million people

* Six countries could be admitted by 2005-2006: Poland, Hungary, Czech Republic, Cyprus, Slovenia and Estonia

* The remaining six countries could take a decade: Slovakia, Bulgaria, Romania, Latvia, Lithuania and Malta

BY THE END OF THIS DECADE THE EU COULD BECOME THE LARGEST FREE-TRADE ZONE IN WORLD WITH OVER 500 MILLION PEOPLE

POLITICAL

Enlargement

POLITICAL

Integration

* Germany has proposed a plan for European Integration. So far, it has received a “mixed review”

* There will be a Constitutional Convention in 2004

* The central issue is: should the EU be a “Confederacy” with economics as the common base, or will there be a “Federation” with a strong central political base (a United States of Europe)

From an economic point of view, Europe “looks like” the US:

US Euro-zone

Economy $8.0 trillion $6.5 trillion

World trade share 18% 18%

Exports/GDP 11% 11%

Listed Companies 9.900 9.100

ECONOMIC

Outlook

* At the summit meeting in Lisbon, EU leaders committed themselves to the creation of the

“Most competitive and Dynamic Economy in the world by 2010”

THE GENERAL OPINION FOR EUROPE OVER THE NEXT DECADE IS “BULLISH”

ECONOMIC

Activity

* Both the “old” economy and “new” economy are on the upswing together

* Successful corporate restructuring

* Productivity growth (Renault makes 220.000 more cars with 20.000 less employees than 10 year ago)

* Substantial tax cuts (Italy, Germany, France)

* Best Employment figures in 10 years (overall 8.7%)

* Labor markets are becoming more flexible

*State-owned monopolies continue to be privatized

*Significant progress in becoming a single market

ALMOST ALL TRADE BARRIERS HAVE BEEN ABOLISHED

ECONOMIC

EURO-zone

* The EURO has been adopted by 12 counties (the United Kingdom, Sweden and Denmark have not joined)

* EURO-zone members have strict economic standards:

- Debt not to exceed 60% of GDP

- Budget deficits not to be larger than 3% of GDP

* The “transparency of the EURO”has made price competition aggressive

* A single currency has made it easier for companies to raise capital

APPROXIMATELY 80% OF EUROPE’S TRADE IS DONE WITHIN THE EURO-ZONE

SOCIAL

Population

Aging

* The European population is aging

* If Europe wants to keep the ratio of older people to active workers at 1995 levels, the EU will need 135 immigrant workers by 2025

ECONOMIC GROWTH CAN BE DRAMATICALLY AFFECTED BY HOW THE IMMIGRANT ISSUE IS RESOLVED

SOCIAL

Immigration

* Many Europeans are fearful of immigrant workers. (Only 36% of Germans support the EU enlargement)

* Eastern countries will not be allowed complete access to job markets for seven years after being admitted to the EU

* Average wages in 10 of the applicant countries are 14% of the wages in the 15 EU countries. The fear is a “flood” of illegal workers

SAME FEARS WITH THE ADMISSION OF GREECE, PORTUGAL AND SPAIN, BUT NO LARGE-SCALE MIGRATION OCCURED

SOCIAL

Computer Literacy

IN MARCH 2000, THE EU’S GOVERNMENT LEADERS VOWED TO TRANSFORM EUROPE INTO THE MOST COMPUTER-LITERATE SOCIETY IN THE WORLD BY 2010

* Since March 2000 the percentage of households connected to the internet increased from 18 to 30 percent.

* In Denmark, Sweden and the Netherlands, more than half of all household are now online, surpassing the U.S.level of 41%

* Quicker growth in IT across the board in Europe in 2000. IBM Europe grew at 18% while IBM U.S. grew at 8 percent

SOCIAL

Entrepreneur-ship

* The US leads Europe in the:

- Rate of new company formation

- High-Tech business activity

- Business investment in new assets

- Business spending on R+D

- Number of initial public offerings backed by venture

capital

EUROPE DOES NOT MATCH THE US CULTURE OF ENTREPRENEURIAL RISK TAKING

SOCIAL

Entrepreneur-ship “THE AMERICAN ATTITUDE IS

LET’S MAKE A FEW MISTAKES BECAUSE WE’LL LEARN FROM THEM.

