Public and Private Spill-overs: Reducing the technological divides in Europe

Convergence amongst the members of the EU has always been one of the key features that has characterised the policies and goals set out by the European Union. Whilst it does seem to be true that the member states have benefitted from joining the Union, it is unquestionable that there are still disparities both across and within the different European nations. One such sector where we can see these disparities within the EU is on the technological front, where we can observe the phenomenon sometimes described as “Europe at different speeds”. In Europe there appears to be a core of technologically and economically advanced clusters with a more underdeveloped and economically underperforming periphery usually comprised of Eastern and Southern European economies.

One of the first things that must be noted is that whilst technology and high economic performance certainly do seem to exhibit a close relationship, it would be disingenuous to claim that technology is the only, or even main, factor driving economic performance. A region’s richness may also be driven by its industrial capabilities, geographic location, availability of natural resources or many other factors. This means that the solution to some economically underperforming area might lay in some sort of specialisation, taking full advantage of its main assets, rather than in becoming some sort of technological hub. Furthermore, although high technology is sometimes prescribed as a panacea capable of making an economically stagnant region into a dynamic and prosperous one, we should always err on the side of caution. Aside from the high costs associated with technological development, many of the regions that lag technologically do so because of a lack of infrastructure and adequate human capital. Even if we were to somehow manage to get all the investment and infrastructure set up, the reality of the situation is that many of these regions lack an adequate labour force to create a high-tech hub. Therefore, one of the initial and most pressing issues faced by regions wanting to catch up technologically would be to invest in education to accrue the necessary human capital to be able to fully benefit from the new technologies.  

When discussing nations trying to catch up technologically it is also important to note that research and development (R&D), the driving force behind innovation, can be public or private in nature. It therefore would make sense that nations or regions striving to increase their technological uptake or to develop their own innovations will try to maximise both avenues. As is expected, the nations we usually consider as more technological and economic underperformers tend to devote a smaller proportion of their national budgets to R&D. As of 2019, Euro stats show that the EU average spending on R&D was 2.19% of GDP; many of the Eastern and Southern European countries did not even come close, with stand outs like Spain 1.14%, Ireland 0.78% or Romania’s dismal 0.48%. Increasing public spending on R&D would benefit the efforts to try to catch up and allow many of these countries to retain highly trained and knowledgeable individuals who will otherwise go abroad to find the funds and support for their research. However, there are some important caveats to consider in this before simply suggesting that the way forward is to drastically increase the proportion of the budget dedicated to R&D. The main one is the unpredictable nature of certain R&D which means that occasionally projects do not yield the expected results, or only in the long run meaning that this is a high-risk strategy in the short run. Aside from the risks associated with funding any research, there is the fact that with the pandemic and the ensuing economic crisis, this sort of expenditure is likely to be slashed, especially by politicians trying to balance budgets and seeking re-election by reinforcing social policies and benefits. Finally, one could also argue that   diminishing returns on investment mean that at a certain point, the returns yielded for every extra euro spent on research will be lower and therefore better spent elsewhere.

Private corporations have been at the forefront of innovation, so naturally nurturing an environment where private research and investment on technology is possible will be essential for regions wanting to build up their technological capacities. It is here that we see another avenue that nations or regional governments can take. Creating tax legislation which incentivises research, support with the creation of necessary infrastructure and attracting foreign direct investment are all strategies that are feasible for governments and will probably be more cost effective and generate less social backlash when compared to simply increasing expenditure. Moreover, EU member states could implement a similar system to the Chinese and encourage joint ventures between local firms and ‘high tech’ corporations where local firms benefit from the transfer of knowledge and technology and the attraction of talented individuals. Learning through imitation is probably the fastest and most cost-effective way of developing the technological capacity of a region. The only downside to the imitation strategy is that companies will likely protect their advantages limiting the spill-over effect. The region will be limited by the fact that it will not be adept at producing its own innovations, although as a short-term strategy this would yield the fastest results. Obviously, none of these are mutually exclusive so a combination of several measures is likely to be the best way forward.

When considering technological uptake, especially at a national level, policy makers should focus on the positive spill-overs and trying to encourage these. Whilst it is true that disseminating and creating technological hubs in previously less developed areas will undoubtedly have positive effects on the country’s economy, it is unrealistic at least in the short or middle run due to the lack of accumulated technical and human capital, investment, etc. The fact of the matter remains that high technology clusters have a broad spill over effect geographically, therefore adjacent or highly interconnected regions will benefit from the research conducted in the more established high-tech clusters. It therefore follows that focusing solely on the technological? development of the less favoured regions is not the only strategy that one can pursue. It would also be possible to focus on certain regions within the national territory where innovation capabilities, research institutes and universities are relatively abundant and use the spill-over effect to disseminate technology to the underperforming areas. This can be coupled with a strategy to facilitate spill-overs by stimulating business contacts between the technological disparate regions, reinforcing the connections between universities, institutes and the private sector or encouraging research that benefits the dominant economic sectors in the ‘technological periphery’.

The final route to be considered by the actors seeking to enhance their technical capacities would be to take advantage of the R&D initiatives and structural funds the EU dedicates to these endeavours. There are many sources of European funds that both public and private bodies can have access to and benefit from. Increasing private awareness of these funds and supporting and encouraging firms and institutions to take full advantage of these opportunities will also be paramount to increasing a region’s technological capacities.

The goal for the actors trying to catch up would be to promote local spill-overs and couple these with an accumulation of technological innovation which ideally would lead to a self-reinforcing virtuous cycle of technological and economic development. It is therefore important for individual countries to assess what their situations and comparative advantages are and from thereon to develop a strategy. Ideally countries would pursue strategies that maximise both public and private technological capacities and which have far reaching spill-over effects.