THE TENDENCY IN EUROPE IS TO WAIT FOR ENABLING LEGISLATION”

Ester Dyson

US Venture Capitalist

TECHNICAL

EUROPEAN

RESEARCH

AREA (ERA)

* Endorsed by the Lisbon European Council in March 2000

* The Central component of the process of developing a knowledge-based economy and society in the EU to promote:

- Innovation

- Competitiveness and employment

- Sustainable economic growth

- Social Cohesion

TECHNICAL

EUROPEAN

RESEARCH

AREA (ERA)

EU’s proposed framework program targets for Research and Technology Development (RTD)

(2002-2006)

* Integrating European Research

* Structuring the European Research Area

*Strengthening the foundations of the European Research Area

TECHNICAL

EUROPEAN

RESEARCH

AREA (ERA)

1. Integrating Research in EUR Million

* Genomics and biotechnology for health 2000

* Information Society technologies 3600

* Nanotechnologies, intelligent materials, new production 1300

processes

*Aeronautics and space 1000

*Food safety and health risks 600

*Sustainable development and global change 1700

*Citizens and governance in the European knowledge-based 225

society

* Anticipating the EU’s scientific and technological needs 2345

Total 12770

TECHNICAL

EUROPEAN

RESEARCH

AREA (ERA)

2. Structuring the European Research Area in EUR Million

* Research and innovation 300

* Human resources 1800

* Research infrastructures 900

* Science/society 50

Total 3050

TECHNICAL

EUROPEAN

RESEARCH

AREA (ERA)

3. Strengthening the foundations of the ERA in EUR Million

* Support for the coordination of activities 400

* Support for the coherent development of policies 50

Total 450

Total all three target areas 16270

TECHNICAL

Innovation

“WE HAVE NOT FIGURED OUT HOW THE PRIVATE SECTOR CAN CAPITALIZE ON OUR GREAT RESEARCH CAPABILITIES. THERE IS STILL TOO MUCH DEPENDENCE ON GOVERNMENT SUPPORT”.

M. Hinoul

Technology Advisor Belgian Government

TECHNICAL

Innovation

Innovation Relay Centers (IRC)

* Created in 1995 under the European Commission’s Innovation /

SME’s Program

* European Network focusing on transnational technology transfer,

68 centers in 30 countries.

*The main tasks are;

1. Inward and outward transnational technology transfer

2. Promotion of transnational dissemination and

exploitation of Community and EUREKA research results

3. Stimulation of companies’ capacity to adopt new

technologies

TECHNICAL

Innovation

The European Research Area has launched it’s first “Virtual Institute”with 17 partners combining capabilities for the maritime industry.

A “Virtual Institute”links geographically scattered, complementary research and industrial organizations in order to transfer and implement research result rapidly, primarily in industrial applications and services. It is thought of as a market-oriented network.

TECHNICAL

EUREKA

* A Europe-wide Network for Industrial R&D started in 1987

- strengthening European competitiveness

- by promoting ‘market-driven’ collaborative RTD

- involving industry and research institutes across Europe

- Using advanced technologies

- resulting in cost effective products, processes and services

TECHNICAL

EUREKA

* What is a EUREKA project

- A High-Tech, market-oriented R&D project

- Partners from at least two EUREKA members

- Aims to develop a cutting edge, civilian product, process

or service

- Funded by the partners themselves, who receive financing

from their national governments

TECHNICAL

EUREKA

* Project Portfolio

- 628 running projects

- worth an estimated investment of 12417.17 M Euro

- involving almost 3.000 different organizations

across Europe, of which:

- Just over two third are from industry

- Just under half are SMEs

- 959 finished projects

- worth an estimated investment of 13101.56 M Euro

TECHNICAL

EUREKA

TECHNICAL

Innovation

EUREKA proposes European Innovation Area

to complement the European Research Area (ERA)

* to develop links between the Innovation Relay Center network of

the EU and the EUREKA network, to make it easier for SME’s to

enter collaborative projects

* to improve industry/university links, to identify innovative

potential in universities and prevent brain-drain out of Europe.

* to enhance local initiative and links and to motivate local public

policy makers, since creativity and initiative are important

elements for innovation

EUROPEAN

LANDSCAPE

History

* Europe has been in transformation for fifty years

* From 6 to 15 countries with a single market of 375 million people

* A single currency

* Almost no trade barriers remaining

* 80% of trade is within its own trade-zone

* Centralized and integrative research and innovation programs to support future economic growth

EUROPEAN

LANDSCAPE

Objectives for

2010

To create the:

* Largest free-trade zone in the world

(27 countries, 500 million people)

* Most competitive and dynamic economy in the world

* Most computer-literate society in the world

EUROPEAN

LANDSCAPE

Difficulties

* National differences as to the nature and extent of political integration

* National differences regarding admission of immigrant workers

* Minimal cultural support for entrepreneurial activity

* Improvement needed for Innovation and technology transfer

* Dependence on government action

EUROPEAN

LANDSCAPE

Opinion

* The foregoing difficulties will slow down the achievement of objectives

* History and political will indicates that these and other difficulties can be overcome

* It is only a question of time before the E.U. objectives will be achieved.

INFORMATION

SOURCES European Union www.europa.eu.int

Innovation Relay Centres www.coris.lu

EUREKA www.eureka.be

International Herald Tribune www.iht.com

The Economist www.economist.com

International Monetary Fund www.imf.org

Organisation for Economic

Co-operation and Development

(OECD) www.oecd.org